If you’re thinking about starting a business in Pennsylvania, an important part of the financial side of your business plan is to evaluate the impact of taxes on your new business. Your lawyer and your accountant are key members of your business team that can help you evaluate what type of entity to form, how that entity should be taxed, and the taxes applicable to your business.
Part one of this series is a high level overview of the common taxes that you may be subject to depending on the nature of the goods or services your business provides.
This post is not intended to be a substitute for legal or tax advice from your lawyer or accountant – you should talk to them in order to obtain advice to address your specific situation. Need a lawyer or an accountant? We might be able to help you with that!
Pennsylvania requires retail sellers to collect sales tax from the purchaser for retail sales of tangible personal property or services. The list of taxable services is contained in the statutory definition of “sale at retail” found at 72 P.S. Section 7201(k). Pennsylvania’s state sales tax is 6%, with additional sales taxes imposed in Philadelphia (2%) and Allegheny County (1%).The Pennsylvania Department of Revenue compiles a handy guide for retailers to state and local sales, use and hotel occupancy taxes, including descriptions of taxable items and tax-exempt items, which can be found here.
To collect sales tax, you must obtain a sales tax license by filing Form PA-100, which can be completed online or in paper form.
Pennsylvania imposes a use tax on taxable purchases of tangible personal property or specific services used or consumed in Pennsylvania where no sales tax is paid to a vendor. A common example of when use tax is implicated is when a purchase is made online from an out of state vendor that is not required to pay sales tax in Pennsylvania – the purchaser is required to pay use tax at the Pennsylvania use tax rate of 6%. Similar to above, Philadelphia imposes an additional use tax of 2% and Allegheny County imposes a 1% additional use tax.
Use tax for sales tax license holders is paid on the Sales, Use, and Hotel Occupancy Tax Return – Form PA-3. If you do not have a sales tax license, use tax must be paid using Form PA-1 within the first 20 days of the month following the month the purchase was made.
Special Industry Taxes in Pennsylvania
Certain industries and types of business activities are subject to specific taxes, including but not limited to utility and transportation companies, insurance companies, regulated utilities, bank and trust companies, and title insurance companies.