Why States Can’t Count on Delivery Taxes for Stable Revenue

As gas tax revenues fall due to greater electric vehicle adoption, many states are considering instituting delivery taxes to regain revenue. As of February 2025, Hawaii, Indiana, Maryland, Mississippi, Oregon, Pennsylvania, and Washington are considering delivery taxes.

Generally speaking, delivery taxes place a tax on deliveries made to households including e-commerce deliveries, restaurant deliveries, and grocery deliveries. Colorado and Minnesota both currently have delivery taxes in effect, although both states are considering repeals of their delivery taxes.

• Colorado’s delivery tax charges $0.29 per delivery as of 2024. The tax was initially passed in July 2022 with a rate of $0.27. This tax applies to deliveries made by motor vehicles to Colorado addresses when at least one item in the order is subject to Colorado’s Sales or Use Tax. Under the law, the tax is charged per order, regardless of the number of shipments required to fulfill it. However, the tax does not apply to wholesale transactions or deliveries completed without the use of a motor vehicle. Additionally, businesses with annual retail sales of $500,000 or less are now exempt.
• Minnesota implemented a $0.50 delivery tax on July 1, 2024, with broader exemptions compared to Colorado’s tax. The tax applies only to purchases of $100 or more and covers items subject to the state sales tax, including clothing. It is assessed once per order, regardless of how many shipments are required to fulfill it. However, the tax does not apply to restaurant deliveries, including those made through third-party services, and retailers with annual sales below $1,000,000 are exempt.

But delivery taxes are an unreliable choice for states seeking a stable revenue source. Unlike other forms of taxation, they are easily avoidable, as consumers can simply opt to pick up their purchases in-store rather than using delivery services. This ability to substitute away from delivery weakens the tax base, making revenue from delivery fees inherently unstable.

In contrast, property taxes, sales taxes, and gas taxes provide a more consistent and predictable revenue stream, as they apply to broad, less elastic tax bases that consumers cannot easily bypass. Minnesota’s experience further highlights the shortcomings of delivery taxes — revenue projections fell short as consumers adjusted their behavior, reducing their reliance on delivery services.

For states seeking long-term fiscal stability, delivery taxes are a risky and ineffective approach.

Traditional sales, property, and gas taxes are more stable than delivery taxes

Stable tax revenue sources generally rely on broad tax bases that are difficult for consumers to avoid. The wider the base, the more challenging it becomes to substitute away from the tax, ensuring a more predictable and reliable stream of revenue. Property taxes, sales taxes, and gas taxes are prime examples of stable revenue sources, as they apply to essential goods and assets that consumers cannot easily forgo.

Property Taxes

Property taxes remain a stable revenue source in both strong and weak economic conditions, as property values generally do not experience extreme fluctuations. Even during economic downturns, assessed values tend to lag behind market changes, preventing sudden declines in tax revenue. The figure below shows that when housing prices declined dramatically, property tax revenues did not decline to the same extent.

Additionally, property ownership is essential to society, making it virtually impossible to completely substitute away from.

Revenue from property taxes typically grows in line with population increases and inflation, allowing revenue to naturally adjust over time. Moreover, because real estate is an immovable asset, property taxes are difficult to evade or avoid, further reinforcing their reliability as a predictable source of funding for state and local governments.

Sales Taxes

Sales taxes provide a reliable source of revenue for states, as consumer spending continues even during economic downturns. Recognizing this stability, many states depend heavily on sales tax revenue, making it a cornerstone of their fiscal structures. In fact, the majority of U.S. consumption tax revenue comes from sales taxes, with only five states — Alaska, Delaware, Montana, New Hampshire, and Oregon — opting not to impose a state-level sales tax.

Research supports the predictability of sales tax revenue. A Pew analysis found that states with the lowest tax volatility often relied on sales taxes for more than half of their total revenue. Similarly, a separate study by the Urban Institute confirmed that states with greater revenue stability, like South Dakota and Kentucky, were those with a high reliance on sales tax collections.

Pew’s findings further indicate that sales taxes are more stable than personal income taxes, corporate income taxes, and severance taxes, reinforcing their role as a dependable funding source for state governments.

Gas Taxes

Finally, gas taxes represent a relatively stable and reliable revenue source for state governments. Unlike delivery services, which consumers can easily avoid, gasoline remains an essential commodity for most Americans who rely on it for daily transportation — commuting to work, running errands, and accessing essential services. This widespread dependence makes gas taxes less susceptible to sudden revenue declines, as there are limited alternatives for fueling personal and commercial transportation in the current economy.

The structure of gas taxes further contributes to their stability. These taxes are typically levied on a per-gallon basis, meaning they generate consistent revenue regardless of fluctuations in gas prices. Additionally, because gasoline consumption has historically remained steady, gas taxes provide states with a predictable funding stream for transportation infrastructure and public services.

While emerging technologies such as electric vehicles may impact long-term gas tax revenue, in the short term they continue to serve as a more dependable revenue source than delivery taxes, which consumers can easily bypass.

Delivery taxes are easy to avoid, making them unstable

While property, sales, and gas taxes are difficult to avoid, delivery taxes offer consumers an easy way out — they can simply opt for in-person pickup instead of paying the tax. When purchasing goods online, shoppers can circumvent the fee by retrieving their items directly from the store rather than having them delivered.

For restaurant orders, this could mean driving to the restaurant for takeout instead of using a delivery service, or even foregoing carryout meals altogether. Similarly, rather than paying a delivery tax on groceries, consumers may choose to visit the store themselves. These behavioral shifts could result in more vehicles on the road, increased traffic congestion, and higher emissions, as individual trips replace the efficiency of batched deliveries.

The same pattern applies to e-commerce — instead of ordering online, consumers may opt to visit multiple stores in person to avoid delivery fees. This shift not only weakens the tax base but also contributes to higher emissions, counteracting the environmental benefits that consolidated deliveries provide. Ultimately, delivery taxes create incentives for consumers to alter their purchasing habits in ways that could undermine both revenue stability and sustainability goals.

Minnesota’s delivery tax shortfall shows its instability

When Minnesota initially passed its delivery tax, the state projected it would generate $64.8 million in revenue for fiscal year 2026. However, with growing opposition to the tax, efforts to repeal it have gained momentum.

As part of this repeal effort, the Minnesota Department of Revenue released an impact statement estimating the revenue loss if the tax were eliminated. According to these estimates, repealing the tax would result in a $41.25 million revenue loss, meaning the state now expects to collect only 64% of its original forecast.

This significant shortfall suggests that consumers have already adjusted their behavior to avoid the tax, either by picking up their orders in person or shifting away from delivery services altogether. Unlike property, sales, or gas taxes, which are difficult to bypass, delivery fees are easily avoidable, making them an inherently unstable revenue source.

These revised revenue projections highlight a fundamental flaw in relying on delivery taxes for public funding — they are highly unpredictable and difficult to forecast. Unlike broader tax bases that remain relatively stable over time, delivery taxes are easily subject to consumer behavioral shifts, which can lead to unexpected revenue declines.

Minnesota’s experience serves as a real-world example of why states should be cautious in adopting delivery taxes as a long-term funding solution — as revenue can quickly fall short of expectations, leaving budget gaps that must be filled elsewhere.

Evidence suggests that delivery taxes are an unreliable and unstable revenue source compared to traditional taxation methods. Unlike property, sales, and gas taxes, which are difficult for consumers to avoid and provide consistent funding over time, delivery taxes are elastic — meaning consumers can easily adjust their behavior to bypass the tax. Whether by picking up orders in person or shifting away from delivery services, consumers have multiple ways to substitute away from delivery taxes, eroding the revenue base.

Minnesota’s experience underscores the risks of relying on delivery taxes for stable funding. Initial projections estimated $64.8 million in revenue from delivery taxes, but revised figures now suggest the state will only collect 64% of the expected amount, demonstrating how quickly consumers can adapt to avoid new costs. This pattern highlights a critical flaw in delivery tax policy — it is highly unpredictable and prone to shortfalls that could create unexpected budget gaps.

For states seeking long-term fiscal stability, delivery taxes are a risky and ineffective approach. Instead, policymakers should focus on proven, broad-based revenue sources — such as property, sales, and gas taxes — that provide consistent funding without relying on volatile consumer behavior. If states want to secure reliable revenue for essential services and infrastructure, they should look beyond delivery taxes and invest in tax structures that truly deliver.