A Pennsylvania sales tax exemption removes the obligation to collect tax on a sale that would otherwise be taxable. The exemption can be based on the buyer, item being sold, or the item’s use.

Some exemptions depend on the buyer’s status, such as those for nonprofits and farmers purchasing for agricultural production. Other exemptions are based on the product, regardless of the buyer. These can include clothing and unprepared grocery food. It is important to understand this distinction to avoid charging tax when it doesn’t need to be charged.

Understanding this distinction can also help you avoid accepting an exemption without proper documentation. This could make you liable for the uncollected tax, if the state audits the sale. Pennsylvania’s base sales tax rate is 6% and rises to 7% and 8% in certain regions. Therefore, exemption rules and application are important on both sides of the transaction.

In this article, we cover the individuals and groups that qualify for entity-based exemptions, products that are exempt no matter who buys them, and best practices for managing certificates when exempt sales increase.

Key takeaways

• Pennsylvania exemptions fall into two categories: entity-based (i.e., who is buying) and product-based (i.e., what’s being sold).

• Sellers need valid, complete exemption certificates on file before treating sales as tax-free. If they accept an incorrect certificate, they might be liable for the tax.

• Businesses must keep exemption certificates and related transaction records for at least four years. This is one year longer than the state’s standard audit lookback period.

What is a Pennsylvania sales tax exemption?

A Pennsylvania sales tax exemption removes the 6% state sales tax that applies to many sales of retail goods and certain services. Pennsylvania splits exemptions into two categories. Entity-based exemptions depend on the buyer (e.g., nonprofit, government agency, farmer purchasing for agricultural production). Product-based exemptions depend on what’s being sold, regardless of the buyer.

Who qualifies for a Pennsylvania sales tax exemption?

Qualification for a sales tax exemption in Pennsylvania depends on the buyer’s status and the purchase’s use. The state requires documentation before a seller can treat transactions as exempt, and each type of buyer has its own proof requirement:

• Nonprofit organizations: Before they can make tax-free purchases, charitable, religious, and educational organizations need to complete a REV-72 form—Application for Sales Tax Exemption—from the Department of Revenue. Federal nonprofit status alone doesn’t automatically apply to Pennsylvania sales tax.

• Government entities: Federal agencies, the Commonwealth of Pennsylvania, and political subdivisions (e.g., counties, municipalities, school districts) don’t pay sales tax on purchases tied to government functions.

• Resellers: A business buying inventory it plans to resell—such as a retailer stocking shelves or a distributor moving goods downstream—skips tax at the point of purchase. The tax applies later when customers buy the items.

• Manufacturers: Equipment, machinery, and supplies used directly to produce goods for sale can qualify for exemptions. However, items used for general operations—such as office furniture—remain taxable.

• Farmers: Purchases used directly for agricultural production are exempt when the buyer runs a farming business. This does not apply to personal use, such as gardening. These purchases can include seed, feed, and fertilizer.

• Common carriers: Vehicles and equipment used mainly to transport people or property for hire can qualify under the state’s common carrier exemption.

Which products qualify for a Pennsylvania sales tax exemption?

Some sales tax exemptions attach to the product instead of the buyer. Pennsylvania has specific rules that apply item by item:

• Clothing: Everyday articles of clothing are generally exempt. However, formal wear, athletic clothing, sporting equipment, and accessories (e.g., jewelry and handbags) remain taxable.

• Food and beverages: Grocery items bought for home consumption are exempt. However, prepared food sold ready to eat is taxable. This includes restaurant meals or hot food from deli counters.

• Prescription and certain over-the-counter drugs: Medications and specific medical devices are exempt, such as prosthetics.

• Residential heating fuels: Oil, natural gas, electricity, and coal used to heat a home are exempt. However, the same fuels used to heat a commercial property typically are not exempt.

• Textbooks: Textbooks required for courses at schools, colleges, or universities are exempt when purchased by students.

• Newspapers: Certain newspapers are exempt. This includes newspapers that meet the state’s definition, are published at regular intervals, and contain news of general interest.

How to use a Pennsylvania sales tax exemption certificate

Buyers must fill out the Pennsylvania Exemption Certificate—form REV-1220—and give it to the seller to support entity-based or use-based exemption claims. The buyer needs to enter their business information, check the box for the exemption type (e.g., resale, manufacturing, or government), and sign it.

Pennsylvania also accepts the Multistate Tax Commission’s Uniform Sales and Use Tax Resale Certificate. It covers exemption claims across several states on one form, instead of a separate certificate for each.

Buyers don’t need to provide a new certificate each time they purchase from the same seller. Instead, a blanket certificate on file covers ongoing purchases, as long as the relationship and exemption reason haven’t changed.

Sellers are expected to accept a certificate in good faith, rather than independently investigate the buyer’s tax status. However, if the seller accepts a certificate that is incomplete, isn’t received within 60 days of the sale, or obviously doesn’t match the transaction, the seller can become responsible for the uncollected tax if the state audits the sale.

What records do businesses need to keep for Pennsylvania sales tax exemptions?

Pennsylvania requires businesses to keep sales tax exemption certificates and related transaction records for at least four years from the date of the sale. The state’s standard audit lookback period is three years, but the Department of Revenue can extend that window in certain situations. Digital recordkeeping is accepted and is often the more manageable path for businesses that handle exemption certificates from more than a handful of buyers.

Proper documentation goes beyond having certificates on file. A business needs to connect each exempt sale to the specific certificate that justified it. Therefore, businesses need to keep invoices, purchase orders, and certificates together so auditors can trace exemptions. Resale exemptions require records that show the items were actually resold, rather than used by the business.

Audits often reveal that businesses bought tax-free inventory under resale certificates and used part of the inventory internally without paying use tax on the portion they kept.

How can businesses remain compliant with rules for Pennsylvania sales tax exemptions?

The compliance load increases with volume and depends on the variation of exempt buyers. Generally, the exemption certificate work happens outside of a business’s payments infrastructure and involves collecting the forms, checking their completion, and storing them in a retrievable place. Automated tools—such as Stripe Tax—can assist with calculations after the business has determined that a customer qualifies for exemption.

Stripe Tax lets you indicate an individual customer’s tax-exempt status directly on their customer record. You can do so using a field with three possible values: none, exempt, or reverse. The last value applies to B2B transactions in tax regimes with reverse charge rules. This does not apply to domestic sales in Pennsylvania.

Once a customer is flagged as exempt, Tax excludes them from tax calculations on subsequent invoices and charges them automatically. This way, you don’t have to manually zero out tax on every transaction for a repeat wholesale or nonprofit customer.

Stripe doesn’t validate or store the certificate for you. Instead, it is important to consider the following:

• Marking a customer exempt in Tax isn’t the same as verification. Since verification is based on a certificate you’ve already reviewed and filed, exempt status in Tax doesn’t substitute for the recordkeeping the state expects.
  
• Businesses handling high volumes of exempt sales typically pair this setting with a separate document process. This can include a shared drive organized by customer or a dedicated certificate-tracking system.
  
• The goal is a paper trail behind every exempt customer record that’s easy to produce, if the Department of Revenue asks for it.
  

The right setup depends on how many exempt transactions a business processes and how much the business is willing to risk on manual tracking. Businesses with growing exempt volumes in Pennsylvania or in states with similar certificate rules need to consider whether their current processes can produce clean, documented answers for every exempt sale on demand. If it can’t, that’s typically the sign to automate the certificate side of tax compliance.

How Stripe Tax can help

Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Start collecting taxes globally by adding a single line of code to your existing integration, clicking a button in the Dashboard, or using our powerful API.

Stripe Tax helps you monitor your obligations and alerts you when you exceed a tax registration threshold based on your Stripe transactions. It can also register to collect tax on your behalf in the US, automate US filings in the Dashboard, and manage global filings through trusted partners. Stripe Tax automatically calculates and collects sales tax, VAT, and GST on:

• Digital goods and services in all US states and over 100 countries
  
• Physical goods in all US states and 42 countries
  

Stripe Tax can help you:

• Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration, or add tax collection with the click of a button in the Stripe Dashboard.

• Register to pay tax: If you need to register for a sales tax in the US, let Stripe manage your tax registrations. You’ll benefit from a simplified process that prefills application details—saving you time and simplifying compliance with local regulations. If you need help registering outside of the US, Stripe partners with Taxually to help you register with local tax authorities.

• Automatically collect tax: Stripe Tax calculates and collects the right amount of tax owed, no matter what or where you sell. It supports hundreds of products and services and is up-to-date on tax rules and rate changes.

• Simplify filing: Stripe Tax automates US filings in the Dashboard, powered by TaxJar. For global filings, Stripe Tax seamlessly integrates with filing partners, so your global filings are accurate and timely. Let our partners manage your filings so you can focus on growing your business.

Learn more about Stripe Tax, or get started today.

FAQs about Pennsylvania sales tax exemptions