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Is Your Business Use Tax Compliant in Pennsylvania?

January 9, 2024 4 Min Read Alerts, State and Local Tax Services
Thomas M. Frascella
Thomas M. Frascella Director, Tax Strategies, State & Local Tax Group Leader

Businesses across Pennsylvania are facing a growing concern as the Pennsylvania Department of Revenue raises awareness about unreported use tax liabilities. According to Department records, numerous companies, and possibly yours, have not reported or remitted use tax within the past three years.

The gap in use tax reporting has resulted in the Pennsylvania Department of Revenue issuing written communication to businesses alerting them to their responsibility. This communication should prompt a call to action for businesses to review their purchase invoices and assess their use tax obligations.

Understanding Use Tax

Pennsylvania residents or businesses that purchase taxable tangible personal property or services for use in the state owe a six percent use tax on the purchase price, including shipping costs, if sales tax was not collected at the time of purchase. It is crucial for businesses to recognize that use tax applies in cases where sales tax was not levied, ensuring that the state receives its fair share of revenue.

Local Tax Implications

In addition to the statewide six percent use tax, businesses operating in Allegheny County face an extra one percent local tax, while those in Philadelphia County are subject to a two percent local tax. These additional levies further emphasize the need for businesses to diligently assess their purchase records and determine whether they have incurred use tax liabilities.

Reviewing Purchase Invoices

Businesses are advised to review their purchase invoices for the current and previous three years. This process involves identifying instances where taxable tangible personal property or services were acquired for use within Pennsylvania, yet no sales tax was charged, or no corresponding use tax was reported or remitted.

Types of Purchases Subject to Use Tax

The Pennsylvania Department of Revenue has issued this tax evaluation guide which aims to assist businesses in recognizing purchases that may require use tax payments. Common examples include online purchases from remote sellers, equipment and machinery acquisitions, and taxable services procured for use in Pennsylvania. By carefully examining your purchase history, businesses can ensure compliance with use tax regulations and avoid potential penalties.

Ensuring Your Business Stays Informed and Compliant

The Pennsylvania Department of Revenue's communication regarding unreported use tax liabilities serves as a wake-up call for businesses in the state. Ignoring these obligations can lead to serious consequences, including penalties and fines. As the state strives to collect the revenue owed, businesses must take proactive measures to review their purchase records, identify potential use tax liabilities, and address any outstanding obligations.

Staying informed and compliant will benefit businesses by addressing an area that will potentially be identified during a due diligence exercise and by minimizing penalties imposed on any outstanding liabilities. Businesses that do not file their use tax returns are not protected by any statutes of limitations. The Department, if it chose to, could pursue returns as far back as when the business began operating in Pennsylvania. The fact that the Department provided notice to businesses could be a basis to deny any type of relief if the unpaid use tax liabilities are discovered by the Department. 

If you have any questions about whether or not your business is use tax compliant, please contact a member of our State and Local Tax team.

Information contained in this alert should not be construed as the rendering of specific accounting, tax, or other advice. Material may become outdated and anyone using this should research and update to ensure accuracy. In no event will the publisher be liable for any damages, direct, indirect, or consequential, claimed to result from use of the material contained in this alert. Readers are encouraged to consult with their advisors before making any decisions.

Contact the Author

Thomas M. Frascella

Thomas M. Frascella

Director, Tax Strategies, State & Local Tax Group Leader

State and Local Tax Services Specialist

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