Pennsylvania has a long legacy of commerce and invention, from its early role in the founding of the United States to the vibrant array of tech startups and small businesses that call it home today. The state’s major cities, such as Philadelphia and Pittsburgh, boast lively business communities. In 2023, Pennsylvania had the sixth-highest gross domestic product in the US. The more rural areas offer everything from farmland for local agriculture ventures to scenic small towns for boutiques and restaurants. These diverse regions create a welcoming environment for entrepreneurs.

Below, we’ll explain how to start a business in Pennsylvania, from the necessary paperwork and taxes to which financial incentives you might want to explore. Here’s what you should know.

What’s in this article?

• Why start a business in Pennsylvania?
  
• How do you register a business in Pennsylvania?
  
• What taxes do businesses in Pennsylvania need to consider?
  
• What permits and licenses might your business need?
  
• What resources are available for Pennsylvania entrepreneurs?
  

Why start a business in Pennsylvania?

Pennsylvania’s diverse social and economic climate means there’s a niche for every type of venture. You might launch a small home-based business that eventually expands or build a statewide enterprise right away. The state government continues to look for ways to attract new projects.

Pennsylvania’s robust population of more than 13 million residents creates a healthy market for businesses. According to a report from the Pennsylvania Tourism Office, there were 192.4 million visitors to the state in 2022, an increase of more than 12.0 million from 2021. Tourists visit the state for its historical sites and natural getaways—and everything in between. New ventures in Pennsylvania can tap into local and out-of-state interest.

Here are a few reasons why people decide to start their businesses in Pennsylvania:

• Location advantage: Pennsylvania is located in the heart of the mid-Atlantic region, a short distance from major cities such as New York and Washington, D.C. Access to multiple transportation routes makes shipping and logistics less of a hurdle.

• Variety in industry: Pennsylvania’s economy includes fields such as healthcare, education, manufacturing, technology, and hospitality. Pittsburgh has embraced the tech sector, becoming a hub for software development, AI research, and robotics. Meanwhile, Philadelphia is a hub for life sciences, pharmaceuticals, and financial services.

• Workforce and talent: Major universities (e.g., the University of Pennsylvania, Penn State, Carnegie Mellon) generate a deep pool of professionals. That helps businesses who need staff with specialized skill sets. Community colleges and training programs are also widespread, supporting tradespeople and service-oriented workforces.

• Support networks: There are Small Business Development Centers (SBDCs) in many counties, as well as chambers of commerce that help connect entrepreneurs to mentors and resources.

How do you register a business in Pennsylvania?

Like every other state, Pennsylvania has specific legal requirements for business registration and operation. Pennsylvania consolidates most of what you need to register a business on the Department of State’s website, which makes it easier for new business owners to get started. Here are the steps you’ll need to take to form your business and start operating in Pennsylvania.

Choose a business structure

First, you’ll need to choose a business structure and register your business. Consulting an accountant or attorney can help you pick the structure that fits your future plans. Here are your options:

• Sole proprietorship: A single individual owns the business. This is a good option if you’re the sole operator of your business. For this business type, you typically don’t need to formally register with the state if you’re using your legal name.

• Partnership: Two or more people share ownership. This can be a general partnership or a limited partnership, depending on the level of liability and involvement. You’ll need to register your business with the Pennsylvania Department of State, and you might need a formal partnership agreement, especially for a limited partnership or limited liability partnership.

• Limited liability company (LLC): This type of business gives owners personal liability protection while allowing pass-through taxation. To register it, you’ll need to file a Certificate of Organization with the Department of State.

• Corporation (C corp or S corp): This is a formal arrangement that can be good for attracting investors. To register this type of business, you file articles of incorporation, then maintain certain corporate formalities. For instance, you’ll need to create bylaws and hold annual shareholder meetings.

The Department of State’s e-filing system is often the quickest path for formal business registration. You can file forms online, pay fees, and get a faster turnaround than with paper forms.

Register your business name

If you plan on using a brand name instead of your own legal name, you must register a “doing business as” name, also known as a fictitious name. You’ll have to file this name with the Pennsylvania Department of State, but before you can do that, you’ll need to confirm that your business name is available—LLCs and corporations are not permitted to share a name with existing businesses. There’s an online database where you can check whether another registered entity in Pennsylvania is already using that name. And if you plan on trademarking it in the future, you might want to check federal databases too.

If you’re operating under your own name for a sole proprietorship, you can skip this step.

Obtain a federal Employer Identification Number (EIN)

Almost every business type will benefit from having an EIN, which is a nine-digit number that the Internal Revenue Service (IRS) uses to track your entity. You need an EIN if you plan on hiring staff or opening a business bank account. You can apply on the IRS website at no cost.

Register for Pennsylvania taxes

If your business sells goods, you might need a sales tax license. If you have employees, you must register for withholding tax and unemployment compensation tax. Form PA-100 (Pennsylvania Enterprise Registration) lets you complete these registrations electronically.

Gather any other state-level or local licenses

Depending on your industry, you might need approvals from specific Pennsylvania boards or commissions. For example, restaurants need approval from health departments, and certain professional services require licensure from the Pennsylvania Bureau of Professional and Occupational Affairs. Boroughs, towns, and counties might also require extra permits or zoning approvals. Check with your municipal government so you don’t discover unexpected restrictions later on.

What taxes do businesses in Pennsylvania need to consider?

Taxes can be one of the most complicated parts of running a business, especially for founders who are doing them for the first time. The rules vary depending on what you sell, how you’re structured, and whether you employ workers. Pennsylvania taxes include a few nuances that you’ll want to review.

State income tax

• Personal income tax: If you’re a sole proprietor or if your business is a pass-through entity such as an S corp or LLC, you might owe Pennsylvania personal income tax on your share of the profits. Pennsylvania’s personal income tax rate is a flat percentage, which simplifies calculations compared to the tiered rates of other states.

• Corporate net income tax: If your business is registered as a C corp, you have to pay corporate income tax. Pennsylvania’s corporate income tax rate is 7.99%.

Sales and use tax

If you sell goods (and, in some cases, certain services), you’ll need to collect and remit state sales tax. Pennsylvania’s general state rate is 6%, with local add-ons in places including Philadelphia and Allegheny County that increase the rate. Even if you don’t have a physical storefront, you might have to collect sales tax if you have an online presence that reaches Pennsylvania residents.

Local taxes

Pennsylvania’s local taxes include a variety of local earned income taxes, and some municipalities levy business privilege taxes. You might also encounter local services tax, which is typically a small sum per employee. Research taxes for the city or county where you’re setting up shop, because local rules can differ.

Unemployment compensation tax

If you have staff, you must pay unemployment compensation taxes to the state. Rates can vary depending on your business’s experience rating. You can file online through the Department of Labor and Industry.

Payroll taxes

Employers must withhold Pennsylvania personal income tax from wages. You have to deposit withheld amounts with the state and file periodic returns.

What permits and licenses might your business need?

Pennsylvania’s licensing requirements depend heavily on what you’re selling or the service you’re providing. Some businesses will need only a basic local business license, while others might need advanced certifications. Always double-check at both the state and local levels: there might be county-level regulations for specialized fields, or there might be local zoning requirements for your location. If you’re uncertain, a visit or a call to your local municipal office can help clarify what forms or fees you need.

Here’s what to expect based on your industry.

Restaurants and food services

Any business that handles food or beverages must meet local health department standards. To confirm sanitary conditions, you must undergo inspections and then get a license that approves your kitchen and dining setup.

Professional services

Jobs in accounting, legal services, medical practices, and real estate often require specialized licensure from the state’s professional boards. Depending on the field, these boards often require education credentials, examinations, and continuing education.

Construction and contracting

There are requirements for registering as a home improvement contractor. You also need to comply with local building codes and the Home Improvement Consumer Protection Act.

Sales tax license

If you sell products (or certain taxable services), you’ll need to register for a sales tax license, sometimes called a seller’s permit. This license sets you up to collect sales tax from customers and remit it to the Department of Revenue.

What resources are available for Pennsylvania entrepreneurs?

Many organizations in Pennsylvania are devoted to seeing new businesses grow. They range from small neighborhood groups to large statewide networks. You don’t have to tackle everything alone, and tapping into established networks can give you ideas, partnerships, and moral and financial support. There’s also an assortment of grants, loans, and other programs that can help you fund your business.

Here are some resources that might be available to you.

Pennsylvania Industrial Development Authority loans

These loans support a range of ventures from manufacturing to service-based businesses. Interest rates can be more favorable than conventional bank loans, and some lines of credit target job creation activities. Check the Department of Community & Economic Development for guidelines on eligibility.

SBDCs

These centers are located at colleges and universities across the state and provide no-cost consulting. They can help you create a business plan, figure out financial projections, and practice your pitch for potential partners.

Ben Franklin Technology Partners

This organization is focused on technology and offers advice, funding opportunities, and connections for innovators. Each regional branch customizes its programs to the needs of local companies.

Local grants and tax abatements

Some municipalities want to attract new businesses to revitalize their communities. They offer programs such as property tax reductions for a set number of years if you develop certain areas or open storefronts in designated districts. Pittsburgh, for example, has neighborhood improvement initiatives, and Philadelphia focuses on commercial corridors.

Keystone Innovation Zone (KIZ) tax credits

These credits are designed to spur growth around Pennsylvania’s colleges and universities, and they can offset some of your tax burden if your business meets program criteria. You might be able to sell or transfer the tax credit if you can’t fully use it, depending on your finances.

SCORE chapters

SCORE is a national, nonprofit organization that connects experienced volunteers with new business owners for mentorship. Many Pennsylvania chapters coordinate events and workshops.

Local chambers of commerce

Local chambers of commerce are excellent places to meet fellow entrepreneurs, attend networking events, and promote your services. Many chambers can also direct you to local business improvement grants or programs.

Microloans from nonprofits

Organizations such as Kiva and local Community Development Financial Institutions (CDFIs) can offer microloans. These smaller amounts might be enough to cover a piece of equipment or an initial marketing budget. Although they’re less formal than the financing you’d receive through a traditional bank, these loans can be important for enabling new ventures.