State Delivery Taxes Could Bring More Traffic, More Stress, and Fewer Orders for Local Restaurants

How would “doorstep” taxes impact families, workers, and communities?

In 2022, Colorado imposed a new tax on most deliveries to homes — including e-commerce shipments, pizza and Chinese food deliveries, grocery deliveries, flower shop deliveries, and deliveries from services like DoorDash and Grubhub. These have been referred to as “doorstep taxes.”

Now, two state legislatures — Minnesota and New York — are considering new doorstep taxes of their own:

• Minnesota’s HF 580, which is currently under consideration, presents the largest doorstep tax being proposed currently, with rates beginning at $0.40 per delivery and rising to $0.50 by fiscal year 2027. (Note that a proposed amendment to HF 580 in Minnesota would increase the delivery tax even higher, to $0.75 per delivery.)
• The New York State Assembly’s budget proposal for 2023–2034 includes a fee of $0.25 on all deliveries made throughout the state.

Often, delivery taxes are intended to raise revenue for states experiencing or expecting gas tax revenue declines. As more cars become hybrid and electric, and as consumers substitute into public transportation or ride-share options, gas tax revenues continue to decline.

So far, doorstep taxes are being proposed — and in Colorado’s case, adopted — without much examination of the incentives or disincentives they create for consumers and workers. Let’s take a closer look at how doorstep taxes may lead to unintended consequences in the economy:

Consequences of Doorstep Taxes

1. More cars, more gas, and more emissions

More people driving to stores to pick up a single item means more road use than a single delivery truck delivering multiple items.

Typically, consumers respond to price increases by buying less. In the context of delivery fees, consumers will substitute away from ordering delivery of tangible personal property where possible. This is most likely to occur where customers have other readily available substitutes — either a large variety of brick and mortar stores in their area, or stores carrying substitutes for goods they frequently purchase online.

Consumers ordering food from local restaurants will likely adjust their behavior to account for the new cost of delivery fees as well. Consumers that are able to easily substitute away from delivery will do so — driving to pick up takeout orders themselves.

Consumers getting grocery delivery will likely also decide to travel to the store when possible in order to avoid the extra fee associated with doorstep taxes. Holding all else equal, the difference in cost between ordering delivery and driving to the store will likely incentivize shoppers to minimize ordering online.

So, what are the implications of customers moving away from shopping online and towards shopping in store?

As consumers decide to drive to pick up orders, the number of drivers on the road increases dramatically. In the case of home deliveries, delivery vehicles make deliveries to multiple homes from one vehicle. When individuals substitute away from delivery, they run to the store and likely pick up purchases they need for their home. This results in a loss of the economies of scale gained by the delivery systems.

Instead of one vehicle delivering 15 orders, there are potentially 15 additional cars on the road going to and from individual homes. This creates more cars on the road, which translates into more traffic, higher emissions, and higher gas costs for consumers and workers.

2. Delivery taxes erode benefits of delivery convenience for families

Often, families order delivery to save time. Doorstep taxes make this more costly.

Consumers enjoy delivery largely due to the convenience it offers in their daily lives. By getting groceries, clothing, medication, etc. delivered, consumers can avoid trips to physical stores, saving time and often money.

The time a consumer spends at the store may be better utilized by the consumer spending time on other tasks. By making delivery more costly, many consumers, especially families, will likely minimize delivery costs. As such, doorstep taxes will likely result in the loss of convenience for families that substitute away from home delivery.

3. Consumers with limitations on mobility, transportation, and food access will suffer.

Consumers with mobility limitations may be forced to keep utilizing delivery services since they are unable to easily travel to stores to do their own shopping. Those consumers will be forced to pay the tax while other consumers can easily avoid paying the extra fee by going into stores. Customers with limited transportation options will also likely continue to use delivery services out of necessity, and will be forced to pay the tax.

Additionally, many people in the U.S. live in areas without reliable access to food due to Food Apartheid systems. Formally referred to as food deserts, areas with food apartheid lack access to affordable, healthy food.

For consumers located in these areas, shopping online for groceries and food may be the only option to easily attain healthy and affordable groceries. Customers living in areas with food apartheid and currently using delivery to source healthy affordable food could be forced to pay the doorstep tax out of necessity due to a lack of available substitutes.

4. Small businesses selling online would face even more barriers to success due to delivery fees.

Doorstep taxes may also result in unintended consequences for small online sellers as consumers move away from residential deliveries. The supply of stores available to consumers in a local area is much more limited than if the consumer shopped online via platforms like Etsy or Ebay, which feature a large variety of goods and sellers. The doorstep tax legislation may affect order volume for small businesses selling online without physical retail locations.

Doorstep taxes inherently create different costs to consumers shopping at brick and mortar stores versus online, since only those sold online are required to collect the tax. The result? Smaller businesses trying to grow by selling on online platforms will face even larger barriers when trying to compete with brick and mortar locations.

5. Local restaurant revenue will decline as consumers substitute away from delivery and into cooking.

Some consumers may decide to forgo ordering from restaurants, or limit order frequency, in order to avoid delivery fees. Most consumers can substitute cooking for restaurant meals. The implementation of doorstep taxes increases the incentive for consumers to cook instead of ordering out. As customers decide to cook more frequently and reduce delivery costs, local restaurants may see fewer delivery orders. Cooking at home can be a close substitute to restaurant delivery for consumers and as such, many consumers may decide to forgo restaurant orders when possible.

6. Less work and income for delivery drivers

Consumers will likely respond to changes in doorstep taxes by substituting away from ordering food, groceries, and retail goods via delivery when possible. This will result in a decline in order volumes for delivery services.

Many gig workers use food, grocery, or retail delivery as a flexible way to supplement their income. As a result of the doorstep tax, delivery drivers will likely experience fewer delivery requests as orders decline. Gig workers in the food delivery, grocery delivery, and retail delivery industries will likely experience a decrease in earnings as the changes from consumer behavior make their way through the economy.

Policy Considerations

State legislators are rightly grappling with how to replenish state revenue streams as gas tax revenue falls.

But policymakers considering doorstep taxes should be wary of unintended consequences that result from implementing a doorstep tax. States where delivery fees are passed can expect to see more traffic, more stress for consumers, and lower local restaurant revenue.

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