The state of Pennsylvania acted 8 years before the passing of the 2019 Wayfair decision to start collecting sales and use taxes from online retailers. This was in 2011 when online retailers were prompted to register for their sales tax obligations and was part of the state's strategies to boost its online sales tax revenues. As a result, in the fiscal year 2020-21, as of June 30, the tax department collected sales taxes of up to $1.362 billion from online retailers.
Today’s online businesses continue to carry the burden of knowing their sales tax obligations in the states where they sell to consumers, regardless of having a physical presence or not. This article provides a summary of what Pennsylvania online retailers need to know under the law to come on top through the registration and audit process in the event they receive a notice from Pennsylvania state auditors.
Who Must Register with the Pennsylvania Department of Revenue?
Pennsylvania law requires businesses that sell taxable goods and services to collect sales tax from purchasers and submit it to the tax department. Specifically, all businesses, including marketplace facilitators and online sellers, that generate $100,000 or more in annual gross sales beginning July 1, 2019, must register to pay sales tax with the Pennsylvania Department of Revenue. See Sales and Use Tax Bulletin 2019-01.
What Are the Obligations for Those Selling Through a Marketplace Facilitator?
Marketplace facilitators are also under the watchful eye of the department in terms of aiding with the collection and remittance of sales taxes. If you sell your goods through marketplace facilitators such as Amazon or eBay, it’s important to understand your sales tax collecting and remittance requirements in the context of that relationship. In most cases, the marketplace facilitator will agree to collect and pay sales tax on your behalf, which provides some protection against incurring penalties or interest from underreporting.
As a precaution, you will want to confirm, in writing, with your marketplace facilitator who is responsible for the sales tax on your transactions. You will generally find this information in your marketplace facilitator agreement or contract that guides the business relationship. Keep your records that outline sales tax responsibilities in case of an audit or notice alleging your liability for the tax. Many online retailers sell their goods through multiple platforms, and you must keep track of sales tax duties for each facilitator you use. Additionally, if you have your own online store, you will likely be the party responsible for the sales tax on items sold through it.
What Are the Potential Use Tax Obligations for Pennsylvania Residents Who Make Online Purchases and Don't Pay Sales Tax to Sellers?
With the department of revenue targeting Pennsylvania online retailers and marketplace facilitators, where does it leave online buyers? The Pennsylvania law also considers a situation where Pennsylvania customers don't pay sales taxes upon purchasing taxable items from vendors. In this case, the law requires the customers to remit use tax to the tax department. The purpose of the Pennsylvania use tax comes into play if the seller fails to charge sales tax on a taxable item or service that is delivered or used in Pennsylvania.
What Are the Risks of Not Registering or Meeting Obligations?
It's always important to be cautious of what's expected of you as a taxpayer if you're registered for a sales tax permit. So, failure to pay attention to factors such as registration, filing returns, and collecting and remitting sales taxes can lead to hefty penalties and fines.
On this note, you need to renew your sales tax permit every five years as per the law. Further, you should be keen on the sales tax filing deadlines which fall monthly, quarterly, and semi-annually. The revenue department has provided a 2022 reference guide for the due dates of filing sales tax returns.
Hopefully, if you are up to date with your sales tax compliance you won't have to deal with penalties and interests. However, anyone can make a mistake. In this case, noncompliance with Pennsylvania's sales tax permit requirements could potentially end with you paying a penalty from $300 up to $1500 for each offense. You could face imprisonment of 5 to 30 days. Late filing of sales tax returns also attracts a 5% penalty per month from the due date until the date of filing up to a maximum of 25%.
An option available to unregistered retailers in this situation is to participate in Pennsylvania’s voluntary disclosure program. The benefit of the VDA program is you can reduce the total tax liability in a couple of ways. First, you limit the number of years under audit to the current year plus the past 3 years (4 total). Second, the Pennsylvania Department of Revenue will also usually agree to waive any penalties associated with your sales tax liability.
If you or your online retailer clients are facing sales tax liability with the state of Pennsylvania, consider a consultation with our team of sales tax consultants. We provide guidance to businesses in all phases of sales tax issues during the audit, protest, and appeal process. Our services also cover assistance with finalizing the terms of voluntary disclosure – including making sure your tax bill accurately reflects taxable sales by considering available exemptions.
Check out our guide on voluntary disclosures for more information.