Deadline Approaching for Out-of-State Sellers to Comply with Pennsylvania Sales Tax Collection and Reporting Requirements
SynopsisThe Pennsylvania Department of Revenue (“Department”) recently issued guidance, Pennsylvania Sales Tax Bulletin No. 2018-1 (01/26/2018) (“the Bulletin”), regarding legislation that was enacted in 2017, Act 43 of 2017 (L. 2017, H542) (“the Act”). The Act provides that, beginning March 1, 2018, certain out-of-state sellers and similar businesses making sales to Pennsylvania customers will be required to make an election to either collect sales tax or comply with the State’s reporting requirements. Penalties for non-compliance can be significant.
The Act gives certain out-of-state “remote sellers,” “marketplace facilitators,” and “referrers,” as defined in the Act, with Pennsylvania sales of $10,000 or more during the immediately preceding 12-month period the option to either collect sales tax due on sales within Pennsylvania or elect to notify their customers that use tax may be due and report to the Department names, addresses, and the aggregate dollar amounts of each customer’s purchases.
Pursuant to the Bulletin, remote sellers, marketplace facilitators, and referrers must file an election with the Department on Form REV-1830 by March 1, 2018 to either: (1) register to collect and remit sales tax, or (2) to comply with Act 43’s notice and reporting requirements. The election becomes effective on April 1st. (Note: Sellers of electronically or digitally delivered goods, including canned software, are not subject to the notice and reporting requirements until March 31, 2019.) Subsequent elections must be made annually on or before June 1 starting June 1, 2019.
Where a party to which the Act applies fails to make a required election, such party will be deemed to have elected to comply with the notice and reporting requirements. An election may be changed from the notice and reporting requirement to the collection and remittance requirement at any time during a fiscal year by filing a new election with the Department.As noted, the sales tax collection/reporting requirements apply to certain remote sellers, marketplace facilitators, and referrers, which are defined in the Act as follows:
- Remote sellers. An out-of-state seller who sells taxable tangible personal property at retail through a forum (e.g., on its own website)
- Marketplace facilitators. Someone who facilitates the retail sale of tangible personal property by listing or advertising tangible personal property for sale in any forum, collects the payment from the purchaser, and transmits the payment to the marketplace seller (e.g., eBay)
- Referrers. Someone who is paid to advertise a seller’s products and refers potential buyers to a seller
Notice and reporting requirementsA marketplace facilitator or remote seller that makes an election to comply with Pennsylvania’s notice and reporting provisions must: (1) notify Pennsylvania purchasers before and at the time of purchase that they may be liable for sales and use tax on their purchases; (2) submit an annual report to each buyer listing the buyer’s purchases; and (3) submit an annual report to the Department identifying its Pennsylvania buyers, their addresses, and a list of their purchases. The notice and reporting requirements for a referrer are somewhat different, since the election covers only certain types of referrals.
PenaltiesAs reflected in REV-1830, failure to comply with the option selected could result in a penalty assessment of up to $20,000 per violation per year, or 20% of total sales in Pennsylvania, whichever is less. Although the penalty can be assessed separately for each violation, it may only be assessed once in a calendar year.
What does CohnReznick think?
Pennsylvania joins a growing list of states enacting sales and use tax notice reporting requirements (see the below chart for a list of states imposing sales and use tax notice and reporting requirements on remote sellers). Such requirements place significant compliance burdens on out-of-state sellers and many states impose heavy penalties for non-compliance. Significantly, the notice reporting rules apply to all “remote sales” – not just to sales over the internet. These rules vary by state, and compliance can be time consuming and expensive. All sellers subject to notice reporting rules who are not collecting sales tax on their sales should ensure that they understand how these rules can impact their business and should consider the cost of collecting and remitting the sales tax as compared to the cost of complying with (or contesting) the notice reporting requirements.
States with notice reporting rules include:
|Pennsylvania||2/1/2018 for products and services other than digital products. 2/1/2019 for digital products and relates services.
CohnReznick’s State and Local Tax Practice
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.