Pennsylvania Sales and Use Tax Guide: Rates, Nexus & Exemptions

Sales and Use Tax Basics in Pennsylvania

Sales Tax

The sales tax in Pennsylvania is imposed on the retail sale, consumption, rental, or use of tangible personal property or tangible goods, including digital products, as well as certain listed services. Regarding taxable services, they typically relate to the sale of tangible goods. Additionally, sales tax is imposed on the charge for specific business services.

Use Tax

The use tax generally applies to transactions where no sales tax was charged or collected. These transactions typically relate to situations where local consumers purchase goods or services from out-of-state businesses or internet vendors, delivered into or used in the state.

Pennsylvania Sales and Use Tax Rates

Pennsylvania imposed a 6% statewide sales and use tax on taxable goods and services. Unlike many other states, which also allow and impose multiple local sales and use tax rates, Pennsylvania has only two local sales taxes. The first one is a 1% sales tax for Allegheny County, and the second one is a 2% Philadelphia sales tax.

Tax-Exempt Transactions

Regarding tax-exempt transactions, state legislation exempts a wide range of essential and commonly used items. For example, basic food products that are not ready-to-eat, as well as candy and gum, are excluded from taxation. 

Furthermore, clothing and educational materials, such as textbooks, are also exempt from taxation. Additionally, services related to computers and pharmaceuticals are exempt from the sales and use tax. Also, sales made for resale purposes are excluded, along with residential heating fuels, including oil, electricity, gas, coal, and firewood. Additionally, services related to cleaning grease traps in restaurants, repairing or maintaining clothing and shoes, and laundering or dry cleaning when performed by coin-operated machines are exempt from tax.

The exemptions extend to sales made to the US government, the Commonwealth of Pennsylvania, and its subdivisions, as well as certain public charities with specific exemption numbers. Specialized exemptions apply to activities in farming, dairying, mining, manufacturing, processing, printing, and timbering, provided purchases are directly and predominantly used in these operations.

Nexus Rules in Pennsylvania

Taxable persons, either businesses or individuals, must register for, collect, and remit taxes in Pennsylvania if they establish a nexus within the state, that is, if their business activities have a significant connection to Pennsylvania. There are three main ways that taxable persons may establish a nexus: by being physically present in the state, or through economic or marketplace nexus rules.

Physical Nexus

When taxable persons keep inventory within the state and sell directly to Pennsylvania customers, whether through a website, phone orders, or other methods, they are required to register for, collect, and remit Pennsylvania sales tax. Physical presence is also established when taxable persons have an office or place of business, employees, delivery, business representatives, or lease property in the state.

Economic Nexus

Economic nexus rules typically apply to online sellers that are not physically located within the state borders. If these online sellers, commonly known as out-of-state or remote sellers, make at least USD 100,000 in annual gross sales in the state, they are liable for sales tax registration, collection, and remittance. 

Marketplace Nexus

Similar to the economic nexus, Pennsylvania imposed a set of rules for marketplace facilitators without a physical presence in the state. These facilitators become liable for sales tax if they exceed USD 100,000 in annual gross sales, measured on a calendar-year basis. In contrast to remote sellers, marketplace facilitators calculate both their facilitated and direct sales when determining whether they exceed the threshold. 

Taxable Goods and Services in Pennsylvania

The general rules state that retail sales of most tangible goods and certain listed services are subject to sales and use tax. However, unlike some other US states, the list of taxable services in Pennsylvania is extensive. It includes lobbying services provided by registered lobbyists, as well as adjustment, collection, and credit reporting services when the creditor or recipient is located in Pennsylvania. Additionally, it encompasses secretarial or editing services performed for Pennsylvania customers, excluding court reporting and stenography.

Additionally, employment agencies and help supply services are taxable when the work is performed or used in Pennsylvania, except for farm labor and human health-related services, which are exempt from taxation. Building maintenance and cleaning services performed in Pennsylvania are taxed, but repair services on permanently affixed property are not.

Furthermore, lawn care services, including mowing, fertilizing, and applying herbicides, are taxable when performed in Pennsylvania, as is self-storage of personal property located within the state, except in some specified cases. Additionally, catering services, including food sold for on-site or take-out consumption, as well as rentals used in providing the service, are taxable.

E-Commerce Framework

As previously explained, online sellers who make sales to consumers located in Pennsylvania are liable for sales tax, even if they do not have a physical presence in the state, provided they exceed the economic nexus threshold of USD 100,000 in gross sales within a calendar year. The economic nexus threshold is based solely on sales volume, with no transaction count requirement, and includes the gross value of both taxable and non-taxable sales across all channels.

This is particularly important for online sellers who offer and sell goods and services through multiple channels, including the online marketplaces operated by marketplace facilitators. These sellers are commonly referred to as marketplace sellers.

Marketplace Rules

Generally, marketplace sellers without physical presence in Pennsylvania only calculate direct-to-consumer sales. This means that any sales facilitated by a marketplace facilitator are excluded from the calculation of the threshold. However, in cases where they sell their tangible goods through a marketplace facilitator, if the facilitator does not handle the collection or remittance of sales tax on their behalf, they remain liable for sales tax purposes.

Digital Goods and Services

Pennsylvania is one of the US states that explicitly treats digital products as tangible goods. Consequently, digital products are subject to sales and use tax. Digital products are defined as any products delivered electronically, whether downloaded, streamed, or emailed, rather than on a physical medium, such as a USB drive or DVD. 

Videos, music, books, apps, games, and canned software are all considered digital products. Taxable digital purchases include e-books from platforms such as Kindle or Nook, subscriptions to download or access e-books, streamed or downloaded videos, and services like Netflix or Hulu, as well as music, ringtones, audiobooks, and subscriptions to streaming or satellite audio services. Additionally, apps, in-game add-ons, online game subscriptions, photographs, and electronic greeting cards are also subject to taxation.

However, there are some exceptions to these rules. Therefore, purchases by qualified nonprofits and charitable organizations, textbooks bought through accredited schools, subscriptions to newspapers and magazines, and digital products purchased for resale are all exempt from sales and use taxes.

Digital Marketplace

Online or digital marketplaces are liable for collecting and remitting taxes on behalf of marketplace sellers if they meet the requirements defined for marketplace facilitators. Under the Pennsylvania legislation, marketplace facilitators are described as entities that partner with sellers to list or advertise their goods and services through a marketplace. In addition to this, facilitators also handle the collection of payment from buyers, either directly or indirectly, and then pass the payment to the sellers.

Digital Platform Operator

Digital marketplace operators that meet all the requirements to be considered marketplace facilitators must collect and remit sales tax on behalf of marketplace sellers if their facilitated or own direct-to-consumer sales exceed USD 100,000 in gross value in a calendar year.

Filing and Payment Requirements in Pennsylvania

The tax return filing and due tax payment requirements depend on the taxable person's tax liability. Therefore, if a taxable person's quarterly tax liability is between USD 25,000 and USD 100,000, they must make Accelerated Sales Tax (AST) Level 1 prepayments, paying 50% of either the previous year’s tax for the same month or 50% of the current month’s liability.

Taxable persons with a quarterly tax liability of USD 100,000 or more fall under AST Level 2, pay 50% of the previous year’s same-month liability. Those with less than USD 25,000 but more than USD 600 per quarter must file monthly returns, while those with taxable persons quarterly liabilities under USD 600 but annual liabilities over USD 300 file quarterly tax returns.

The last category of taxable persons consists of those with annual liabilities of USD 300 or less, who file semi-annually, with returns due on August 20th for the period from January to June and on February 20th for the period from July to December.

Penalties for Non-Compliance with Sales and Use Tax Requirements

A penalty of 5% per month is charged for each month the tax remains unpaid, starting the day after the due date. If a taxable person fails to file a wagering tax return by the due date or the extended due date within 30 days after receiving a written notice from the Pennsylvania Department of Revenue, an additional penalty of USD 500 will be imposed.

In addition to late filing and payment penalties, interest starts accruing the day after the tax was due and continues until you pay, at a rate set by the Secretary.