How to Register for a Sales Tax Permit in Pennsylvania

Being your own boss is certainly an interesting idea, and something every business person aspires to. While every aspect of life has pitfalls and flaws, the advantages of running your own business far outweigh the disadvantages, if everything is done properly.

One of the main advantages is the freedom and the control you’ll have. You are the one making decisions, whether it is choosing the suppliers, choosing the market you will be tapping into and many other things. There is, however, one aspect of owning your own business that you will not have complete control of, and that is the legal requirements put forward by the state you live in. If you live in the state of Pennsylvania, there will be some certain permits you will have to acquire, and certain laws to follow.

But, besides the legal requirements, owning your own business brings you many advantages. We mentioned the control and freedom. There is another aspect that many entrepreneurs enjoy, especially if the business they are doing is actually a passion of theirs. You have the chance to do what you love and build your project, your company, your passion from the ground up and watch it grow. The aforementioned freedom aspect is something many probably cherish the most. It gives you the opportunity to work when you want and need to, and gives you a lot more free time to spend on other aspects of your life, like your family, travel, hobbies and such. As an employee, you rarely get the chance to leave the office when you want to or go on a month-long holiday. While the pressure of running a company can be high, and requires a lot of hard work and dedication, if you set up everything correctly, you will be able to afford taking time off and going on vacations.

But the first step is to set up your business properly.

Preparing to Start a Business in Pennsylvania

Being prepared is half the work. When it comes to running your own business, this entails a number of things. First of all, you need to make sure you are up to the task. Some people jump into this too easily, without any preparation, setting themselves up for a failure. This is why a sort of checklist, a business plan, is always essential. But before you get to the business plan, ask yourself a number of questions. Are you ready, do you think you have the knowledge, do you have the experience, what market do you plan on entering, with what products, is the business model sustainable? Answering these questions is very important. If there is any doubt, take a step back to rethink your strategy.

It is advisable to consult an attorney or a business consultant that will guide you through the process of starting up your business. Organizations such as Small Business Development Centers are at hand for Pennsylvania entrepreneurs to help you out. Pennsylvania Department of Labor & Industry’s Office of Unemployment Compensation notes that the Small Business Assistance Network (SBAN) is among the first stops for aspiring entrepreneurs looking to acquire knowledge and equip themselves with skills needed to run a business in the state.

You also have to make sure that there is room for you in the market you plan to enter. Researching the market is one of the essential steps of your overall business plan. You have to know your potential customer base, potential competitors, look closer into the market dynamics and determine if your profit margin is slim or maybe your earnings predictions are high. Everything has to be taken into account.

It is often suggested that, when starting your own business, you should start small. Make a list of your preferred products or the markets you would like to operate in and then research all the segments separately, paying close attention to the supply-demand dynamics as well as potential competitors. If the products you are interested in are not in demand, then maybe you should look elsewhere. Niche markets often offer the best starting point for an aspiring entrepreneur. These markets often have a healthy demand for a product but the level of competition on the supply end is not high and this allows you to start small and build from there. Another advantage of niche markets is that you get to build your reputation, given you provide the right services, gradually and grow your business steadily before entering new market segments or those that you actually planned on entering in the first place.

This type of market and product research is an essential part of a successful business plan. The business plan is the document all banks and business institutions are interested in when you go looking for external funding to help get your business off the ground. This is again the reason why it is advisable to consult an attorney or a business advisor from the start.

When you have all these aspects ready, you know what market you will enter and you have your business plan ready with all your marketing, supply, and financial strategies included, it is time to look at the regulatory requirements set forth by the state of Pennsylvania.

Registering a New Business in Pennsylvania

When it comes to registering a business in Pennsylvania, the checklist of legal requirements does not differ much from other states. According to this checklist, the steps to legally establish your business are following: establishing a unique business name, choosing the legal structure of your business, applying for required licenses and applying for the required tax permits.

In order to register a business name, you are first required to make sure that the business name you plan to use is available. This can be done by checking the Pennsylvania Department of State database of Pennsylvania businesses. This step is, however, tied to the legal structure of your business, if you plan on operating as a sole proprietor, partnership, corporation or any other business form. While sole proprietors can operate under their own name, they are also allowed to register a fictitious name, which is done through the Pennsylvania Department of State, but they are not required to make a formation filing with the department. Other business structures, such as limited partnerships or limited liability companies have to file formation documents with the Department of State and have to specify a name in these documents. They are not required to file for a fictitious name unless they are planning on doing business under a name other than that stated in the formation documents.

Once you are set on a name, you have to look into the business structures available in Pennsylvania. The size of your business can dictate the legal structure of your business and subsequently, the business structure determines your tax obligations. Each and every business structure comes with its own pros and cons, and the decision of which type to use is, as we mentioned, dependent on the scale of your operation and your requirements.

For starters, a sole proprietorship is the simplest form. It can be used by single owners who will be the only members of the business. It is easy to set up as it requires less paperwork compared to other structures and has a minimum of legal restrictions. However, the downside of such a structure is the fact that the owner, who in legal terms is not distinguishable from the business, is liable for all debts and liabilities of the business. A general partnership is basically a sole proprietorship in which two or more people are involved. The advantages are pretty much the same, with the addition of funds which can be sourced from a number of owners instead of one; the cons are the same.

Next is a limited partnership, which is also formed by two or more partners and enables an organization with one or more general partners and one or more limited partners. Limited partners have higher liability protection but are not involved in running the company. A limited liability partnership, on the other hand, provides additional liability protection to the general partners as well. Both the limited partnership and the limited liability partnership are formed by filing a registration with the Bureau of Corporations and Charitable Organizations, Pennsylvania Department of State.

Limited Liability companies fall in between partnership options and corporation options and provide the same protection as a corporation but are treated like partnerships. These are also formed by filing registration documents with the Bureau of Corporations and Charitable Organizations, Pennsylvania Department of State.

Corporations are the most complex legal structures, but the partners in a corporation are exposed to liabilities depending on the size of their shareholding in the company. Unlike sole proprietorships and general partnerships that seize to exist upon the death of the owner or one of the partners, corporations continue their operations. However, the legal requirements are extensive and the company’s profits are taxed as well as the dividends paid to owners. Corporations are formed by filing Articles of Incorporation with the Bureau of Corporations and Charitable Organizations, Pennsylvania Department of State. The registrations can be completed by creating a profile on the PENN File, an online business document filing system set up by the Department of State. If you need more information on the documents you will be required to file, visit the Department of State’s list of all business entity filing forms.

The next step in the registration process is probably the most complicated one: applying for necessary tax permits and familiarizing yourself with all the federal, state or local agencies and their specific tax requirements. The tax authority for Pennsylvania is the state’s Department of Revenue.

Pennsylvania Sales Tax Permit

According to the Pennsylvania Department of Revenue, all businesses are required to have an Employer Identification Number (EIN) issued by the Internal Revenue Service (IRS). This might also be required by banks or other entities with whom a company does business. In order to open a business bank account, the majority of banks in the state require you to have an EIN. Applying for the Employer Identification Number can be completed online at the IRS website.

As our focus is mostly on businesses that might be interested in purchasing cheap wholesale merchandise to sell online through e-commerce platforms such as Amazon, we will look into the process of filing for a sales tax in Pennsylvania and who is required to apply for the permit.

Before applying for a sales tax permit, you have to determine whether you have something called a sales tax nexus, or a significant presence in the state of Pennsylvania. You have a sales tax nexus if you have an office or an employee in the state. You also have a sales tax nexus if you have merchandise stored in a warehouse, own personal or real property and delivery of products in the state, representatives in the state or maybe you are leasing a property in Pennsylvania. For more details on the sales tax nexus visit Department of Revenue’s website.

If you have determined that you have a sales tax nexus in the state, you must then check whether the products you plan on selling are taxable. In general, services are tax-free; however, if the service you provide plays a part in selling or making a product, you might have to pay tax. Dealing with tangible products means you will have to pay tax, although food, the majority of clothing products, textbooks, computer services, pharmaceutical drugs and many other are tax exempt. One specific exception, which will be interesting for e-commerce resellers, is the case of sale for resale, which will be discussed later.

According to the Department of Revenue, the sales and use tax is imposed on the retail sale, consumption, rental or use of tangible personal property, including digital products, in Pennsylvania. Sales tax is applied at a rate of 6 percent, with certain counties adding additional percentages.

For a full list of taxable items click here. To apply for a sales tax visit Department of Revenue’s e-Service Center the Online PA100. You may also print the PA-100 and mail the form to the address listed in the Contact Details Section below. You will be required to provide details about your business, the tax you are applying for, legal structure and business activity, owners and certain specific certificates. There is no charge for sales tax permit application and the license will be delivered to you via mail within seven to 10 business days if you register by mail, and even shorter if you register online. Once you acquire the sales tax permit, you will not have to renew it again.

Sales Tax Exemptions in Pennsylvania

As noted above, there are certain exemptions that can benefit businesses engaging in the online resale of wholesale or liquidation merchandise. This is due to the fact that if you purchase merchandise for resale, you can avoid paying tax. However, you can’t use the merchandise yourself because that can lead to penalties. To purchase items tax-free you are required to present the seller with a Pennsylvania Exemption Certificate (Form REV-1220). You have to present the exemption certificate to the wholesaler, liquidators or a retailer you are buying from. In case you are making a number of purchases from one supplier, you may present the form as a blanket resale certificate. Read more details on the Pennsylvania Exemption Certificate here.

In addition, you may also be on the receiving end of the REV-1220 certificate, in which case you must verify that it has been completed properly, you must have the resale certificate within two months following the sale at the latest. You are also required to keep the resale certificate on file for at least four years. However, if you accept a resale certificate in good faith without knowing that it is not valid, you are not required to collect the tax. This is because there is no online tool provided by the Department of Revenue enabling you to verify the validity of a resale certificate.

While this guide attempt to provide you with links and directions to how to start your business in Pennsylvania and register for a sales tax permit, we urge you to consult with an attorney or a business advisor to make sure you are not skipping any steps and are completing the process properly.

Contact Details

Pennsylvania Small Business Development Centers

Pennsylvania SBDC Lead Office
The Wharton School
University of Pennsylvania
3440 Market St., Suite 400
Philadelphia, PA 19104-3338
(215) 898-1219

Pennsylvania Department of Revenue

Bureau of Business Trust Fund Taxes
PO Box 280901
Harrisburg, PA 17128-0901
717-787-1064

Pennsylvania Department of State

Office of the Secretary
302 North Office Building
Harrisburg, PA 17120
Phone: (717) 787-6458
Fax: (717) 787-1734

Bureau of Corporations and Charitable Organizations

Charities

207 North Office Building, 401 North Street
Harrisburg, PA 17120
Charities Phone: (717) 783-1720
Charities Fax: (717) 783-6014

Corporations

206 North Office Building, 401 North Street
Harrisburg, PA 17120
Corporations Phone: (717) 787-1057
Corporations Fax: (717) 783-2244

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