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Pennsylvania businesses are receiving use tax notices. Here’s how to respond.

For some Pennsylvania businesses, finding an unexpected tax form in the mail may come as a shock.

But according to the state Department of Revenue, the form in question — the Potential Business Use Tax Exposure form — is simply their way of ensuring businesses pay the legally required tax on applicable purchases, including purchases made out-of-state.

“These notices are truly an education and outreach tool,” said Kendra Martin, deputy communications director with the state Department of Revenue. “We aim to inform Pennsylvania businesses about use tax and their responsibility in remitting it.”

The state use tax is a counterpart to the sales tax, which is generally a 6% charge paid at the point of sale in Pennsylvania.

When a Pennsylvania resident or business makes a purchase where an applicable sales tax is not charged or charged at a rate of less than 6%, a tax is owed for the use of the product or service.

That may be the case when buying products online or out-of-state, or any scenario where the seller isn’t obligated to charge a sales tax, according to Lou Palladino, state and local tax director at Herbein + Co. Inc.

Lou Palladino, state and local tax director at Herbein. (Courtesy of Herbein).
Lou Palladino, state and local tax director at Herbein. (Courtesy of Herbein).

“If you bought something in Delaware, which has no sales tax, but then bring the product back to Pennsylvania, you have to pay the use tax,” Palladino said.

Items exempt from state sales taxes are also exempt from the use tax.

The use tax isn’t new — it was first imposed in Pennsylvania in 1953 and is levied in all other states that have a sales tax.

Palladino noted that buyers who make purchases out of state aren’t expected to pay a sales tax for each state.

“If a state collected 5%, and Pennsylvania’s rate is 6%, yes you’d have to file a use tax, but you’d get a credit for (paying) 5%, so you’d have to pay Pennsylvania 1%,” Palladino said.

He said use taxes are required by law to be paid on all applicable purchases, no matter how small the amount owed.

For businesses and individuals, use taxes are due on the 20th of the month that the purchase is made, Martin said.

The Department of Revenue identifies businesses that owe a use tax through routine audits, self-assessment programs, complaints, investigations and lists of out-of-state purchases from vendors in other states, according to a frequently asked questions page on the department’s website.

Underreporting use taxes can trigger an audit by the department.

Failure to pay the use tax can result in penalties and interest charges, which can exceed 30% of the tax amount, according to the department.

“If you let it go for a long time, obviously interest compounds,” Palladino said. “You don’t want to ignore it.”

Herbein + Company, 2763 Century Blvd., Spring Ridge. (BILL UHRICH - READING EAGLE)
Herbein + Company, 2763 Century Blvd., Spring Ridge. (BILL UHRICH – READING EAGLE)

He noted the state may choose to waive penalties in certain cases, like if a business owner was genuinely unaware of the need to pay a use tax.

The Potential Business Use Tax Exposure form is sent to businesses that haven’t reported a use tax in three years.

“Most businesses have use tax liabilities of some kind to report and remit,” Martin said. “If no use tax has been reported, in many cases we will send a notice to the business asking the owner to review their purchase invoices and determine whether they owe use tax.”

If a business that receives the form finds that no use tax is owed, no further action is needed.

Palladino noted that a ruling by the U.S. Supreme Court in 2018 eliminated the requirement that a seller be physically located in a state to be able to collect and process sales taxes.

Then, in 2019, Pennsylvania enacted a law requiring sellers that make more than $100,000 in annual sales to collect sales taxes, meaning online sellers with a large enough presence in the state must charge a sales tax.

The result of those rules is that businesses and residents now encounter far fewer scenarios requiring a use tax payment than they did before 2019, Palladino noted.

“There are a lot more instances (now) where someone is buying a product on the internet and being charged a sales tax at that time, versus the way it would’ve been five years ago,” Palladino said.

Businesses that do owe a use tax can file and pay on the Department of Revenue’s online tax hub,  mypath.pa.gov.

Businesses that regularly incur use or sales tax liabilities but don’t have a sales or use tax account can register for an account on the Department of Revenue’s website.

Individual residents who owe a use tax can also file a use tax return on the Department of Revenue’s website, or report and pay using a line on the PA Personal Income Tax Return.


Source: Berkshire mont

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