Pennsylvania Department of Revenue Issues Guidance Regarding Remote Sellers

State and Local Tax

By Jack Stewart

Last week the Pennsylvania Department of Revenue (“Department”) released Sales and Use Tax Bulletin 2011-01 regarding the collection responsibilities for remote sellers of Pennsylvania sales tax. The bulletin appears to be another step by the Department to collect what they estimate to be $345 million in lost sales tax revenue related to internet, telephone and/or mail order catalogs sales from remote sellers to Pennsylvania residents.

The Department is issuing this guidance based upon its review of Unites States Supreme Court cases and the relationships that remote sellers have with “Pennsylvania representatives and agents.” This new guidance is not based upon any new legislation or recent Pennsylvania court cases. The bulletin provides seven examples on maintaining a place of business in the Commonwealth. Some of the more interesting ones to note include:

(2) A remote seller who has a contractual relationship with an entity or individual physically located in Pennsylvania whose website has a link that encourages purchasers to place orders with the remote sellers. The in-state entity or individual receives consideration for the contractual relationship with the remote seller.

(3) A remote seller utilizing affiliates, agents and/or independent contractors located in Pennsylvania who will provide repair, delivery or other services relating to tangible personal property sold by the remote seller to Pennsylvania customers.

(7) A remote seller who regularly solicits orders from Pennsylvania customers via the website of an entity or individual physically located in Pennsylvania, such as via click-through technology.

These three examples are significant since they reflect a change from informal guidance provided by the Department in the past. Specifically, the use of an unrelated third party (agent, independent contractor) who provides repair or installation services on the behalf of remote sellers to their Pennsylvania customers.

Remote sellers with customers in Pennsylvania should examine their current business activities and consult with their state and local tax professional to determine if sales tax nexus exists with Pennsylvania under the Department’s new guidelines.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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