All road users should pay for maintenance, not just delivery customers

In search of new transportation funding, Utah is considering implementing a retail delivery fee. The implications of this policy for food delivery customers would be substantial. Utah legislators should steer clear of the measure and consider other alternatives to maintain the state’s roads.

As Utah’s revenue from its gas tax dwindles due to more citizens driving electric vehicles, its Unified Economic Opportunity Commission unanimously voted to consider the retail delivery fee as an option to continue the funding of transportation. Speaking on the matter, Governor Spencer Cox stated, “Whether or not this is a good proposal will remain to be seen.”

Whether the proposal would collect adequate funding for the state’s roads in the future is yet to be explored and determined, but it would certainly not be good for consumers of delivered products.

Retail delivery, particularly from food delivery platforms, is highly valued by American households. The food delivery industry was worth $22.4 billion in revenue in 2021. That same year, DoorDash facilitated $68.9 billion in economic benefits to the U.S. economy. Uber Eats facilitated more than a half a billion orders.

Utah’s fee would most likely resemble Colorado’s retail delivery fee, which was enacted in July 2022, similarly to raise revenue for its cities’ transportation. Colorado’s policy is a $0.27 fee that retailers must charge customers per sale. The Tax Foundation points out that while it’s termed a “fee,” it functions as a tax.

Some localities have imposed a sales tax on top of the delivery fee — resulting in double taxation. Moreover, mandating that the fee be listed separately on receipts and invoices will require businesses to make system changes, increasing their compliance and accounting costs. Businesses accommodating these new regulations will likely pass some of these costs onto their customers in the form of higher prices or additional fees.

If Utah were to enact a retail delivery fee, rural and low-income areas would feel its effect the hardest. Bigger and more popular restaurants will be able to take a loss with the potential of customers forgoing ordering, but the same shift will be more challenging for smaller restaurants. Operating on thin profit margins, small restaurants need every order they can get or they risk going out of business. If they fail, that will ultimately lead to less choice for consumers.

DoorDash reported that around 28 percent of all DoorDash deliveries went to homes in rural areas in the first half of 2021. Upon implementing a retail delivery fee, Utah could expect a decrease in its own proportion of rural deliveries. The effect would be even bigger on low-income DoorDash consumers, as in the same period, 36 percent of DoorDash consumers in the U.S. were located in low-income communities. That proportion grew 50 percent year over year.

Therefore, these additional costs and reductions in choice will be borne by the clients who have the most limited means to access delivery services.

At any rate, as Utah’s goal is to fund its roads, it would be better to spread the tax burden across all drivers who use the roads, rather than needlessly charging it at the expense of retail delivery companies, restaurants and consumers. Discouraging delivery also will have the effect of putting more cars on the road, increasing wear and tear of them and increasing greenhouse gas emissions — ultimately creating problems that weren’t there before.

A viable alternative would be to continue the state’s Road Usage Program, suggests the Chamber of Progress. The Road Usage Program is a pilot program that allows residents to pay based on miles driven using a device in their car. The less one drives, the less they pay. Users have an option to pay a flat fee as well.

Creating a retail delivery fee would stunt the demand that fuels the benefits that the food delivery industry affords. Consumers are already feeling the pressure of inflation, and such a tax would only add to the cost of living. Utah policymakers shouldn’t take steps to enact a retail delivery fee, but rather consider alternatives that won’t needlessly impact consumers ordering food, groceries and other retail goods from the online marketplace.

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