Vendors may now owe more sales tax to the Commonwealth, thanks to changes signed into law as part of Pennsylvania’s 2016-17 budget.
Several tax increases and adjustments were included in the budget to fund increased education spending, including a hike in tobacco type taxes and the expansion of sales and use tax to digital downloads of media. Most notably for businesses, however, is a new limitation on the sales and use tax vendor discount, which was created long ago to help businesses offset the costs of collecting sales tax.
Let’s drill down further on this discount and what the changes mean for businesses.
What type of discount did businesses previously receive?
Previously, businesses that turned over sales tax proceeds to the Commonwealth received a discount on those liabilities of 1 percent of tax collected. This 1 percent discount was unlimited for timely filers.
What changes were made to the discount?
The state budget limits this discount to the lesser of 1 percent of the tax collected or $300 annually. For those businesses that file periodically throughout the year, the $300 annual cap breaks down as follows: $25 per monthly return filers, $75 per return for quarterly filers or $150 per return for semi-annual filers.
When does this take effect and will it impact past filings?
According to the Pennsylvania Department of Revenue (DOR), the vendor discount limitation takes effect for all returns that have a period end date after August 1, 2016. DOR will apply the discount cap “starting with the monthly return filed for August 2016, third quarter and the second half of 2016 returns and all subsequent periods.”
The cap will be applied prospectively, not retroactively, so there is no impact to any discounts received for periods ending before August 1, 2016.
What impact will this have on my business?
This change is big for some taxpayers, most notably large retailers. It is expected to generate nearly $56 million annually for state coffers. This proposal had been circulating around the Capitol for a number of years, as Pennsylvania was only one of 13 states that still offered the unlimited vendor discount for work that was largely automated.
What happens if a business doesn’t file on time?
Any business that does not file a return and payment in a timely fashion is ineligible for any discount. Furthermore, late filers or noncompliant businesses will be assessed penalty and interest charges.
Businesses with questions about how to assess the impact of this limited discount on their sales and use tax filings should contact me at firstname.lastname@example.org.
Contributed by Jason C. Skrinak, CPA, State and Local Taxes (SALT) Practice Leader for RKL’s Tax Services Group. Highly regarded throughout the region for his deep knowledge and expertise in SALT consulting, Jason has significant experience representing taxpayers before Pennsylvania’s Board of Appeals and Board of Finance and Revenue.