Pennsylvania changes local sales tax sourcing rules October 2026

Pennsylvania is changing local sales tax sourcing rules for Philadelphia and Allegheny County, the only two jurisdictions in the commonwealth with a local sales tax. The Pennsylvania Department of Revenue will start enforcing destination sourcing for these two jurisdictions on October 1, 2026.

• Allegheny County (home to Pittsburgh) and Philadelphia are the only two jurisdictions in Pennsylvania with a local sales and use tax: 1% in Allegheny County and 2% in Philadelphia. In all other parts of the commonwealth, the 6% state sales and use tax stands alone.
• SB 146, which was signed into law in July 2026, establishes new sales tax sourcing rules for Philadelphia and Allegheny County for “tax years beginning after December 31, 2025.”
• The Pennsylvania Department of Revenue will start enforcing the new sales tax sourcing rules on October 1, 2026, to give vendors time to adjust to the new policy.

Sales tax sourcing rules dictate which jurisdiction’s rates and rules apply to each transaction.

Destination sourcing bases rates and rules on the location where the consumer takes possession of the goods or receives a service. This can be a brick-and-mortar store, the delivery address, or another location, like the address associated with the customer’s account or credit card.

Origin sourcing bases rates and rules on the location where the sale originates. This can be a brick-and-mortar store, the ship-from address, or an office where a salesperson accepts an order.

Mixed sourcing uses destination sourcing for some transactions and origin sourcing for others.

All states use destination sourcing rules for interstate sales of tangible personal property.

Pennsylvania is switching local sales tax sourcing rules from origin sourcing to destination sourcing.

Origin sourcing rules applied to local sales tax prior to the enactment of SB 146. Local sales tax was generally based on the location where the vendor was located (aka, the point of sale). This made for an uneven playing field.

• Vendors located in Allegheny County and Philadelphia were required to collect the 1% or 2% local tax for all Pennsylvania transactions: those made to customers in Allegheny County and Philadelphia and those made to customers located in other jurisdictions in the commonwealth.
• Vendors based outside of Allegheny County or Philadelphia were not required to collect local taxes when shipping goods or providing services to customers in Allegheny County or Philadelphia.

Effective January 1, 2026, with a delayed enforcement date of October 1, 2026, local sales tax for intrastate sales in Pennsylvania is based on the location where the product or service is delivered (aka, the point of destination). Per the Pennsylvania Department of Revenue’s notice on the local sales tax rule changes, “This change aligns with how Pennsylvania’s state sales tax is administered.”

The sourcing rule changes impact intrastate sellers:

• Businesses located in Allegheny County and Philadelphia that sell products or services to customers in other parts of the commonwealth.
• Businesses located in other parts of the commonwealth that sell products or services to customers in Allegheny County or Philadelphia.

Starting October 1, 2026:

• Allegheny County businesses will no longer charge Allegheny County’s 1% local tax on sales delivered to customers located in other jurisdictions in Pennsylvania.
• Philadelphia businesses will no longer charge Philadelphia’s 2% local tax on sales delivered to customers located in other jurisdictions in the commonwealth.
• Pennsylvania businesses will be required to apply Allegheny County’s 1% local tax on sales delivered to customers in Allegheny County.
• Pennsylvania businesses will be required to apply Philadelphia’s 2% local tax on sales delivered to customers in Philadelphia.

The sourcing rule changes will also affect interstate retailers selling to customers in Allegheny County or Philadelphia.

Any business impacted by the change in Pennsylvania’s sourcing rules for local sales tax will need to update their systems and processes to remain in compliance. Implementing an Avalara Agentic Tax and Compliance™ solution can simplify such transitions.

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Pennsylvania’s new destination-based local sales tax sourcing rules became law on July 12, 2026, under Act 21 of 2026 (SB 146), with a retroactive effective date of January 1, 2026. However, the Pennsylvania Department of Revenue will not begin enforcing the new rules until October 1, 2026, to give vendors adequate time to update their systems and processes.

Yes. Starting October 1, 2026, any business selling taxable products or services to customers in Allegheny County must collect the county’s 1% local sales tax, and any business selling to customers in Philadelphia must collect Philadelphia’s 2% local sales tax. This tax applies regardless of where the seller is located. Previously, only vendors physically located in those jurisdictions were required to collect the local tax.

Starting October 1, 2026, any online seller that has economic nexus with Pennsylvania is required to collect the applicable local tax when delivering taxable goods or services to customers in Allegheny County (1%) or Philadelphia (2%) because local sales tax is changing from origin sourcing to destination sourcing.

Arizona, Missouri, Ohio, Tennessee, Utah, and Virginia generally apply origin sourcing rules to intrastate delivery sales of tangible personal property. Specific rules vary by the circumstances and state, so be sure to verify with a trusted tax advisor or the state tax authority.

Illinois has very complex sourcing rules: Origin sourcing rules apply to in-state retailers shipping goods from inside Illinois to a consumer in Illinois; but if an Illinois retailer ships goods to an Illinois consumer from a location outside the state, destination sourcing rules apply.

Pennsylvania will enforce destination sourcing rules for local sales tax starting October 1, 2026.

California and Texas use mixed sourcing rules. Read about the complicated sales tax sourcing rules in Texas.