The PA Department of Revenue continues to contact businesses with no recent Use Tax reporting history, to encourage participation in the Department’s Use Tax Voluntary Compliance program by conducting a self-audit of their books and records. This initiative is intended to recover tax owed by Pennsylvania businesses on taxable items, such as office equipment and supplies, purchased from out-of-state retailers who do not collect Pennsylvania Sales Tax.

The benefits to participation in the Voluntary Compliance Program include a limited look-back period and a waiver of penalties. Voluntary Compliance is available to businesses that are not registered with the Department for Sales and Use Tax purposes and for which no investigations or collection actions have begun. A business can elect to participate in the Voluntary Compliance Program, even if it has not received a notice from the Department of Revenue. Businesses that do not respond to a Use Tax Voluntary Compliance letter received from the Department may face additional tax enforcement measures.

Non-taxed online purchases are of particular concern to the Department and are part of the impetus behind its Voluntary Compliance Program. While estimates vary, Pennsylvania is missing out on hundreds of millions of dollars annually in Use Tax revenue. The Department recognizes, however, that its authority to force many online retailers to collect Pennsylvania tax is limited by court decisions.

Pennsylvania retailers have been frustrated by the Department of Revenue’s failure to require various online retailers to collect Pennsylvania Sales Tax. However, in order for a state to impose a tax collection obligation on an out-of-state retailer, such imposition must be authorized by statute and must satisfy certain constitutional requirements. Pennsylvania’s Sales and Use Tax statute contains very broad nexus provisions. Nevertheless, online retailers take the position that constitutional requirements prohibit Pennsylvania from imposing a Sales Tax collection obligation on out-of-state retailers with no physical presence in the state.