Allentown has updated its business privilege tax, becoming the second city in the state after Philadelphia to expand city taxes to include businesses that don’t have brick-and-mortar locations in the city, but do a significant amount of business there.
In Philadelphia, the standard applies to the city’s Gross Receipts Tax.
While Allentown didn’t name specific businesses that it is targeting, the measure is the result of a 2018 U.S. Supreme Court decision in South Dakota v Wayfair, which sought to tax ecommerce businesses, like furniture and home goods e-retailer, Wayfair. It would also apply to such e-retailers as Amazon.
Bureau of Revenue & Audit Operations Manager Seth O’Neill noted that the city hasn’t changed its business privilege tax guidelines since 1996 and much – from the court ruling to technology and commerce – has changed since then.
“There’s been a lot of things that have come to life that are different that should be included in the tax,” O’Neill told the city’s business and finance committee during their December 21 meeting.
He noted since South Dakota v Wayfair most states have begun charging state sales tax to such businesses, including Pennsylvania.
“The Supreme Court found that it was no longer a constitutional concern because of how much business is done online and from a remote setting,” he said.
O’Neill said the update doesn’t create a new tax in the city and that most that are used to paying the business privilege tax won’t see any changes. This simply applies new rules to how the tax is going to be administered to those businesses without a base of operations in the city.
About half of those paying business privilege taxes pay less than $100 per year and 75% of pay less than $1,000.
This is targeting much larger interstate businesses that have at least 15 business transactions in the city generating at least $500,000 each year.
O’Neill said the $500,000 threshold was chosen because it seems to be the national average for those cities that include such businesses in their business privilege tax and is in line with Pennsylvania’s threshold for reporting corporate income tax.
The city administration noted there is no revision to its Business Privilege Tax rates, which are as follows.
On wholesale transactions, the rate shall be 1 mill ($1.00 per $1,000.00) of gross volume of business.
On retail transactions, the rate will be 1.5 mills on gross volume of business.
On service transactions, the rate shall be 3 mills of gross volume of business.
On receipts attributable to rental transactions, the rate will be 3 mills of gross volume of business.
The Business Privilege Tax Regulations can be found on the city website at www.allentownpa.gov.