Pennsylvania Changes Local Sales Tax Sourcing Rules

What businesses selling to customers in Philadelphia and Allegheny County need to know

By Brian J. Kutz, CPA

Pennsylvania has issued legislation that changed the sourcing rules for the imposition of local sales and use tax. Under Act 21 of 2026, the local sales tax will now be imposed using a point of destination approach rather than a point of origin approach.

The change may affect businesses that sell taxable products or services to customers in Philadelphia or Allegheny County, even when the seller is located elsewhere in Pennsylvania.

Background

Pennsylvania currently charges a statewide sales and use tax at a rate of 6%. Additionally, the state has two local taxes that are imposed in addition to the statewide sales & use tax. These are:

• 1% local sales & use tax for Allegheny County
• 2% local sales & use tax for Philadelphia

Historically, local sales and use tax generally used origin-based sourcing rules. Vendors must now use destination-based sourcing to determine whether Philadelphia or Allegheny County local sales tax applies.

What Is Sales Tax Sourcing?

Sales tax sourcing rules determine which state, or local jurisdiction has the authority to tax a transaction and which tax rate applies. These rules establish where a sale is deemed to occur for sales tax purposes. Generally speaking:

• Destination sourcing applies sales tax based on the location where the buyer takes possession of the taxable item sold.
• Origin sourcing applies sales tax based on the seller's location or the place where the transaction originates.

Enforcement Date

Act 21 was enacted on July 12, 2026, with an effective date for tax years beginning after December 31, 2025. However, the Pennsylvania Department of Revenue announced that it will delay enforcement of the new sourcing rules until October 1, 2026, recognizing that businesses may need additional time to update their systems and processes.

What Stayed the Same?

Act 21 of 2026 does not change what is considered a taxable product or service for PA sales tax purposes. Additionally, Act 21 of 2026 does not change the nexus rules for PA sales tax. The change is only related to the sourcing of taxable sales for purposes of collecting local sales tax.

Next Steps

We are waiting for final regulations and guidance from the state of PA. However, businesses should evaluate their systems and review any taxable sales that may be impacted by this legislation to make sure they can capture the necessary information to properly comply with this new legislation and collect and remit local sales tax when applicable.

Brian J. Kutz is a Manager at Boyer & Ritter who assists closely held businesses with federal, state, and local tax compliance and planning, with a focus on multistate taxation. Contact bkutz@cpabr.com, 717-761-7210, or your Boyer & Ritter professional for more information.