Press Room: Tax Release

January 12, 2012

Taxation of Online Retailers Expands Significantly in Pennsylvania

Pennsylvania, like many other states within the past year, has been actively considering ways in which it can generate additional tax revenue in order to counteract its estimated $4.2 billion budget deficit. In that vein, the Pennsylvania Department of Revenue, in conjunction with Governor Corbett, has signaled its intent to begin strictly enforcing new sales and use tax nexus rules that focus on remote sellers.

Pennsylvania estimates that it loses $380 million per year due to non-collection of sales/use taxes on e-commerce sales revenue. On December 1, 2011, the Pennsylvania Department of Revenue issued Sales and Use Tax Bulletin 2011-01, clarifying the scope of Pennsylvania’s current tax law with respect to remote sellers and sales/use tax nexus. The bulletin provides examples of activities that expand its statutory definition of “maintaining a place of business” for sales and use tax nexus purposes to include remote sellers who:

  • store their property or the property of a representative at a Pennsylvania distribution or fulfillment center, even if the center also stores property of third parties that is distributed from the same location;
  • have contractual relationships with a compensated entity or individual physically located in Pennsylvania whose website has a link that encourages purchasers to place orders with the remote seller;
  • utilize affiliates, agents and/or independent contractors located in Pennsylvania who will provide repair, delivery or other service relating to tangible personal property sold by the remote seller to Pennsylvania customers;
  • have affiliates, agents and/or independent contractors that provide service(s) within the Commonwealth (e.g., storage, delivery, marketing, soliciting sales, etc.) that benefit, support and/or complement the remote seller’s business activity;
  • have employee(s) that regularly traveled to Pennsylvania for any purpose related to the remote seller’s business activity;
  • accept orders that are directly shipped to Pennsylvania customers from a Pennsylvania facility operated by a remote seller’s affiliate, agent or independent contractor; or
  • regularly solicit orders from Pennsylvania customers via the website of an entity or individual physically located in Pennsylvania, such as via “click-through technology.”

The Department advises that remote retailers who have nexus under the new standards are required to register and begin collecting sales and/or use taxes by February 1, 2012. Although the bulletin is silent with respect to historical periods, the Department has informally advised that businesses who properly register by the above date will avoid potential exposure for periods prior to that date. 

Regardless of whether these broader standards will sustain a legal challenge, Pennsylvania has indicated that it will be aggressive in enforcing these new guidelines. Even under Pennsylvania's expansive statutory definition of "maintaining a place of business in the Commonwealth," some remote sellers may not have nexus with Pennsylvania. All remote sellers should carefully consider their particular facts, circumstances and potential assessment risks before taking the steps to register. It may also be prudent to obtain written confirmation from the Department that registering to collect tax, and collecting tax beginning on February 1, 2012, will absolve all potential tax collection responsibilities for all prior periods.

WTAS’ state and local tax practice includes experienced tax practitioners knowledgeable in all aspects of multistate taxation. Our tax professionals can assist both individuals and entities in determining the effect this new Departmental policy will have on your business, options that may remediate current tax exposures, and tax accounting systems/processes that can minimize your risk and alleviate your compliance burden.