Preface: “The more things change, the more they stay the same.” — Jean-Baptiste Alphonse Karr, Les Guêpes (1849)
Act 21 of 2026: What Pennsylvania’s New Local Sales Tax Sourcing Rule Means for Your Business
If you do business in or around Philadelphia or Allegheny County, a provision buried inside Pennsylvania’s new budget-implementation law — Act 21 of 2026 (formerly Senate Bill 146), signed July 12, 2026 — is worth your attention. It changes how local sales tax is “sourced,” meaning which transactions owe Philadelphia’s or Allegheny County’s local sales tax and which don’t. The change applies to tax years beginning after December 31, 2025, and the Department of Revenue has indicated it will begin enforcing the new rule for sales made on or after October 1, 2026 — so businesses have a short window to get their systems ready.
A quick refresher: Pennsylvania’s state sales tax rate is 6%. On top of that, Philadelphia adds 2% (combined 8%) and Allegheny County adds 1% (combined 7%). No other city or county in the state imposes a local sales tax.
The rate hasn’t changed. Act 21 does not raise or lower any tax rate — Philadelphia is still 2%, Allegheny County is still 1%. What changed is the rule for deciding which sales those local rates apply to, not how much tax is owed once a sale is subject to them.
Before Act 21: tax followed the seller
Philadelphia and Allegheny County each had their own local sales tax rule, written separately from the state’s rule. In practice, both worked the same way: the tax followed the seller, not the customer. A business located in Philadelphia charged the 2% local tax on its sales no matter where the goods ended up, even if they were shipped out of the city. A business located outside Philadelphia generally didn’t have to charge that 2%, even if it shipped directly to a customer in Philadelphia. Allegheny County’s 1% tax worked the same way. This was different from how Pennsylvania’s regular 6% state sales tax already worked, which is based on where the customer receives the goods, not where the seller is located.
After Act 21: tax follows the customer
Act 21 fixes that mismatch. Now, Philadelphia’s and Allegheny County’s local sales tax follows the same rule as the state’s 6% tax: it’s based on where the customer receives the goods, not where the seller is located.
So the question is no longer “where is the seller located?” It’s “where does the customer receive the item, or where will it be used?” If that’s an address in Philadelphia, the 2% local tax applies. If it’s in Allegheny County, the 1% local tax applies. If it’s anywhere else in Pennsylvania, only the 6% state rate applies — no local add-on. That’s true even if the seller itself is based in Philadelphia or Allegheny County.
Practical steps to take now
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- Verify customer addresses. The tax now turns on the delivery/use location, so your invoicing or e-commerce system needs an accurate ship-to or place-of-use address for every sale — not just a billing address. A stale address field is now a tax-rate risk.
- Update your tax engine or POS settings. If you use a sales tax automation tool (Avalara, Vertex, TaxJar, or similar), or hard-code rates in your accounting platform, confirm the jurisdiction logic reflects the new rule for Philadelphia and Allegheny County.
- Refresh exemption certificate files. Collect current, properly completed exemption certificates (Form REV-1220) from wholesale, resale, and exempt-organization customers, and confirm certificates on file haven’t expired.
- Check your marketplace and platform settings. If you sell through a marketplace facilitator or a hosted e-commerce platform, confirm the platform’s tax settings have been updated to source Philadelphia and Allegheny County sales correctly — don’t assume the platform handled it automatically.
- Spot-check recent transactions. Since the change applies to tax years beginning after December 31, 2025, it’s worth reviewing earlier-2026 transactions to confirm they were taxed correctly, especially anything invoiced before systems were updated.
- Train the team. Make sure whoever handles invoicing, order entry, or customer service understands that the local tax now depends on the customer’s delivery address, not the business’s location — a common source of manual errors during the transition.
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If you’re located in Philadelphia or Allegheny County
Don’t assume every sale you make still carries the local tax. Under the new rule, a sale you ship to a customer outside the city or county generally won’t carry the Philadelphia or Allegheny County add-on, even though your business sits inside that jurisdiction. You still charge the local rate on sales delivered within the jurisdiction, exactly as before — but the obligation now runs sale-by-sale, based on the delivery address, not on your storefront’s address as a blanket rule.
If you’re located outside those jurisdictions (including out-of-state sellers)
If you ship goods to customers in Philadelphia or Allegheny County and already collect Pennsylvania’s 6% state sales tax (because you have nexus in PA, physical or economic), you now need to evaluate whether each delivery address falls inside Philadelphia (add 2%) or Allegheny County (add 1%). Sourcing follows the customer’s location, not yours — being headquartered elsewhere doesn’t exempt you from the local add-on when that’s where the goods land.
Bottom line
This new law doesn’t change what you owe in tax dollars-and-cents terms — Philadelphia is still 2%, Allegheny County is still 1%. What it changes is the test for deciding when those local rates apply, shifting from the seller’s location to the customer’s delivery address, in line with the same destination-based rule already used for the state’s 6% tax.