The Pennsylvania sales and use tax rate is 6%. Most small businesses know and understand the sales tax portion of the law, but not the use tax. Collecting use tax is becoming more important to the Department of Revenue, so it’s vital that every small business report and pay the use tax correctly. Find out everything you need to know about the PA sales and use tax now.
What is the PA Sales Tax?
The PA sales tax is 6% and is collected on most purchases in the commonwealth. This includes retail items, items sold for consumption, rentals, and some business services. There are a few notable exceptions. Here are the major items exempt from the tax:
- Unprepared food
- Candy & gum
- Most clothing items
- Computer services
- Residential heating fuel
Some small businesses unknowingly evade the sales tax by purchasing items and services for use in Pennsylvania from outside vendors who do not apply the sales tax. The Department of Revenue counteracts this with the use tax.
What is the PA Use Tax?
This is taxed at the same rate as the sales tax, 6%, and also follows the same rules. It applies 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. This tax could apply to purchases made over these channels:
- Toll-free numbers
- Mail-order catalogs
- Out-of-state locations
Use tax example:
You buy office supplies for your business in a neighboring state and transport it to your office in PA. If the retailer didn’t charge PA sales tax for the supplies, you are responsible for paying the use tax.
Why the Department of Revenue is Enforcing the Use Tax
The use tax was created in 1953 but has had renewed interest in the past few years. Pennsylvania recognizes that sales are growing dramatically through alternative channels. The use tax will prevent the funding from decreasing in the future, even as alternative sales increase.
It also keeps prices competitive between PA businesses and outside retailers. If your sole reason behind buying an item from out-of-state was the 6% discount, the use tax eliminates that loophole. In theory, the tax makes it just as desirable to do business with an in-state seller.
How to Pay your Business’ Use Tax
If you find yourself in a situation where you need to pay the use tax, here are the directions provided by the PA Department of Revenue.
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. If you made a purchase on April 15th, the form and payment would be due by May 20th.
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 assessed for the original amount plus penalties and interest. The penalties and interest could be more than 30% of the original amount.
Still have Questions about the Tax?
The Department of Revenue created a brochure that gives an overview of the tax. Read the full brochure here.
You can also talk directly to your CPA. They can answer any questions you have and help you take the necessary steps to pay the tax.
What if I Don’t Have a CPA?
Take our 5-question quiz to find out if it’s time for your small business to hire a dedicated CPA.