On December 22, 2017, the Pennsylvania Department of Revenue issued Corporation Tax Bulletin 2017-02 in which it announced that marketplace facilitators, referrers and remote sellers have until March 1, 2018, to elect for this year to either comply with Pennsylvania’s new consumer use tax notification and reporting regime or to voluntarily collect and remit Pennsylvania sales-and-use tax.
In other words, if you do not have sales tax nexus in Pennsylvania but otherwise are producing taxable sales within the Pennsylvania state border, the state is now requiring certain information to be reported to both the consumer and the state in order to better ensure that the required Pennsylvania use tax is being reported and collected to the state.
For reference, if sales tax is not charged at the time of sale, states expect use tax to be paid to the state in which the taxable good is used or consumed. Sales tax and the use tax are mutually exclusive, meaning either sales tax or use tax is applied to a single transaction, but not both. Generally speaking, individuals and businesses are liable for use tax whey they purchase an item that is used, stored or consumed in their home state without paying sales tax on the purchase or less tax than the applicable sales tax rate.
Use tax requirements are currently being considered by Congress via the Marketplace Fairness Act, Remote Transactions Parity Act and the Online Sales Simplification Act. However, several states have already taken action at the state level to begin enforcing more strict use tax compliance in order to increase the revenue they are able to collect via the use tax.
This new consumer use tax notification and reporting regime introduced by Pennsylvania applies to marketplace facilitators, sellers, referrers and remote sellers that have at least $10,000 in taxable sales of tangible personal property into Pennsylvania in the preceding 12-month period or delivered the same into the state.
An election made on or before March 1, 2018 will be in effect through June 30, 2019. Remote sellers must complete REV-1830 (Annual Marketplace Sales Election Form) to make the election (Form provided in link listed below) to either 1) register to collect and remit Pennsylvania sales tax or 2) comply with Pennsylvania’s notice and reporting requirements. An election to comply with the notice and reporting requirement may be changed at any time to an election to collect and remit sales tax. View the Annual Marketplace Election Form Here.
The state will deem a failure to make the required election an election to comply with the consumer use tax notification and reporting requirements, and a violation of the reporting requirements may result in a penalty equal to the lesser of $20,000 or 20% of Pennsylvania sales.
Depending on the vendor’s classification as a marketplace facilitator, referrer or remote seller, a vendor subject to the consumer use tax notification and reporting requirements may be subject to a requirement to:
- Notify each Pennsylvania purchaser of their obligation to report and pay tax on taxable purchases and/or post the same where sales occur
- By January 31 of each year, mail a report of purchases to each Pennsylvania purchaser and remind the purchaser again of an obligation to report and pay tax; and/or
- By January 31 of each year, mail a report to the Department that includes a list of purchasers that received notice from the vendor.
Pennsylvania’s adoption of a consumer use tax notification and reporting regime follows a trend among states as other states, including Alabama, Colorado, Rhode Island, Kentucky, Louisiana, Oklahoma, South Dakota, Vermont, and Washington, have adopted similar consumer use tax notification and reporting compliance requirements in recent years. Some of these other states also impose a penalty for noncompliance, but, if so, unlike Pennsylvania, the penalty has the appearance of a de minimis amount (e.g., $10), but could be significant as, in that case, the penalty is typically imposed on a per transaction basis.
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