The Pennsylvania House of Representatives has reworked legislation that would require out-of-state vendors that don’t collect Pennsylvania sales tax to notify consumers of their obligation to remit use tax.

What is use tax?

Retailers generally only collect and remit sales tax in states where they have a substantial connection, typically defined as a physical presence (although many states are challenging this physical presence precedent with affiliate, click-through, and economic nexus laws). However, taxable sales don’t suddenly become exempt just because a seller is located out of state. If sales tax isn’t collected by the retailer at the time of sale, consumers are supposed to remit use tax directly to the state. Individual use tax compliance is typically quite low, either because people assume they can get away with not paying it, or because they don’t realize they owe it in the first place. This lack of compliance is a growing problem for states that rely on sales and use tax revenue to fund their budgets. Ecommerce has drastically multiplied sales by noncollecting vendors, thereby keeping vital sales tax revenue out of states’ reach and amplifying their need for use tax revenue. A study conducted by the University of Tennessee and the National Conference of State Legislatures estimated that in 2012, states collectively lost more than $23 billion in sales tax revenue due to untaxed electronic sales. It is expensive and time-consuming for state departments of revenue to ensure individuals have paid the use tax they owe. To facilitate use tax compliance, some states have created use tax notification requirements, whereby noncollecting remote vendors must inform customers of their obligation to remit use tax when sales tax wasn’t collected at checkout.

Pennsylvania adds annual reporting requirement