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PA budget changes how Philadelphia and Allegheny sales tax is sourced, possibly retroactive to the beginning of the year.

Pennsylvania amended its local sales tax sourcing rules to align Philadelphia and Allegheny County taxes with the state’s destination-based sourcing framework. Businesses selling taxable goods or services into those jurisdictions may need to reassess how they determine, collect, and report local sales tax.

Act 21 of 2026, signed into law on July 12th, changes how Pennsylvania sources the 2% Philadelphia and 1% Allegheny County local sales taxes. Rather than sourcing tax based on the seller’s location, the local tax now follows the customer’s delivery location, consistent with statewide sales tax rules.

Previously, sellers in Philadelphia or Allegheny County charged local tax on all Pennsylvania sales, including deliveries outside the county. Sellers located elsewhere did not charge local tax on deliveries into Philadelphia or Allegheny County.

Previously, if a seller was required to collect and remit sales tax, sellers in Philadelphia or Allegheny County charged local tax on all Pennsylvania sales, including deliveries outside the county. Under the new rules, local tax is sourced to the delivery location. Businesses with Pennsylvania nexus that deliver taxable goods or perform taxable services in Philadelphia or Allegheny County must collect and remit the applicable local tax. Sellers located in those counties should no longer charge local tax on deliveries elsewhere in Pennsylvania. 

The table below provides examples:

The rates remain unchanged: 6% statewide, 7% in Allegheny County, and 8% in Philadelphia. Existing special sourcing rules for motor vehicles, boats, aircraft, mobile telecommunications, and certain construction materials also continue to apply.

The Retroactivity Issue

The change is effective for tax years beginning after December 31, 2025, meaning it may apply retroactively to January 1, 2026. Businesses that correctly followed the old rule for the first half of the year may have under-collected local tax on deliveries into these counties, with no practical way to recover it from customers. The Department of Revenue has not yet issued implementation guidance, and PICPA has asked the Department whether businesses will get transition relief.

Our Current Recommendations 

Businesses should promptly update sales tax software and collection practices to reflect the new law. Systems that still source Pennsylvania local tax based on the seller’s location may apply incorrect rates, so businesses should confirm that their software provider has implemented the required updates.

Businesses should also quantify potential exposure by identifying 2026 deliveries into Philadelphia and Allegheny County where local tax was not collected, as well as out-of-county deliveries where local tax may have been over-collected.

Before filing amended returns, businesses should evaluate the impact of forthcoming Department guidance and any available transition relief.

We recommend monitoring Pennsylvania Department of Revenue communications for guidance on this issue.