Philadelphia businesses and businesses selling to Philadelphia customers should take note: Pennsylvania has changed the rules for how Philadelphia’s local sales tax is applied.
Under legislation enacted in July 2026, Pennsylvania is moving Philadelphia’s local sales tax from an origin-based approach to a destination-based sourcing model. The change can affect how businesses determine when to collect Philadelphia’s additional 2% sales tax, particularly businesses that sell or ship taxable products to customers throughout Pennsylvania.
Philadelphia’s combined sales tax rate remains 8%, made up of the 6% Pennsylvania state sales tax and a 2% Philadelphia local sales tax.
The important change is how the 2% local tax is sourced.
Previously, local sales tax was generally tied to the location where the sale originated. Under the new rules, local sales tax is based on the destination of the sale, where the taxable product or service is delivered.
The change was enacted through Act 21 of 2026, which became law on July 12, 2026. Although the law has a retroactive effective date for tax years after December 31, 2025, the Pennsylvania Department of Revenue has announced that it will not begin enforcing the new sourcing requirements until October 1, 2026.
The change may be particularly important for businesses that sell taxable goods or services across Pennsylvania.
For example, consider a business located outside Philadelphia that sells taxable products to customers in Philadelphia. Under the new rules, the business may need to collect the additional 2% Philadelphia local sales tax when the taxable sale is delivered to a Philadelphia customer.
Likewise, a Philadelphia business that ships taxable products to customers outside Philadelphia may need to reconsider how the local portion of sales tax applies to those transactions.
In other words, where your customer receives the taxable product or service may become just as important as where your business is located.
With the October 1 enforcement date approaching, businesses should use this time to review their sales tax processes and make necessary updates.
Check your accounting, point-of-sale, invoicing, and e-commerce systems to make sure they can properly determine sales tax based on the customer’s delivery destination.
Businesses that sell throughout Pennsylvania should identify whether they have customers in Philadelphia or Allegheny County, which are the two Pennsylvania jurisdictions with local sales taxes covered by the new legislation. Philadelphia’s local rate is 2%, while Allegheny County’s is 1%.
If your business currently collects Pennsylvania sales tax, determine whether your existing procedures will properly account for the applicable local tax based on the destination of each taxable sale.
Online sellers should pay particular attention to this change. Customer shipping addresses and delivery locations may affect the amount of local sales tax that must be collected.
The Department of Revenue has provided a transition period before enforcement begins. Use that time to review your systems, train employees, and work with your tax professional or software provider to address any issues.
The Philadelphia sales tax rate itself is not increasing. The key change is where the local 2% tax applies based on the destination of a taxable sale.
For businesses selling to customers throughout Pennsylvania, this could mean changes to sales tax collection, accounting, invoicing, and e-commerce processes.
If your business sells taxable products or services in Philadelphia or ships taxable products to customers in Philadelphia, now is a good time to review your sales tax procedures and make sure you’re prepared for the October 1, 2026 enforcement date.
Need help determining how these changes may affect your business? Contact an Alloy Silverstein advisors to discuss your sales tax compliance needs.
