Since the inception of the local sales tax in both jurisdictions, sales were sourced to Philadelphia or Allegheny County if the sale was consummated within either jurisdiction (origin-based sourcing). Meaning that if a seller was processing a sale within the jurisdiction, then the local tax generally was due, even when the delivery location was in another Pennsylvania location outside Philadelphia or Allegheny County. In practice, this meant that a seller located in Philadelphia or Allegheny County could be required to collect the applicable local tax on all Pennsylvania sales, while a seller located outside the two jurisdictions may not have been required to collect the local portion of the tax – even when the customer was located within Philadelphia or Allegheny County.
The new legislation changes the sourcing of local sales tax to where delivery of the taxable products or services occurs within the Commonwealth. Accordingly, taxable sales delivered to, or otherwise received by, customers in Philadelphia or Allegheny County are subject to the applicable local tax based on the customer’s location. Thus, all vendors that have established nexus within the state of Pennsylvania, either through economic or physical presence, and shipped products or performed services in Philadelphia or Allegheny County will now be obligated to collect and remit the applicable local sales tax. It also will result in sellers located within either of the two taxable jurisdictions that ship products or perform services for Pennsylvania customers outside Philadelphia or Allegheny County having to no longer charge the tax to those customers.
There are several categories of sales for which the new sourcing rules do not apply. Within the local sales tax statutes, special sourcing rules were written for mobile telecommunication services, motor vehicles, motorboats, aircraft, and certain construction materials. The new legislation expressly states that those prior special rules still apply.
As mentioned above, the effective date of the legislation is Dec. 31, 2025, with the potential for retroactive application to Jan. 1, 2026. Businesses should monitor guidance from the Pennsylvania Department of Revenue as it is released regarding implementation, return reporting, collection obligations, and any transition procedures. It may be prudent to begin reviewing transactions that occurred earlier in 2026 to determine whether additional local tax exposure or reporting adjustments may exist. I submitted a question for the PICPA’s quarterly DOR meeting that asks if the department plans to give businesses some time to implement the change. The PICPA will share what we learn when it becomes available.
The change is particularly important for remote sellers, marketplace sellers, and businesses with tax calculation systems configured under the prior origin-based approach. Companies selling into Philadelphia or Allegheny County should review customer address data, tax determination logic, invoicing processes, exemption certificate procedures, marketplace collection rules, and sales tax return reporting. Businesses that rely on automated tax software also should confirm that local Pennsylvania sourcing rules have been updated to reflect the new destination-based methodology.
Pennsylvania’s shift to destination-based local sales tax sourcing represents a meaningful change for businesses with customers in Philadelphia and Allegheny County. By tying local tax obligations to the customer’s location, the legislation may expand local tax collection responsibilities for sellers located outside those jurisdictions. Businesses should evaluate their systems and processes promptly to ensure local sales tax is being applied correctly and any retroactive compliance obligations are identified.
Mark Balistrieri, CPA, is director, state and local tax, with Schneider Downs in Pittsburgh and chair of PICPA's Sales and Use Tax Thought Leadership Committee. He can be reached at mbalistrieri@schneiderdowns.com.
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Statements of fact and opinion are the author's responsibility alone and do not imply an opinion on the part of the PICPA's officers or members. The information contained herein does not constitute accounting, legal, or professional advice. For actionable advice, you must engage or consult with a qualified professional.