Imagine one day you are opening your business mail and you discover that your company owes thousands of dollars to the Pennsylvania Department of Revenue. You think back and you are sure that you filed all of your company’s tax returns and paid in full any balance owing. That is, of course, until you realize that the notice regards unpaid Pennsylvania use tax. A sibling to sales tax, the use tax levies a 6% tax upon purchasers of all applicable goods and services not taxed by the seller. Thus, while purchases made from out-of-state suppliers or over the internet may not be subject to Pennsylvania sales tax, they are subject to a use tax for Pennsylvania businesses and residents. And your company is obligated to report the purchases and pay the applicable tax along with the sales tax return.

The PA Department of Revenue explains use tax as follows:

When Pennsylvania sales tax is not charged by the seller of a taxable item or service delivered into or used in Pennsylvania, the consumer is required by law to report and remit use tax to the Department of Revenue. The use tax rate is the same as the sales tax rate: 6 percent state tax, plus an additional 1 percent local tax for items purchased in, delivered to or used in Allegheny County and 2 percent local tax in Philadelphia.

The Commonwealth justifies this tax as leveling the playing field between in-state and out-of-state businesses. For every dollar paid in out-of-state tax, the purchaser gets a dollar of credit. Thus, if the purchaser pays 4% sales tax to an out-of-state seller for a widget-maker, the purchaser pays a 2% state use tax. If the purchaser pays no sales tax for a coffee maker, the purchaser must pay a 6% use tax upon the purchase. Failure to report such purchases can not only lead to the assessment of a tax liability, but can also cause interest and penalties to be assessed.

Staying on top of use taxes can save your business significant amounts of time and money in the future. If you find that such is not the case, and your company needs assistance in taking care of these taxes, contact us at CGA Law Firm. One Firm, All The Law You Need.