Pennsylvania’s sales tax system

Find out interesting insights with John Silverstein,VP of FP&A, XR Extreme Reach

Moderated by Kate, Financial Technology Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Kate: Hello, everyone! Good morning. My name is Kate, and I’m a financial technology advisor here at Hyperbots. Today, I’m thrilled to have John with me. Hey, John, how are you doing today?

John Silverstein: Great, thanks for having me.

Kate: Thank you for joining us. A little bit about John—he’s the Vice President of Finance Processes and Accounting at XR Extreme Reach. Today we will be discussing Pennsylvania’s sales tax system. So let’s jump right in. Coming to the first question, is the fundamental question: what makes Pennsylvania’s sales tax system unique, and how does it impact businesses operating in the state?

John Silverstein: Pennsylvania is unique in that it allows jurisdictions to have different tax rates. Pennsylvania has a 6% statewide sales tax rate. For example, Philadelphia has a total tax rate of 8%, which can add complexity for businesses in multiple cities or counties within Pennsylvania. This means companies need to track not just at the state level but also the local taxes in metropolitan areas.

Kate: That’s an interesting point. Are there notable goods or services that are exempt from sales tax in Pennsylvania?

John Silverstein: Many goods and services are exempt. Clothing and footwear are exempt from sales tax across the state. Prescription drugs and certain medical devices are also exempt. However, digital products like ebooks or music are taxable in Pennsylvania, which surprises some businesses. It varies, so we must continue to review tax regulations by jurisdiction.

Kate: Yeah, I understand. Could you explain some of the challenges businesses face in keeping track of these exemptions and tax rates, especially if they operate in multiple locations?

John Silverstein: The biggest challenge is understanding exemptions. For example, food is generally exempt from sales tax, but prepared foods like takeout, restaurant meals, and some frozen meals are taxable. With multiple local jurisdictions applying different rates, businesses often struggle to stay compliant. In cities like Philadelphia, the tax rate could be 8%, while rural areas might only have a 6% rate. It varies by municipality.

Kate: I see. That brings us to the frequency of tax rate changes. How often do sales tax rates or exemptions change, and how do businesses stay updated?

John Silverstein: Sales tax rates in Pennsylvania don’t change frequently, but municipalities can adjust their rates more often. Philadelphia occasionally revises its local taxes. Companies must constantly monitor the State’s Department of Revenue and local tax authorities for updates. For example, if there is a rate change in Philadelphia, businesses need to adjust their systems immediately.

Kate: I understand. How does AI help businesses stay compliant with these frequently changing tax laws?

John Silverstein: AI can automate tax calculations and updates to tax tables, ensuring compliance with changes or adjustments. For example, if there’s a tax exemption update in Philadelphia, AI ensures the correct rate is applied based on the customer’s location. It also tracks regulation changes, notifying businesses of updates. AI can automatically apply new rates to transactions, eliminating the need for manual updates.

Kate: That’s very insightful. Could you provide an example where AI has helped streamline sales tax compliance for a company?

John Silverstein: One example is a retail business operating in both Philadelphia and Pittsburgh. The company had to track two different local tax rates—8% in Philadelphia and 7% in Pittsburgh. With an AI-powered sales tax system, the company no longer needed to manually calculate taxes for each transaction. AI automatically applied the correct rates for each location and adjusted for any tax rule changes.

Kate: Impressive. Now, with all the different rules in Pennsylvania, how can a business ensure it remains compliant, especially when it comes to exemptions?

John Silverstein: Keeping accurate records is key. AI can help identify exempt products, such as food versus prepared meals, ensuring proper application of exemptions. AI can also detect misclassifications in product categories, ensuring businesses don’t miss applicable exemptions. Additionally, AI helps keep item lists clean and updated with exemption status changes, such as during tax holidays for back-to-school items.

Kate: I totally agree with you, John. We’ve almost reached the end of our discussion today. Last question: what advice would you offer to businesses struggling to navigate Pennsylvania’s complex sales tax rules?

John Silverstein: My advice is to invest in a sales tax automation solution that incorporates AI. This reduces manual errors and helps businesses stay compliant. Relying solely on standard tax tables from software like QuickBooks may not account for jurisdiction-specific rates and changes. Staying informed through the Pennsylvania Department of Revenue’s website and using AI tools to monitor changes can significantly improve efficiency.

Kate: Very insightful. Thank you so much, John, for joining us and sharing your valuable insights today. It’s been a pleasure.

John Silverstein: No problem. Thanks for having me again.

Kate: Thank you.