Understanding Pennsylvania Sales and Use Taxes
Understanding and complying with the sales tax requirements in the states in which you do business is absolutely essential. More states are taxing services, as well as retail sales, so no business owner can afford to be in the dark. In addition, you may find that you are liable for use taxes for products purchased out of state. This article answers some of the basic questions regarding sales tax in Pennsylvania
The Pennsylvania sales and use tax rate is 6 percent. By law, a 1 percent local tax is added to purchases made in Allegheny County, and 2 percent local tax is added to purchases made in Philadelphia. This tax is imposed on retail sales of tangible personal property. This sales tax includes, but is not limited to, goods, wares, and merchandise.
Leases are taxed. Generally, the leasing or rental of tangible personal property in Pennsylvania is a sale subject to the sales and use taxes. Where a lease agreement involves an option to buy, sales tax is applicable to lease payments as well as any payment made in exercising the option to buy.
Short-term lodging is taxed. Rental of hotel, motel, inn, tourist home, lodging or rooming house accommodations for less than 30 consecutive days is also taxed.
Certain services are taxed. The sales tax applies to the gross receipts from all of the following services:
- repairing, altering, mending, pressing, fitting, dyeing, laundering, dry-cleaning, or cleaning tangible personal property other than clothing or footwear
- applying or installing tangible personal property as a repair or replacement part of other tangible personal property
- labor or services billed by the vendor for delivering, installing, or applying tangible personal property sold by the vendor even if such services are contracted for separately
- inspecting, altering, cleaning, lubricating, polishing, repairing, or waxing motor vehicles
- printing or imprinting tangible personal property for persons furnishing the materials used in such operations
- lobbying services
- adjustment services, collection services, or credit reporting services
- secretarial or editing services
- disinfecting or pest control, building maintenance, or cleaning services
- employment agency services or help supply services
- lawn-care services
- self-storage services
Sales Tax Is Collected and Paid Over by Vendors
The Pennsylvania sales and use taxes are collected by vendors from purchasers and paid over to the state of Pennsylvania. If tax is not paid to a vendor, the purchaser must pay it to the state.
Absorbing the tax. If you are a seller you cannot advertise to any purchaser that the tax will be absorbed by you, the seller, or that it will not be added to the purchase price.
Tax Permits Are Required
If you are going to be a Pennsylvania seller you must apply for a license with the Department of Revenue before beginning business. If you maintain more than one place of business, a license is issued by the state for the principal place of business. You must display a copy of the license at additional places of business. A license is permanent and no fee is charged.
Many Transactions Are Tax Exempt
Pennsylvania includes many specific items that are exempt from sales tax. Examples of exempt items are certain food products and prescription medication. You'll want to check and see if you're exempt from the tax.
In Pennsylvania nonprofit organizations, charitable, religious, and educational institutions are exempt from sales tax. An organization must file an Application for Sales Tax Exempt Status with the Department of Revenue and will be issued an exemption number (prefixed by the digits "75") if it qualifies for exempt status. Only organizations that hold an exemption number may make tax-free purchases. All purchases must be accompanied by a Sales and Use Tax Exemption certificate, which includes the exemption number and the following language: "Property and/or services are being purchased for use and not for resale by purchaser holding exemption number 75-xxx".
Purchases Made for Resale Are Tax Exempt
In Pennsylvania, if you sales of tangible personal property are not taxed. The state form entitled "Sales and Use Tax Exemption Certificate" is used by purchasers that will be reselling the goods purchased. Contact the Pennsylvania Department of Revenue if you need the exemption form.
A vendor may accept as an certificate exemption from sales tax a sale for resale even if the purchaser may not have a sales tax license number. In these instances, a statement must be attached to the Sales and Use Tax Exemption Certificate explaining why a sales tax license is not required. The statement must include a description of the type of business being conducted, and that the resale will not be made to the ultimate consumer.
Blanket resale certificates. A purchaser may give a "blanket" resale certificate to a seller covering a series of transactions between purchaser and seller. This blanket certificate will relieve the burden of executing a separate certificate for each individual tax-exempt purchase as long as there is no significant change in the operations.
Physical Presence Required for Tax Liability
Pennsylvania has a statute that specifically taxes out-of-state mail order and catalogue sellers. However, you will be responsible for paying this tax only if you have physical presence within Pennsylvania. To determine if you have physical presence, ask yourself the following:
- Do I have retail facilities, a warehouse or any office space in Pennsylvania? Maintaining retail or warehouse facilities will give you physical presence. Also, having an office for employees, even for business activities unrelated to mail order sales, will give you physical presence.
- Do my employees or I enter Pennsylvania for purposes of taking and transmitting orders from Pennsylvania? If your employee or independent contractor goes into Pennsylvania to take or transmit orders your business may have physical presence in Pennsylvania. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence.
- Do my delivery vehicles frequently enter Pennsylvania for purposes of delivering property? Frequent deliveries in Pennsylvania by your trucks will give you physical presence in Pennsylvania.
Pennsylvania Allows Use of Sales Tax Brackets
The state of Pennsylvania has issued the following sales tax brackets:
|Amount of Sale ||Amount of Tax |
|$0.00 to $0.10 inclusive ||No tax |
|0.11 to 0.17 inclusive ||0.01 |
|0.18 to 0.34 inclusive ||0.02 |
|0.35 to 0.50 inclusive ||0.03 |
|0.51 to 0.67 inclusive ||0.04 |
|0.68 to 0.84 inclusive ||0.05 |
|0.85 to 1.00 inclusive ||0.06 |
If the purchase price is more than one dollar, the amount is 6 percent of each dollar of purchase price plus the above bracket charges upon any fractional part of a dollar.
How to Recoup Excess tax payments
Pennsylvania will permit you, as a vendor, to make adjustments to sales tax for cancellations, returns, allowances and exchanges. As a vendor you may refund or credit your customer's account for sales tax in connection with the cancellation or adjustment of a sale. If the tax is not refunded by a vendor, the customer may apply for a refund directly to the department within three years of original purchase.
Pennsylvania Imposes Use Tax on Out-of-State Purchases
Use tax is imposed if taxable tangible personal property or services are purchased outside of Pennsylvania and subsequently used in Pennsylvania. The use tax is also incurred by the a purchaser of taxable tangible personal property or services if you do not pay a vendor the required sales tax. Pennsylvania allows a credit against use tax equal to the tax paid to another state. However, no credit is granted unless the other state grants substantially similar tax relief.