Pennsylvania’s 2026–2027 budget changes how local sales taxes imposed by Philadelphia and Allegheny County apply to sales of tangible personal property and taxable services. Effective January 1, 2026, these local taxes are generally determined by where the product or taxable service is delivered rather than the seller’s location. Although the law takes effect on January 1, 2026, the Pennsylvania Department of Revenue has announced it will defer enforcement of the new requirements until October 1, 2026.
New Destination-Based Sourcing Rules
For taxable sales of tangible personal property or services delivered within Pennsylvania, the applicable sales tax rate generally will be:
- 8% for deliveries to Philadelphia: 6% Pennsylvania sales tax plus 2% Philadelphia local tax
- 7% for deliveries to Allegheny County: 6% Pennsylvania sales tax plus 1% Allegheny County local tax
- 6% for deliveries elsewhere in Pennsylvania: Pennsylvania sales tax only
Previously, the seller’s location generally determined whether Philadelphia or Allegheny County local sales tax applied. Under the new destination-based method, the sales tax rate is determined by where your customer receives the product or service.
As a result:
- If your business is in Philadelphia or Allegheny County, you generally should not collect your jurisdiction’s local tax solely because you operate there when products or services are delivered elsewhere in Pennsylvania.
- If your business is located outside Philadelphia or Allegheny County, you generally must collect the applicable local tax when delivering taxable products or services into either jurisdiction.
Retroactive Effective Date Creates Compliance Considerations
Because this change was applied effective January 1, 2026, affected businesses should promptly review whether their systems and prior transactions reflect the new sourcing method.
If you applied local tax based on the seller’s location, you may have overcollected tax on some sales and undercollected tax on others. Pennsylvania Department of Revenue guidance will be important in determining how taxpayers should address previously filed returns, customer refunds, additional tax liabilities, and related interest or penalty considerations.
Recommended Actions
If your business makes taxable sales in Pennsylvania, consider the following steps:
- Update tax-calculation systems. Configure point-of-sale, invoicing, e-commerce, and enterprise resource planning systems to calculate local tax based on the delivery destination to ensure readiness for the October 1, 2026, enforcement date.
- Validate customer addresses. Confirm that your systems capture and validate the location where customers receive taxable products and services, including deliveries to Philadelphia and Allegheny County.
- Review contracts and invoicing practices. Confirm that customer agreements, tax clauses, and invoices appropriately address destination-based local tax.
- Monitor administrative guidance. Because the enforcement date is after the effective date, watch for Pennsylvania Department of Revenue instructions on retroactive application, refund claims, and potential transitional relief.
Looking Ahead
This sourcing change may affect any business delivering taxable tangible personal property or taxable services to Pennsylvania customers. You should promptly assess your Pennsylvania sales activity and document the steps taken to comply with the new rules to ensure implementation readiness by October 1, 2026.
Navigating Pennsylvania’s new destination-based sourcing rules may create questions for your business. RKL’s State and Local Tax (SALT) experts can help you assess the potential impact, review your sales tax processes, and identify appropriate next steps. Contact our SALT team to discuss how these changes may affect your business.
