Businesses across Pennsylvania face growing concerns as the Pennsylvania Department of Revenue raises awareness about unreported use tax liabilities.
According to Department records, numerous companies — possibly yours included — 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 (and the consequences of not reporting).
This communication should be a wake-up call to negligent businesses to review their purchase invoices and assess their use tax obligations, immediately. By carefully examining your purchase history, businesses can ensure compliance with use tax regulations and avoid potential penalties.
We’re here to talk about business use tax compliance in the state of Pennsylvania, specifically.
What Is Pennsylvania’s State 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.
From the PA DOR: “If your business buys items or services subject to Pennsylvania sales tax, for which the seller does not charge and collect the tax, your business is required by law to report and remit use tax directly to the PA Department of Revenue.”
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.
Types of Purchases Subject to Use Tax
The PA 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.
Local Tax Implications for PA Businesses
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.
What Happens If Your Business Doesn’t Comply?
The Pennsylvania Department of Revenue's communication regarding unreported use tax liabilities serves as an immediate call to action 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 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.
Additional Non-Compliant Consequences
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.
How to Report Sales & Use Tax in Pennsylvania
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.
Businesses that regularly incur use tax liabilities are advised to register for a sales/use tax account number. This can be done by completing the Pennsylvania Online Business Tax registration process through myPATH at mypath.pa.gov.
Use Tax Services from Kreischer Miller
Being use tax compliant in Pennsylvania helps businesses avoid costly penalties and interest charges.
If you have any questions about whether or not your business is use tax compliant, please contact us or reach out to a member of our State and Local Tax team directly.
Explore our Sales & Use Tax Services, today.