So, you need to know about sales tax in The Keystone State. Look no further!
Whether you’ve fully set up shop in Pennsylvania, or simply ship there once in a while, it’s important you know whether your business is liable to their sales taxes. This guide will tell you everything you need to know, plus direct you to the right places for handling any sales tax responsibility you may have.
What’s taxable in Pennsylvania?
Below is an overview of products that are generally taxable in Massachusetts. Some local cities or districts might have their own rules or exceptions, however. For example, check out the Philadelphia Sales Tax Guide for the specific rules in the Pennsylvania capital.
Tangible products
Tangible products, as you might guess, are physical items. Pennsylvania taxes most tangible products, but there can be exemptions! To be absolutely clear about which products are subject to sales tax, and which are exempt, check the Pennsylvania Department of Revenue.
Digital products
Digital products are goods that are delivered or accessed electronically, usually through the internet. Media streaming services and eBooks usually fall into this category, too, but rules can vary. Check the Pennsylvania Department of Revenue website to be sure.
Software-as-a-Service products
Better known as SaaS, these products are cloud-based software products, accessed online by customers. The definition of SaaS sometimes falls in the gray area of “digital service.” Pennsylvania does tax SaaS products, but check the website to confirm that the definition firmly applies to your service.
Do you have nexus in Pennsylvania?
The word “nexus” refers to a commercial connection in the state. Nexus determines the following questions for a state tax agency: Do you do business here, what kind, and how much? And when you do have nexus, that means you’re obligated to collect tax on your sales there.
So the first question for you to answer is whether you have nexus in Pennsylvania.
You probably have nexus in Pennsylvania if any of the following points describe your business:
- A physical presence in Pennsylvania: a store, an office, a warehouse or distribution center, storage space, you, an employee, a representative, etc.
- Any affiliate businesses or individuals in Pennsylvania, which generate sales.
- Online ads or links on a Pennsylvania-based website, which channels potential customers and new business.
- A significant amount of sales in Pennsylvania within twelve months.1
1 This is called an economic nexus, a sales tax nexus determined by economic activity, i.e. - the amount of sales you make in a particular state. Any kind of economic activity could trigger the nexus, once your total sales reach a certain threshold amount.
The threshold in Pennsylvania is $100,000 in annual sales. To learn more about how this works, check out the Ultimate Guide to US Economic Nexus.
Notice and Report laws
Pennsylvania has what’s called “Notice & Report” tax laws for out-of-state sellers. Remote businesses above a given threshold must first notify certain customers that they need to pay taxes to the Pennsylvania revenue office. Then the businesses must also report the list of customers (and the amount of tax they owe) directly to the Pennsylvania revenue office.
The Notice & Report threshold in Pennsylvania is $10,000 in annual sales. If you pass this threshold, you do not need to register for sales tax in Pennsylvania, but you do have to comply with the “notice and report” burdens above. Your other option is to go ahead and register for a sales tax permit and follow the normal rules, which may be easier in the long run.
How to collect sales tax in Pennsylvania
Now it’s time to tackle the intricate stuff! Tax rates can vary based on the location of your business and the location of your customer, plus the levels of sales tax that apply in those specific locations, which all determine how to collect sales tax in Pennsylvania.
The state-wide sales tax in Pennsylvania is 6%.
There are additional levels of sales tax at local jurisdictions, too.
Pennsylvania has an origin-based sales tax system, which keeps it simple for you. If you’re a local business, then you must charge the tax rate according to your location in Pennsylvania. So that would be the state-wide 6%, plus any local taxes if necessary.
Check out Quaderno’s Sales Tax Calculator to see your product’s tax rate, amount, and final price in Pennsylvania.
If you have more than one location in Pennsylvania, then charge the sales tax rate of where the sale occurred.
If you’re not based in Pennsylvania but have nexus in the state, you may charge only the 6% use tax rate.2 Use tax is similar to sales tax, but charged only by “remote sellers” — businesses like you, who aren’t based in a state but have nexus there.
2 Important to note for remote sellers: This is not always true. While some states allow out-of-state retailers to charge a flat use tax rate, other states have peculiar rules for remote sellers. Contact the state’s Department of Revenue to be sure.
Sales tax on shipping charges in Pennsylvania
Pennsylvania does apply sales tax to shipping costs. The rule of thumb is that if what you’re selling is subject to tax, then the shipping charges are also subject to tax. (And vice versa is true: If the item being shipped is not subject to sales tax, neither are the shipping charges.)
If you happen to be shipping products that are both taxable and nontaxable, then shipping charges for the entire shipment are subject to tax.
How to register for sales tax in Pennsylvania
Okay, so you have nexus! Now what?
The next crucial step in complying with Pennsylvania sales tax is to register for a sales tax permit. It’s actually illegal to collect tax without a permit. So to get all your ducks in a row, start with tax registration first.
Learn more in our Pennsylvania State Registration and Filing Guide.
When to file taxes in Pennsylvania
Your filing frequency (monthly, quarterly, or annually) depends on the amount of sales tax you collect. Returns are typically due on the last day of the month following the reporting period. If the due date falls on a weekend or holiday, it’s due the next business day. Check your specific deadlines in our Pennsylvania State Registration and Filing Guide.
How to file taxes in Pennsylvania
When tax time rolls around in Pennsylvania you must:
- Calculate sales tax collected and owed
- File a sales tax return
- Make a payment
Even if no sales were made, a zero-tax filing is still required. Learn more in our Pennsylvania State Registration and Filing Guide.
Other Pennsylvania tax info
Penalties
If you miss a filing or payment deadline, certain penalties can apply. Such a pain! Check the state’s website for up-to-date penalty fees.
Discounts
On a brighter note, you could be eligible for sales tax discounts in Pennsylvania! Usually these discounts are designed to save you a bit of money, as a reward for complying with the sales tax system. Check the state’s website for up-to-date discount policies.
Sales Tax Holidays
One final tricky aspect about Pennsylvania sales tax are the sales tax holidays. During these days of the year, you aren’t required to charge sales tax, and buyers will expect to not be charged. Check the state’s website for current sales tax holidays.
Note: At Quaderno we love providing helpful information and best practices about taxes, but we are not certified tax advisors. For further help, or if you are ever in doubt, please consult a professional tax advisor or the tax authorities.