Key takeaways
- A new sales tax rule affecting sales in Philadelphia County and Allegheny County is taking effect on October 1, 2026.
- Under the new rule, businesses making sales to customers in Philadelphia County will be required to collect a 2% sales tax, while businesses making sales to customers in Allegheny County will need to collect a 1% sales tax.
- Talk with your tax advisor to find out if this change affects your business and how you should adapt to meet the new requirements.
Pennsylvania has adopted a significant change to its local sales tax sourcing rules that goes into effect on October 1, 2026. Under Act 21 of 2026, the requirement to collect local sales tax for Philadelphia County and Allegheny County is based on where the taxable product or service is delivered, rather than where the seller is located.
The change applies only to the two Pennsylvania jurisdictions that impose local sales tax: Philadelphia County, which has a 2% local tax, and Allegheny County, which has a 1% local tax. Pennsylvania’s 6% state sales tax rules have not changed, but businesses that were only required to collect the state tax will have an additional local tax collection obligation when taxable sales are delivered into either jurisdiction when the new law goes into effect.
How have Pennsylvania sales tax rules changed?
Previously, Pennsylvania’s local sales tax rules focused on the seller’s location. If a seller’s place of business was in Philadelphia County or Allegheny County, the seller collected the applicable local tax on taxable sales, even when the customer received the product elsewhere in Pennsylvania. By contrast, sellers located outside Philadelphia County and Allegheny County collected only the 6% Pennsylvania state sales tax, even when taxable products were delivered to customers in Philadelphia County or Allegheny County.
As a result, local tax was driven by where the sale originated rather than where the customer received the product. This created different tax results for similar transactions depending on whether the seller had a location inside or outside one of Pennsylvania’s local taxing jurisdictions.
Act 21 changes that approach by moving the local tax collection requirements to the customer’s destination. A taxable sale delivered to a customer in Philadelphia County is subject to Pennsylvania’s 6% state sales tax plus the 2% Philadelphia County local sales tax, for a combined rate of 8%. A taxable sale delivered to a customer in Allegheny County is subject to the 6% state sales tax plus the 1% Allegheny County local sales tax, for a combined rate of 7%.
For example, a Pennsylvania retailer located outside Philadelphia County that ships a taxable item to a Philadelphia County customer will now need to collect the Philadelphia County local tax. Conversely, a business located in Philadelphia County that ships a taxable item to a customer outside of Philadelphia County will no longer need to collect Philadelphia County local tax solely because of the seller’s location.
How do the new Pennsylvania local sales tax changes affect businesses?
For businesses with a physical presence in Pennsylvania, the change alters when local tax applies. Sellers should review where their customers receive taxable products or services, not just where the business, store, warehouse or office is located.
- A seller located in Philadelphia County or Allegheny County should not assume local tax applies to every Pennsylvania sale. Sales delivered outside those jurisdictions are not subject to local tax, while taxable sales delivered into Philadelphia County or Allegheny County should include the applicable local tax.
- Remote sellers should also be aware of the change. The analysis starts with whether they already have a Pennsylvania sales tax collection obligation, such as through economic nexus. If they do, they should evaluate whether local tax applies to taxable sales delivered into Philadelphia County or Allegheny County.
The change makes customer delivery location more important for all sellers. Accurate address data and properly configured tax systems will help businesses avoid over-collecting or under-collecting local tax as Pennsylvania moves to destination-based sourcing.
What should business owners do to adapt to the new sales tax rule?
If you own a business that is located in Pennsylvania or has sales tax obligations there, you may be affected by the new tax rules for Philadelphia County and Allegheny County. Here’s what to do:
- Consult with your tax advisor. State and local tax rules are challenging to navigate on your own, so ask your tax advisor to determine if and how you are affected by the new local tax rules.
- Make operational updates as needed. Depending on the guidance you receive from your tax advisor, you may need to make updates to your finance, sales and billing systems, as well as train your team on the new tax rules.
- Review with your accounting team. Check with your accounting team to ensure that you are properly accounting for the new tax requirements.
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Sales tax sourcing changes can create practical compliance challenges, especially for businesses with customers in multiple Pennsylvania jurisdictions. Wipfli can help businesses evaluate how Pennsylvania’s new local sales tax sourcing rules apply to their sales, systems and reporting processes before enforcement begins. Get help navigating state and local tax rules.