What Are Vendor Fees?

Vendors and/or retailers are entitled a percentage of sales tax they collect — vendor fees — to cover the cost of processing sales taxes and transferring them to state and local governments. Vendor fees were originally put into place when stores tracked all items and sales by hand, but now most of the tracking, especially for large and national retailers, is done via computer.

In a 2006 study, PriceWaterhouseCoopers found the average cost of compliance for all retailers nationwide was 0.19 percent. For small retailers, it was higher at 0.82 percent, but it was only 0.13 for large retailers. Nevertheless, many states, including Colorado, still allow all vendors to keep significantly more of the sales tax.

Colorado currently allows all businesses that collect sales taxes to keep 3.3 percent of those taxes. While many states cap the amount of money businesses can keep per year via vendor fees, Colorado hasn’t imposed a cap, so businesses are free to keep as much as the percentage yields them. While Colorado’s sales tax is the lowest in the nation — not counting the four states with zero sales tax — which would mean net vendor fees are lower than another state with the same setup. However, due to the high percentage and no cap, businesses in Colorado keep more money from vendor fees than all but a handful of other states.

This results in a lost opportunity for the state to capture tens of millions of dollars in revenue that could be put to important uses, like education, health care, or housing. Colorado spending on important public services as a percentage of our economy is near a 40-year low. The need for more state money to fund important programs is critical. Consider the following:

  • $31.5 million would ensure all eligible 3- and 4-year-olds could enroll in the Colorado Preschool Program
  • $50 million per year to provide adequate funding for Colorado’s housing trust fund
  • When adjusted for inflation, Colorado’s funding for postsecondary education has been cut in half over the last 15 years, which has resulted in families’ tuition payments doubling in that time

Learn more about Colorado’s vendor fees with our quick overview.

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