Pennsylvanians Required to Address Online Purchases and Unpaid Use Tax

State and Local Tax

By Jack Stewart

The Pennsylvania Department of Revenue, in an effort to collect what it estimates as $345 million in lost tax revenue due to Internet and catalog sales by remote sellers, has announced a change to the PA-40 personal income tax form for the tax year 2011. The change will force taxpayers to address the dreaded use tax issue related to taxable online internet or catalog purchases where Pennsylvania sales or use tax was not collected by the seller.

Changes to the PA-40 will include an additional line on the return for which Pennsylvanians will be required to calculate the amount of use tax due (7% for Allegheny County, 8% for Philadelphia County and 6% for the rest of Pennsylvania) and pay tax their taxable online or catalog purchases. Taxpayers will not be able to complete their forms without entering a number on the return, even if that number is zero.

Contrary to popular belief, purchases by individuals over the Internet or from a mail order catalog may be subject to sales or use tax even if seller does not charge the tax. Generally, Internet and catalog retailers are not required to collect Pennsylvania sales tax unless they have some sort of physical presence within the Commonwealth. In most states, including Pennsylvania, the purchase of tangible personal property and specified or enumerated services are subject to sales or use tax unless the purchase is excluded from tax or some exemption applies.

Some examples of items excluded from Pennsylvania sales and use tax include: most types of clothing (with the exception of formal and athletic apparel, fur and safety clothing), most types of shoes (except for specialized sports shoes, formal ware and dance shoes), prescription and nonprescription medicine, pet medicines and medical supplies, diapers, magazines and periodicals purchased by subscription, textbooks when sold by a school or authorized bookstore, fabrics for clothing, contact lenses and wetting solutions. Taxpayers with questions regarding the taxability of their online or catalog purchases may consult Rev-717, also known as the Retailer’s Information Guide, on the Department’s website.

Taxpayers may use receipts or statements from their online and catalog vendors to determine the amount of use tax due. If receipts or statements are not available, the Department has indicated that they will allow the taxpayers to estimate the amount due purchases based upon their income amount. Presumably, the Department will provide guidance on how to determine this amount.

The Department estimates that changes to the PA-40 will result in collection of an additional $5 to $6 million in additional revenue.

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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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