Under Act 21 of 2026, Pennsylvania changed how vendors determine whether Philadelphia’s or Allegheny County’s local sales tax applies. Historically, the local sales tax was based on the point of sale (vendor’s location). With the recent change, the local sales tax is based on the destination of the taxable product or service.
The change will impact businesses well beyond those located in Philadelphia and Pittsburgh. A Pennsylvania vendor located outside either jurisdiction will now have a local sales tax collection responsibility when it delivers taxable products or services to customers in these jurisdictions.
For businesses with customers across Pennsylvania, this makes accurate customer location data, sales tax configuration, and transaction review more important.
Businesses selling into Philadelphia or Allegheny County should review their sales tax processes now rather than wait for enforcement to begin.
What Changed Under Pennsylvania Act 21 of 2026?
According to the Pennsylvania Department of Revenue’s local sales tax guidance, Act 21 of 2026 requires vendors selling taxable products or services to customers in Philadelphia and Allegheny counties to collect and remit the applicable local sales tax.
Vendors already required to collect Pennsylvania’s 6% state sales tax must also collect:
- Philadelphia: 2% local sales tax on applicable taxable sales to customers in Philadelphia
- Allegheny County: 1% local sales tax on applicable taxable sales to customers in Allegheny County
That means an applicable taxable transaction can carry a combined sales tax rate of 8% in Philadelphia or 7% in Allegheny County.
The law was enacted on July 12, 2026, with what the Department describes as a retroactive effective date for tax years after December 31, 2025. The Department has also stated that it will not begin enforcing the new rules until October 1, 2026, recognizing that vendors need time to adjust their systems and procedures.
Local Sales Tax Moves From Point of Sale to Point of Destination
Before the change, Pennsylvania local sales tax was generally determined using the point of sale, meaning where the vendor was located. This resulted in Allegheny County and Philadelphia vendors charging local tax on all orders received (in the local jurisdictions).
Act 21 changes the analysis to the point of destination, meaning where the taxable product or service is delivered.
Consider a business located in Lancaster County that sells a taxable item to a customer in Philadelphia. Under the new destination-based rule, the customer’s Philadelphia destination becomes relevant when determining the local sales tax obligation.
Likewise, a vendor outside Allegheny County may need to collect Allegheny County’s 1% local tax when an applicable taxable product or service is delivered to a customer there.
This approach now aligns local sales tax sourcing more closely with the way Pennsylvania administers its state sales tax.
Businesses with broader multistate sales should also consider how these local rules fit into their overall sales tax obligations. HBK has previously addressed the role of economic nexus and sales tax compliance for companies selling across state lines.
For companies managing sales tax obligations across multiple jurisdictions, HBK’s State & Local Tax Advisory team assists with sales and use tax compliance, nexus evaluations, registrations and related state and local tax matters.
What Businesses Should Do Before October 1, 2026
The Pennsylvania Department of Revenue has provided businesses with an adjustment period before enforcement begins. Use that time deliberately.
1. Identify Sales Into Philadelphia and Allegheny County
Review where taxable products and services are delivered.
Businesses that previously determined local tax primarily from their own location should pay particular attention to sales originating outside Philadelphia or Allegheny County but delivered to customers inside those jurisdictions.
2. Review Customer Address Data
Destination-based taxation depends on knowing the correct destination.
Check whether billing, shipping, service and customer location records are complete and consistent. Businesses with incomplete addresses or inconsistent location information may have difficulty applying the correct local rate.
3. Test Accounting, ERP, E-Commerce and Point-of-Sale Systems
Determine how your systems currently assign local sales tax.
Businesses may need to update tax settings, jurisdiction codes, workflows or third-party tax software so transactions are sourced based on destination when required.
Run test transactions before the Department’s October 1 enforcement date.
4. Review Invoicing and Tax Collection Procedures
Make sure employees responsible for orders, billing, accounts receivable or tax compliance understand the change.
A system update alone may not solve the issue if employees manually enter locations, override tax rates or process transactions outside the normal system.
The Pennsylvania Department of Revenue states that enforcement will begin October 1, 2026. The law itself was enacted July 12, 2026, with a retroactive effective date described by the Department as applying to tax years after December 31, 2025.
Philadelphia’s local sales tax rate is 2%. Vendors subject to the rule collect that amount in addition to Pennsylvania’s 6% state sales tax on applicable taxable transactions, producing an 8% combined rate.
Allegheny County’s local sales tax rate is 1%. Together with Pennsylvania’s 6% state sales tax, the combined rate on applicable taxable transactions is 7%.
No. Under the new destination-based approach, where the taxable product or service is delivered is the key consideration. A vendor located elsewhere may therefore have a local collection responsibility on applicable taxable sales delivered into Philadelphia or Allegheny County.
No. According to the Department of Revenue, Pennsylvania’s state sales tax rules and state and local use tax rules remain unchanged. Act 21 changes how the applicable local sales tax is determined for Philadelphia and Allegheny County.
Prepare Your Sales Tax Process Before Enforcement Begins
For businesses that sell throughout Pennsylvania, Act 21 creates a practical compliance question: Can your current systems consistently identify the destination of a taxable sale and apply the right local tax?
Answering that question before October 1 gives your business time to review customer data, system configurations and transaction procedures without waiting for an enforcement issue to reveal a problem.
HBK CPAs & Consultants works with businesses to evaluate sales and use tax obligations in the context of their operations, systems and growth plans. Our State & Local Tax Advisory professionals can help assess how Pennsylvania’s change affects your organization and where your compliance processes may need attention.
Contact HBK to discuss how Pennsylvania’s local sales tax changes may affect your business.
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