Pennsylvania Sales & Use Tax Guide

There are two key tax types businesses selling goods and services in Pennsylvania should be well-versed in: sales tax and use tax. Businesses should be well versed in both to be sure to stay compliant with Pennsylvania state and local tax laws. This guide aims to assist by summarizing key tax topics in an easy to read format.

Pennsylvania sales tax overview

Sales tax is a tax paid to a governing body (state or local) on the sale of certain goods and services. Pennsylvania first adopted a general state sales tax in 1953, and since that time, the rate has risen to 6 percent. On top of the state sales tax, there is a 1 percent local sales tax in Allegheny County and a 2 percent local sales tax in Philadelphia. Currently, combined sales tax rates in Pennsylvania range from 6 percent to 8 percent, depending on the location of the sale.

As a business owner selling taxable goods or services, you act as an agent of the commonwealth of Pennsylvania by collecting tax from purchasers and passing it along to the appropriate tax authority. Sales and use tax in Pennsylvania is administered by the Pennsylvania Department of Revenue (DOR).

Any sales tax collected from customers belongs to the commonwealth of Pennsylvania, not you. It’s your responsibility to manage the taxes you collect to remain in compliance with state and local laws. Failure to do so can lead to penalties and interest charges.

When do businesses need to collect Pennsylvania sales tax

In Pennsylvania, sales tax is levied on the sale of tangible goods and some services. The tax is collected by the seller and remitted to state tax authorities. The seller acts as a de facto tax collector.

To help you determine whether you need to collect sales tax in Pennsylvania, start by answering these three questions:

1. Do you have nexus in Pennsylvania?
2. Are you selling taxable goods or services to Pennsylvania residents?
3. Are your buyers required to pay sales tax?

If the answer to all three questions is yes, then you’re required to register with the state, collect the correct amount of sales tax per sale, file sales tax returns on time, and remit tax to the state.

The impact of failing to collect Pennsylvania sales tax

If you meet the criteria for collecting sales tax (nexus in Pennsylvania and selling taxable goods or services to taxable residents) and choose not to collect sales tax, you’ll be held responsible for the tax due, plus applicable penalties and interest.

It’s extremely important to set up tax collection at the point of sale — it’s near impossible to collect sales tax from customers after a transaction is complete.

The need to collect sales tax in Pennsylvania is predicated on having a significant connection with the state. This is a concept known as nexus. Nexus is a Latin word that means "to bind or tie," and it’s the deciding factor for whether the state has the legal authority to require your business to collect, file, and remit sales tax.

Nexus triggers

Sales tax nexus in all states used to be limited to physical presence: A state could require a business to collect and remit sales tax only if it had a physical presence in the state, such as employees or an office, retail store, or warehouse.

In June 2018, the Supreme Court of the United States overruled the physical presence rule with its decision in South Dakota v. Wayfair, Inc. States are now free to tax businesses based on their economic and virtual connections to the state, or economic nexus.

While physical presence still triggers a sales tax collection obligation in Pennsylvania, it’s now possible for out-of-state sellers to have sales tax nexus with Pennsyvlvania.

Out-of-state sellers

Out-of-state sellers with no physical presence in Pennsylvania can establish sales tax nexus in the following ways:

Affiliate nexus: Having ties to businesses or affiliates in Pennsylvania. This includes, but isn’t limited to, the design and development of property sold by the remote retailer, or solicitation of sales of goods on behalf of the retailer. It also includes using any person, other than a common carrier, to facilitate sales or the delivery of the seller’s goods in the state.

Click-through nexus: Having an agreement to reward a person(s) in the state for directly or indirectly referring potential purchasers of goods through an internet link, website, or otherwise.

Economic nexus: Starting July 1, 2019, having more than $100,000 of gross sales in Pennsylvania in the previous 12 months. Marketplace facilitators and marketplace sellers with no physical presence in Pennsylvania should use both facilitated and direct sales to determine if the threshold has been met.

Inventory in the state: Storing property for sale in the state. This includes merchandise owned by Fulfillment by Amazon (FBA) merchants and stored in Pennsylvania in a warehouse owned or operated by Amazon.

Trade shows: Participating in conventions or trade shows in Pennsylvania. You may be liable for collecting and remitting Pennsylvania use tax on orders taken or sales made during Pennsylvania conventions or trade shows. All businesses that make taxable sales in the state are required to register and collect sales tax. Any business that doesn’t have a permanent physical location in Pennsylvania but makes taxable sales there on an irregular basis is required to register for a transient vendor’s license.

Non-collecting seller use tax notice and reporting requirements for marketplace facilitators, remote sellers, and referrers: Pennsylvania requires marketplace facilitators, remote sellers, and referrers that make more than $10,000 in taxable sales to Pennsylvania customers during the prior 12-month period to make an election to either:

• Register to collect and remit sales tax, or
  
• Comply with use tax notification and reporting requirements for non-collecting sellers.

Once economic nexus takes effect on July 1, 2019, marketplace facilitators and sellers who made over $100,000 in Pennsylvania sales will no longer have the option to comply with non-collecting seller use tax notification and reporting requirements rather than register and collect. Instead, they’ll be required to comply with Pennsylvania sales and use tax laws.

If you have sales tax nexus in Pennsylvania, you’re required to register with the DOR and to charge, collect, and remit the appropriate tax to the state.

For more information, see Sales and Use Tax Bulletin 2019-01; Pennsylvania Sales Tax and Economic Nexus — South Dakota v. Wayfair; the Pennsylvania Department of Revenue, Marketplace Sales; and Sales and Use Tax Bulletin 2011-01.

Trailing nexus

Sales tax nexus can linger even after a retailer ceases the activities that caused it to be “engaged in business” in the state. This is known as trailing nexus. Currently, Pennsylvania doesn’t have an explicit policy regarding trailing nexus.

Fulfillment by Amazon (FBA)

If you’re an active Amazon seller and you use Fulfillment by Amazon (FBA), you need to know where your inventory is stored and if its presence in a state will trigger nexus. FBA sellers can also download an Inventory Event Detail Report from Amazon Seller Central to identify inventory stored in Pennsylvania.

If you sell taxable goods to Pennsylvania residents and have inventory stored in the state, you likely have nexus and an obligation to collect and remit tax. To begin to understand your unique nexus obligations, check out our free economic nexus tool or consult with a trusted tax advisor.

Sourcing sales tax in Pennsylvania: which rate to collect

In some states, sales tax rates, rules, and regulations are based on the location of the seller and the origin of the sale (origin-based sourcing). In others, sales tax is based on the location of the buyer and the destination of the sale (destination-based sourcing).

Pennsylvania is a modified origin-based state. For a Pennsylvania-based seller, sales and use tax is generally based on the location of the seller. However, sales from an out-of-state vendor to a Pennsylvania consumer (interstate sales) are generally sourced to the location where the consumer receives the property.

For additional information, see Retailer’s Information Guide (REV-717).

After determining you have sales tax nexus in Pennsylvania, you need to register with the proper state authority and collect, file, and remit sales tax to the state. We get a lot of questions about this and recognize it may be the most difficult hurdle for businesses to overcome. Avalara Licensing can help you obtain your Pennsylvania business license and sales tax registration.

How to register for a seller's permit

You can register for a Pennsylvania seller’s permit online through the DOR. To apply, you’ll need to provide the DOR with certain information about your business, including but not limited to:

• Business name, address, and contact information
• Federal EIN number
• Date business activities began or will begin
• Projected monthly sales
• Projected monthly taxable sales
• Products to be sold

Cost of registering for a seller's permit

There’s no charge to obtain a seller’s permit in Pennsylvania.

Acquiring a registered business

You must register with the Pennsylvania Department of Revenue if you acquire an existing business in Pennsylvania. The department requires all registered businesses to have the current business owner’s name and contact information on file.

Streamlined Sales Tax (SST)

The Streamlined Sales and Use Tax Agreement (SSUTA), or Streamlined Sales Tax (SST), is an effort by multiple states to simplify the administration and cost of sales and use tax for remote sellers. Remote sellers can register in multiple states at the same time through the Streamlined Sales Tax Registration System (SSTRS).

At the date of this guides most recent publication (January 2020), Pennsylvania is not a member of SST.

Once you've successfully registered to collect Pennsylvania sales tax, you'll need to apply the correct rate to all taxable sales, remit sales tax, file timely returns with the Pennsylvania Department of Revenue, and keep excellent records. Here’s what you need to know to keep everything organized and in check.

Once you've successfully registered to collect Pennsylvania sales tax, you'll need to apply the correct rate to all taxable sales, remit sales tax, file timely returns with the Pennsylvania Department of Revenue, and keep excellent records. Here’s what you need to know to keep everything organized and in check.

How you collect Pennsylvania sales tax is influenced by how you sell your goods:

Brick-and-mortar store: Have a physical store? Brick-and-mortar point-of-sale solutions allow users to set the sales tax rate associated with the store location. New tax groups can then be created to allow for specific product tax rules.

Hosted store: Hosted store solutions like Shopify and Squarespace offer integrated sales tax rate determination and collection. Hosted stores offer sellers a dashboard environment where Pennsylvania sales tax collection can be managed.

Marketplace: Marketplaces like Amazon and Etsy offer integrated sales tax rate determination and collection, usually for a fee. As with hosted stores, you can set things up from your seller dashboard and let your marketplace provider do most of the heavy lifting. However, many marketplaces in Pennsylvania are required to collect and remit sales tax on behalf of their marketplace sellers.

Mobile point of sale: Mobile point-of-sale systems like Square rely on GPS to determine sale location. The appropriate tax rate is then determined and applied to the order. Specific tax rules can be set within the system to allow for specific product tax rules.

Pennsylvania sales tax collection can be automated to make your life much, much easier. Avalara AvaTax seamlessly integrates with the business systems you already use to deliver sales and use tax calculations in real time.

Tax-exempt goods

Some goods are exempt from sales tax under Pennsylvania law. Examples include most non-prepared food items, items purchased with food stamps, prescription drugs, and most (but not all) wearing apparel.

We recommend businesses review the laws and rules put forth by the Pennsylvania Department of Revenue to stay up to date on which goods are taxable and which are exempt, and under what conditions.

Some customers are exempt from paying sales tax under Pennsylvania law. Examples include government agencies, some nonprofit organizations, and merchants purchasing goods for resale.

Sellers are required to collect a valid exemption or resale certificate from buyers to validate each exempt transaction.

Misplacing a sales tax exemption/resale certificate

Pennsylvania sales tax exemption and resale certificates are worth far more than the paper they’re written on. If you’re audited and cannot validate an exempt transaction, the Pennsylvania Department of Revenue may hold you responsible for the uncollected sales tax. In some cases, late fees and interest will be applied and can result in large, unexpected bills.

Sales tax holidays

Sales tax holidays exempt specific products from sales and use tax for a limited period, usually a weekend or a week. Approximately 17 states offer sales tax holidays every year.

As of April 2019, however, there are no sales tax holidays in Pennsylvania.

You're registered with the Pennsylvania Department of Revenue and you've begun collecting sales tax. Remember, those tax dollars don't belong to you. As an agent of the commonwealth of Pennsylvania, your role is that of intermediary to transfer tax dollars from consumers to state tax authorities.

How to file

Once you’ve collected sales tax, you’re required to remit it to the Pennsylvania Department of Revenue by a certain date. The DOR will then distribute it to the appropriate state and local agencies.

Filing a Pennsylvania sales tax return is a two-step process comprised of submitting the required sales data (filing a return) and remitting the collected tax dollars (if any) to the DOR. The filing process requires businesses to detail total sales in the state, the amount of sales tax collected and the location of each sale.

There are two options for filing a Pennsylvania sales tax return.

1. Online Filing: File online with PADirectFile.
2. File via Telephone: 1-800-748-8299

Filing frequency

The Pennsylvania Department of Revenue will assign you a filing frequency. Typically, this is determined by the size or sales volume of your business. State governments generally ask larger businesses to file more frequently. See the filing due dates section for more information.

Pennsylvania sales tax returns and payments must be remitted at the same time; both have the same due date.

Online filing

Filing online is now preferred in Pennsylvania and required for payments of $1,000 or more. You may file directly with the DOR by visiting their site and entering your transaction data manually. This is a free service, but preparing Pennsylvania sales tax returns can be time-consuming — especially for larger sellers.

Using a third party to file returns

To save time and avoid costly errors, many businesses outsource their sales and use tax filing to an accountant, bookkeeper, or sales tax automation company like Avalara. This is a normal business practice that can save business owners time and help them steer clear of costly mistakes due to inexperience and a lack of deep knowledge about Pennsylvania sales tax code.

Filing when there are no sales

Once you have a Pennsylvania seller's permit, you’re required to file returns at the completion of each assigned collection period whether or not any sales tax was collected. When no sales tax was collected, you must file a "zero return.”

Failure to submit a zero return can result in penalties and interest charges.

Closing a business

The DOR all businesses to "close their books" by filing a final sales tax return. This also holds true for business owners selling or otherwise transferring ownership of their business.

Timely filing discount

Many states encourage the timely or early filing of sales and use tax returns with a timely filing discount. As of April 2019, the timely filing discount in Pennsylvania is the lesser of $25 or 1 percent of the tax due for monthly files, the lesser of $75 or 1 percent of the tax due for quarterly filers, or the lesser of $150 or 1 percent of the tax due for semi-annual filers.

It's important to know the due dates associated with the filing frequency assigned to your business by the Pennsylvania Department of Revenue. This way you'll be prepared and can plan accordingly. Failure to file by the assigned date can lead to late fines and interest charges.

The DOR requires all sales tax filing to be completed by the 20th day of the month following the assigned filing period. All new businesses are registered to file returns quarterly during the first year in business. Businesses remitting $100,000 or more for the third calendar quarter of the preceding year must remit 50 percent of the tax liability due for the same month of the preceding year.

Below, we've grouped Pennsylvania sales tax filing due dates by filing frequency for your convenience. Due dates falling on a weekend or holiday are adjusted to the following business day.

Source: Pennsylvania Department of Revenue

Filing a Pennsylvania sales tax return late may result in a late filing penalty as well as interest on any outstanding tax due. For more information, refer to our section on penalties and interest.

In the event a Pennsylvania sales tax filing deadline was missed due to circumstances beyond your control (e.g., weather, accident), the DOR may grant you an extension. However, you may be asked to provide evidence supporting your claim.

Hopefully you don't need to worry about this section because you're filing and remitting Pennsylvania sales tax on time and without incident. However, in the real world, mistakes happen.

If you miss a sales tax filing deadline, follow the saying, “better late than never,” and file your return as soon as possible. Failure to file returns and remit collected tax on time may result in penalties and interest charges, and the longer you wait to file, the greater the penalty and the greater the interest.

If you’re in the process of acquiring a business, it’s strongly recommended that you contact the DOR and inquire about the current status of the potential acquisition. Once you've purchased the business, you’ll be held responsible for all outstanding Pennsylvania sales and use tax liability.

Because Pennsylvania is the fifth most populous state in the U.S., most businesses have customers in the Keystone State. If you’re collecting sales tax from Pennsylvania residents, you’ll need to consider how to handle taxes on shipping and handling charges.

Taxable and exempt shipping charges

Pennsylvania sales tax may apply to charges for shipping, handling, delivery, freight, and postage.

Delivery charges are considered part of the sales price in Pennsylvania. That means the taxability of shipping charges depends on the contents of the shipment.

Generally, charges to prepare and deliver taxable tangible personal property to a location designated by the consumer are taxable in Pennsylvania. This is true even if the delivery charges for taxable goods are separately stated.

Charges associated with the delivery of exempt goods are generally exempt.

If a shipment contains both taxable and exempt goods, the shipping and handling charges for the entire shipment are subject to tax.

Tax may also apply to drop shipping scenarios. If you use drop shipping to deliver items to customers in Pennsylvania, you may be responsible for collecting and reporting tax.

The DOR recommends keeping clear invoices and records for all transactions, with specific terms to describe delivery-related charges. Acceptable forms of documentation include but are not limited to:

• Bills of lading
• Express receipts or express company invoices
  
• Freight invoices
• Parcel post receipts or shipment records
  
• Sales invoices showing transportation charges and shipping instructions

There are exceptions to almost every rule with sales tax, and the same is true for shipping and handling charges. Specific questions on shipping in Pennsylvania and sales tax should be taken directly to a tax professional familiar with Pennsylvania tax laws.

For additional information, see Pennsylvania Sales and Use Tax Rulings No. SUT-00-134; Are shipping and/or handling charges subject to sales tax?