As a business owner in Pennsylvania, understanding and managing sales tax can be a crucial yet challenging aspect of your financial responsibilities. In this article, we’ll break down the essentials of sales tax, with a particular focus on how it applies in the Keystone State.

What is Sales Tax?

Sales tax is a consumption tax imposed on the sale of goods and certain services. It’s collected by the seller at the point of sale and then remitted to the state government. The tax is calculated as a percentage of the sales price.

Sales tax can quickly get very complicated as the rates, forms, due dates, and applicable taxes can vary from one state to the next. While we can assist businesses that may incur sales tax in other states, for the purpose of this guide we will be specifically talking about Pennsylvania Sales Tax.

Pennsylvania Sales Tax: The Basics

Pennsylvania imposes a statewide sales tax rate of 6%. However, it’s important to note that some local jurisdictions may impose additional taxes. For example, in Allegheny County you can expect an additional 1% local tax, bringing the total to 7%. Philadelphia also has an additional 2% local tax, for a total of 8%.

What’s Taxable in Pennsylvania?

Pennsylvania taxes most tangible personal property and some services. However, there are important exceptions including clothing (except formal wear, sports apparel, and fur coats), most grocery items, residential utilities, prescription drugs and some over-the-counter drugs.

Exemptions and Special Cases

There are exemptions and special cases where they do not need to pay sales tax, like government entities and charitable organizations.

Remote Sellers and Economic Nexus

Following the 2018 South Dakota v. Wayfair Supreme Court decision, Pennsylvania requires remote sellers to collect and remit sales tax if they have either have gross sales exceeding $100,000 to Pennsylvania customers in the previous calendar year, or 200 or more separate transactions with Pennsylvania customers in the previous calendar year.

Compliance and Reporting

The following includes steps you should consider when tackling sales tax in Pennsylvania. These steps can be completed by your in-house accounting department or outsourced to our Diamond team.

Step 1: Registration

Before you can collect sales tax, you must register with the Pennsylvania Department of Revenue. The process begins with applying for a Sales Tax License through the Online PA-100 system. 

Upon completion, you’ll receive your Sales Tax License and Account ID, which you’ll need for all future filings and correspondence. It’s important to note that these licenses must be renewed every five years to maintain compliance.

Step 2: Collection

Once registered, you’re required to collect sales tax on all taxable transactions. This involves ensuring your point-of-sale system is set up to collect the correct tax rate, which is 6% state tax, plus any applicable local taxes. 

Keeping detailed records of all sales, including exempt sales, is crucial. If you make sales in multiple jurisdictions, it’s essential to track sales by location to ensure proper reporting. Also, it is important to note here that there are applications that can make this process easy and automated for business owners.

Step 3: Filing and Remittance

Pennsylvania requires regular filing of sales tax returns and remittance of collected taxes. The frequency of your filings is based on your tax liability. Businesses collecting $600 or more in sales tax per month must file monthly. Those collecting between $300 and $600 per quarter file quarterly, while businesses collecting less than $300 per six-month period file semi-annually. 

Regardless of your filing frequency, returns are due by the 20th day of the month following the reporting period. It’s important to file returns even if you have no sales tax to report for a given period.

Understanding and managing sales tax can be complex, but it’s a critical part of running a successful business in Pennsylvania. By staying informed and implementing good practices, you can ensure compliance and avoid potential penalties.

Remember, while this guide provides a general overview, tax laws can be intricate and subject to change. Always consult with a qualified tax professional for advice tailored to your specific business situation.

To talk with one of our professionals, reach out here.