Pennsylvania Just Flipped How Local Sales Tax Works in Philadelphia and Allegheny County. Here's What Changes October 1.
Pennsylvania only has two local sales taxes: 2% in Philadelphia and 1% in Allegheny County. For decades, both followed the seller's location. Starting October 1, they follow the customer's instead.
Governor Josh Shapiro signed Act 21 of 2026 into law on July 12 as part of Pennsylvania's budget. The law shifts Philadelphia and Allegheny County local sales tax from origin sourcing to destination sourcing. The effective date is retroactive to January 1, 2026, but the Pennsylvania Department of Revenue announced it won't enforce the new rules until October 1, giving businesses time to update their systems.
What actually changes
Under the old rule, a business located in Philadelphia charged the 2% local tax on every taxable sale it made anywhere in Pennsylvania, even to a customer three counties away. A business located outside Philadelphia or Allegheny County generally didn't charge local tax at all, even when shipping directly to a customer inside those jurisdictions. The customer technically owed use tax on that purchase, but almost nobody paid it.
Act 21 flips that. Local tax now follows where the product or service is delivered, not where the seller sits.
- Deliveries into Philadelphia: 8% total (6% state plus 2% local)
- Deliveries into Allegheny County: 7% total (6% state plus 1% local)
- Deliveries everywhere else in Pennsylvania: 6% state only
That means a business in Lancaster shipping to a customer in Philadelphia now needs to collect the 2% local tax it never had to worry about before. It also means a business based in Philadelphia shipping to a customer in Erie no longer needs to charge Philadelphia's local tax on that sale.
Who this affects
This isn't limited to businesses physically located in Philadelphia or Pittsburgh. Any business with Pennsylvania sales tax obligations that delivers taxable products or services into either jurisdiction needs to collect the applicable local rate, regardless of where the business itself is located. Out-of-state sellers with Pennsylvania nexus are included.
A few categories keep their existing special sourcing rules and aren't affected by this change: mobile telecommunications services, motor vehicles, motorboats, aircraft, and certain construction materials.
In-person sales are also unaffected in the way you'd expect. If a customer walks into your store and takes the product with them, that sale is still sourced to your location, not their home address. The change is about delivered sales: shipped orders, delivered services, anything where the destination differs from the point of sale.
The retroactive period is worth a conversation, not a panic
Because the law's effective date is January 1, 2026, but enforcement doesn't start until October 1, there's a nine-month gap where the old rule and the new rule technically overlap. If your business is in Philadelphia or Allegheny County and you've been charging local tax on out-of-county sales all year under the old system, you may have collected tax you didn't ultimately owe under the new rule. That's a correction and refund question, not something to resolve by adjusting prices going forward.
The Department of Revenue hasn't issued detailed guidance yet on how it wants that retroactive period handled. Most businesses are reasonably choosing to treat October 1 as the practical start date and deciding deliberately how to handle the months before it, rather than guessing at a fix before guidance exists.
What to do before October 1
- Check your tax settings. If your point-of-sale, invoicing, or e-commerce platform sources local tax based on your business address, that configuration needs to change to destination-based sourcing.
- Confirm your customer address data is accurate. Destination sourcing only works if you know exactly where each order is delivered.
- Pull your 2026 sales into Philadelphia and Allegheny County. You can't size your exposure, in either direction, until you know the number.
- Decide how you'll handle the retroactive period, ideally before October 1 rather than after an auditor asks about it.
If you sell into Pennsylvania and haven't touched your tax settings for this yet, this is the moment to do it.
Do you already owe tax somewhere you’re not registered?
Two questions. No email required to see your answer.
Have your sales into any single state topped $100,000 in the last four quarters?
What this means for your business
Thresholds move, rules change, and nobody tells you when you cross one. We’ll tell you where you stand in 30 minutes — and if there’s nothing to fix, we’ll say so.