Pennsylvania’s Voluntary Use Tax Compliance Program

Use tax comes with compliance issues the way holidays come with relatives and special foods. Use tax is akin to sales tax but remitted directly to state departments of revenue by individuals and businesses. It was created back in the day to dissuade taxpayers from crossing state lines to avoid sales tax.

There are many ways to avoid sales tax today—the easiest being to purchase items from an out-of-state seller without nexus or an obligation to collect tax in the buyer’s state. The more people don’t pay sales tax, the more use tax is owed to states.

Problem: Many individuals aren’t aware that use tax exists.

Individuals

Increasingly, state department of revenue websites are posting use tax notices in hard-to-miss places. They even make videos about use tax. As a result, people who spend time on revenue websites should be in the know. But how many people who aren’t business owners or involved with accounting actually spend time on department of revenue websites? Some, no doubt, but most probably don’t.

The Pennsylvania Department of Revenue is encouraging use tax compliance with a Use Tax Voluntary Compliance Program. It educates taxpayers about their use tax obligations. More enticingly, it “waives penalties for taxpayers who self-report and address their tax delinquencies in a timely manner.”

Since the 2011 tax year, there has been a use tax line on the PA-40 Pennsylvania Personal Income Tax Return. Additional information is available on revenue’s Use Tax for Individuals page.

Businesses

Business owners unaware of use tax tend to discover it in one of two ways: 1) when the Department of Revenue contacts them and “encourages them to review purchase histories and self-disclose use tax obligations;” and 2) during audits.

When businesses are audited, use tax is a frequent source of penalties and fines. As a result, businesses (especially businesses that have been audited) are more likely to comply with use tax laws than are individuals. Still, non-compliance is common.

According to the department:

“Taxpayers who do not take advantage of the Use Tax Voluntary Compliance Program to satisfy outstanding obligations may subject themselves to stricter tax enforcement measures, including billing notices, assessments and even liens.”

Use tax liabilities should be reported on a PA-1 Use Tax Return, due along with payments on the 20^th of each month.

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photo credit: Dave Dugdale via photopin cc