Many small businesses understand that Pennsylvania has a sales and use tax, but the use tax portion of the law isn’t always understood. As collecting use tax is becoming more important to the Department of Revenue, it’s vital that every small business reports and pays use tax correctly.
How do you do that? We’re sharing what you need to know! Learn more about the PA sales and use tax, and join us for an upcoming webinar to answer any other questions you may have.
What is the PA Sales Tax?
The PA sales tax rate is 6% and gets collected on most transactions within the state. Sales tax gets included on retail items, items sold for consumption, rentals, and some business services. However, there are a few exceptions.
What items are exempt from the tax?
- Unprepared food
- Candy and gum
- Most clothing items
- Computer services
- Residential heating fuel
When you purchase something at a store, you know the sales tax gets added in. But for some small businesses, they unknowingly evade the sales tax by purchasing items and services for use in Pennsylvania from vendors outside of Pennsylvania who do not apply the sales tax.
To counteract this, The Department of Revenue created the use tax.
What is the PA Use Tax?
PA use tax gets taxed at the same 6% rate as the sales tax and follows the same rules. You can think of use tax as a check and balance for sales tax. Use tax gets applied to any purchase where the PA sales tax wasn’t paid but the goods were delivered to a PA address or are meant to be used in the state.
While use tax isn’t necessarily applied on specific items, it does get applied to familiar types of transactions:
- Purchases made online
- Purchased made via Toll-free numbers
- Purchase made via mail-order catalogs
- Purchases made in out-of-state locations
Why am I just learning about Use Tax?
While use tax isn’t new and has been around since 1953, it has had some renewed interest in recent years. Pennsylvania recognizes that sales are growing dramatically through alternative channels like the ones listed above.
Use tax helps keep prices competitive between PA businesses and other outside retailers. If consumers purchase goods outside of the state to avoid the 6% sales tax, the use tax helps balance this out and gives no real advantage to the potential loophole.
How to Pay your Business’ Use Tax
As you’re reading along, do you recognize the need to pay use taxes in your own business? If so, here are the directions provided by the PA Department of Revenue on how to do that:
- For businesses who don’t expect to incur the use tax on a recurring basis: Fill out the PA-1 Use Tax Return Form and submit the form and your tax payment by the 20th of month after your purchase was made.
- For businesses who expect to pay use tax on a recurring basis: Register for an account number with the PA Enterprise Registration Form, PA-100.
*If you fail to report and pay use tax, you may be required to pay the original amount plus penalties and interest costs, potentially amounting to 30% or more.
Interested in more information about sale and use tax?
The Department of Revenue created a brochure that gives an overview of the tax. Read the full brochure here.