Updated on August 21, 2026 by David Korpel
Pennsylvania has changed the way businesses determine whether Philadelphia’s 2% local sales tax or Allegheny County’s 1% local sales tax applies to a taxable sale.
Under Act 21 of 2026, the focus has shifted from the point of sale to the point of destination.
In simpler terms:
OLD RULE: Where is the seller?
NEW RULE: Where is the taxable product or service being delivered?
That sounds simple enough. But once you start thinking about online orders, digital products, photography, remotely delivered work, shipping addresses, billing addresses and businesses with customers all over Pennsylvania, there are plenty of situations that require a little more thought.
The most important thing to understand is that there is not one universal “use the billing address” rule.
Instead, the address you use depends on what you’re selling and how you deliver it.
For physical goods, the destination is generally the shipping or delivery address.
For taxable digital products, Pennsylvania specifically looks to the customer’s billing address on file.
That distinction is where many businesses get tripped up.
First: The Tax Rates Have Not Changed
Pennsylvania’s general state sales tax rate remains 6%.
What changes is whether a local tax gets added:
- Philadelphia: 6% PA + 2% Philadelphia = 8%
- Allegheny County: 6% PA + 1% Allegheny County = 7%
- Other Pennsylvania counties: 6%
Act 21 also does not suddenly make a previously nontaxable product or service taxable.
The first question is still:
Is what I am selling subject to Pennsylvania sales tax?
If the answer is no, Act 21 does not change that.
If the answer is yes, the next question becomes:
Where is it being delivered?
The Address Rule Depends on What You’re Selling
Before getting into examples, here is the easiest way to think about it.
| Type of sale | Address/location to focus on |
| Physical product shipped to customer | Shipping/delivery address |
| Physical product picked up in person | Pickup/store location |
| Taxable digital product | Customer billing address on file |
| Taxable service with a clear delivery location | Where the taxable service is delivered |
| Taxable service with a digital final product | Often the billing/digital-delivery sourcing rule, depending on the specific service |
So this is not a “shipping address first, billing address second” hierarchy.
It is more accurate to say:
Use the location where the item is delivered.
For physical goods, that is usually the delivery address.
For digital products, Pennsylvania uses the customer’s billing address on file.
Why This Is a Big Change for Businesses Outside Philadelphia and Allegheny County
Historically, a Pennsylvania business outside Philadelphia and Allegheny County generally collected the 6% Pennsylvania sales tax even when selling to a customer in Philadelphia.
That is no longer the general destination-based approach.
Example: Montgomery County Business → Philadelphia Customer
A taxable business is located in Montgomery County.
It sells a taxable physical product to a customer in Center City Philadelphia and ships it to the customer.
Before:
6%
Now:
8%
The business must collect the 6% Pennsylvania sales tax plus Philadelphia’s 2% local tax because the taxable merchandise is being delivered into Philadelphia.
The seller’s location is no longer the controlling fact.
The Reverse Can Happen Too
A Philadelphia retailer sells a taxable item and ships it to a customer in King of Prussia.
Under the destination approach, the product is being delivered to Montgomery County.
Tax: 6%.
That means Philadelphia-based businesses may actually collect less local tax on some shipped transactions than they did under the old point-of-sale approach.
Physical Products: Use the Shipping or Delivery Destination
For physical merchandise, the clearest rule is:
Where is the item actually being delivered?
Example: Philadelphia Billing Address, King of Prussia Shipping Address
A customer has:
Billing address: Philadelphia
Shipping address: King of Prussia
The physical product is shipped to King of Prussia.
Tax: 6%.
The shipping address matters because that is where the merchandise is actually delivered.
Example: King of Prussia Billing Address, Philadelphia Shipping Address
A customer has:
Billing address: King of Prussia
Shipping address: Philadelphia
The physical product is shipped to Philadelphia.
Tax: 8%.
For a shipped tangible product, the billing address does not override the actual delivery destination.
What About In-Store Purchases?
Destination sourcing does not mean a retailer needs to collect everyone’s home address at the register.
If a customer walks into a store, buys a taxable item and takes possession of it there, the product is delivered at the store.
Montgomery County Store
Customer buys a taxable item and walks out with it.
Tax: 6%.
Philadelphia Store
Customer buys a taxable item and walks out with it.
Tax: 8%.
Allegheny County Store
Customer buys a taxable item and walks out with it.
Tax: 7%.
The complication comes when the store later ships or delivers the product somewhere else.
Digital Products: Billing Address Becomes Much More Important
Digital transactions work differently because there often is no physical shipping destination.
Think about:
- Digital photographs
- Downloadable files
- Software
- Streaming or electronically transferred products
- Other taxable digital content
No UPS label tells you where the product physically arrived.
Pennsylvania’s digital-product guidance uses the customer’s billing address on file to determine the location of the sale.
That means the billing address becomes the key sourcing fact for taxable digital products.
Photography Example
Assume a photographer is located outside Philadelphia.
The photographer shoots corporate headshots at a client’s Center City office and later delivers the finished photos digitally.
Scenario A: Philadelphia Billing Address
The company’s billing address is in Philadelphia.
Tax: 8%.
Scenario B: King of Prussia Billing Address
Same photographer.
Same Center City shoot.
Same digital delivery method.
But the customer’s billing address is in King of Prussia.
Tax: 6%.
The location of the camera does not control the local tax.
The taxable digital product is sourced based on the customer’s billing address.
Same Shoot, Different Tax
This is a useful example because it shows why “where the work happened” can be misleading.
A photographer spends the entire day in Philadelphia.
The client is billed in Montgomery County.
The final photos are delivered electronically.
Tax: 6%.
Now flip it.
The photographer performs the shoot in Montgomery County.
The client is billed in Philadelphia.
The final taxable photos are delivered digitally.
Tax: 8%.
For digital photography, the customer’s billing address can matter more than the physical shoot location.
What If There Is Both a Billing Address and a Shipping Address?
This is one of the most important questions businesses will have.
The answer depends on what is being delivered.
Physical Product
Use the shipping or delivery address.
Example:
Billing address: Philadelphia
Shipping address: Chester County
Tax: 6%.
Digital Product
Use the billing address on file.
Example:
Billing address: Philadelphia
Digital file emailed to customer
Tax: 8%.
The existence of a billing address does not override a physical shipping destination for tangible goods.
And the lack of a physical delivery address is exactly why the billing address matters more for digital products.
Retail Example #1: Store Outside Philadelphia → Ships Into Philadelphia
A boutique is located in Montgomery County.
A Philadelphia customer orders a taxable item online and has it shipped to Center City.
Tax: 8%.
Retail Example #2: Philadelphia Store → Ships Outside Philadelphia
A Philadelphia store receives an order.
The customer’s billing address is Philadelphia, but the item is shipped to King of Prussia.
Tax: 6%.
For physical merchandise, the shipping destination controls.
Retail Example #3: Philadelphia Store → Ships to Allegheny County
A Philadelphia business ships a taxable item to Pittsburgh.
Tax: 7%.
That is:
6% Pennsylvania + 1% Allegheny County
—not Philadelphia’s 8%.
A Retailer Could Now Have Three PA Tax Rates
A Pennsylvania retailer shipping throughout the state may now regularly charge:
6% → most Pennsylvania counties
7% → Allegheny County
8% → Philadelphia
That means businesses should review the tax settings in systems such as:
- Shopify
- WooCommerce
- Square
- Stripe
- QuickBooks
- Point-of-sale systems
- Invoicing software
- Custom e-commerce websites
The question is no longer simply:
“Is the customer in Pennsylvania?”
It may also be:
“Where in Pennsylvania is this being delivered?”
Virtual and Remote Services Need Extra Thought
Not every transaction fits neatly into “box shipped here” or “download billed there.”
Some businesses provide taxable services remotely, virtually or through a combination of service and deliverables.
Examples might include:
- Photography
- Videography
- Certain digital-content businesses
- Businesses providing taxable electronically delivered products
- Companies with customers in multiple offices
- Hybrid service-and-product arrangements
The first question remains:
Is the service taxable?
If it is taxable, then you need to determine where the taxable service or final taxable deliverable is considered delivered.
If the final taxable product is digital, the customer billing address may be the most relevant sourcing location.
If a physical product is shipped afterward, that shipment may have its own delivery destination.
One Transaction Can Have Multiple Facts
Consider a photographer who:
- Performs a shoot in Philadelphia
- Bills the client at a King of Prussia address
- Delivers digital files electronically
- Later ships a printed album to Philadelphia
Those facts do not all point to the same location.
The digital-photo portion may point to the billing address.
The physical album points to the shipping address.
That is why businesses should avoid using one blanket rule for every transaction.
Customers With Multiple Offices
A company may have:
- Headquarters in Philadelphia
- An office in King of Prussia
- A billing department in another state
- Employees spread throughout Pennsylvania
Which location matters?
You need to look at the actual transaction.
Ask:
- Who is the customer?
- What is being delivered?
- Is it physical or digital?
- Where is the physical item being shipped?
- What billing address is on file for a digital product?
- Which office actually receives the taxable service or deliverable?
Do not automatically use the company headquarters just because it is the most prominent address.
Philadelphia-Based Businesses Need to Pay Attention Too
This change is not only about businesses outside Philadelphia suddenly collecting more tax.
Philadelphia businesses may also have to stop charging the Philadelphia local tax on certain transactions delivered outside the city.
Philadelphia Retailer → Montgomery County
Physical merchandise shipped to Montgomery County.
Tax: 6%.
Philadelphia Retailer → Allegheny County
Physical merchandise shipped to Allegheny County.
Tax: 7%.
Philadelphia Retailer → Philadelphia
Physical merchandise delivered in Philadelphia.
Tax: 8%.
The seller’s location no longer answers the question by itself.
Use Tax Has Not Gone Away
If a seller fails to collect the proper sales tax on a taxable transaction, that does not automatically make the purchase tax-free.
The purchaser may still owe Pennsylvania use tax and, where applicable, local use tax.
So businesses should not interpret destination sourcing as an opportunity to simply ignore unclear transactions.
When Does This Start?
Act 21 was enacted on July 12, 2026 and applies retroactively for tax years after December 31, 2025.
However, Pennsylvania has indicated that enforcement of the new local-tax collection rules will not begin until October 1, 2026.
That gives businesses a transition period to review:
- Sales-tax settings
- Customer address records
- Shipping rules
- Billing-address capture
- E-commerce integrations
- Invoice templates
- Internal procedures
The Simplest Decision Tree
For every taxable Pennsylvania sale, ask:
1. Is the item or service taxable?
If no, stop.
2. Is the sale physical or digital?
If physical, ask:
Where is the product actually delivered?
- Philadelphia → 8%
- Allegheny County → 7%
- Other PA county → 6%
If digital, ask:
What customer billing address is on file?
- Philadelphia → 8%
- Allegheny County → 7%
- Other PA county → 6%
If it is a taxable service, determine:
Where is the taxable service or final deliverable considered delivered?
And if the deliverable is digital, review whether the digital-product billing-address rule applies.
The Bottom Line
The biggest mistake businesses can make is assuming there is one address rule for every sale.
There isn’t.
The better rule is:
PHYSICAL PRODUCT → DELIVERY ADDRESS
DIGITAL PRODUCT → BILLING ADDRESS
IN-STORE PICKUP → PICKUP LOCATION
TAXABLE SERVICE → DETERMINE WHERE THE TAXABLE SERVICE OR DELIVERABLE IS DELIVERED
For businesses selling throughout Pennsylvania, that can now mean three different rates:
Philadelphia: 8%
Allegheny County: 7%
Elsewhere in Pennsylvania: 6%
The important shift under Act 21 is that businesses can no longer look only at where they are located.
They need to understand what they are selling, how it is delivered, and where that delivery is sourced for sales-tax purposes.
