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Pennsylvania Business Tax – Complete Guide

Pennsylvania’s growing success as a highly sought-after destination for startups and new businesses can be credited to its strategic location, combined with a smart workforce and a pro-business climate. Whether you’re planning to set up a business for the first time, or you’ve already registered your company, an important detail to remember is filing your Pennsylvania business tax. Various taxes are applicable in this state, and it can seem quite confusing for new entrepreneurs. Hence, we’ve created a guide that will help you understand and identify the tax liabilities specific to your business. You can also use a PA business tax calculator to file the correct taxes for this state.

Pennsylvania Business Tax

When you start a new business in Pennsylvania, you may be required to file taxes at the state, local, and federal level. The type of taxes you file will predominantly depend on the type of entity structure you’ve chosen to form, as well as the business activity and the location of the company. The Pennsylvania business tax rate, especially the state tax rate will be different from the rate in other states. Therefore, you will need to check the Pennsylvania rates before filing your taxes. A PA business tax calculator can also be quite useful in determining the exact tax amount that needs to be filed. It’s also important to note that a foreign company will be required to file state business taxes in their state of formation or incorporation (home state), as well as in Pennsylvania or any other state where it’s registered.

What taxes do businesses pay in Pennsylvania?

The state of Pennsylvania is considered to be one of the best states for starting a new business and expanding existing businesses. The state is home to some of the biggest companies in the world including T-Mobile, Comcast, and Aramark. It’s the sixth largest economy in the US at more than $800 billion. The Keystone State has several key and evolving industries that vary from modern advanced manufacturing to distribution and logistics. The Pennsylvania business tax climate is also considered to be fairly good and pro-business.

The state offers several tax incentives or credit programs that help minimize the overall tax burden. However, it’s important to remember that if you form a limited liability company or a corporation to do business in this state, then you will be required to file corporate net income taxes as a part of the Pennsylvania LLC taxes or corporation taxes. The most common forms of taxes applicable in the state are:

  • Corporate Income Tax (CIT) – The Corporate Net Income Tax (CNIT) is applicable for domestic and foreign entities. This tax applies to companies that have the privilege of doing business in the state of Pennsylvania. You can levy this form of Pennsylvania corporate income tax if you have capital or property employed or used in connection to your company in this state. The tax is levied on federal taxable income, and the tax rate from January 1, 2023 through December 31, 2023 is 8.99 percent. Certain business structures like business trusts and not-for-profit organizations are exempt from this tax. It’s also important to note that if your company is subject to these types of Pennsylvania corporation taxes, then your company may also be subject to other taxes such as the corporate loans tax, gross receipts tax, gross premiums tax, and surplus lines agent tax.
  • Sales, Use and Hotel Occupancy Tax – The sales and use tax is an important Pennsylvania business tax. The sales and use tax is imposed on various business activities, products, and services. The most common areas for this tax application are retail sales, rentals, consumption, and the use of tangible personal property. The tax is also levied on digital products in the state of Pennsylvania. The list of items and activities where the sale and use tax is applied includes medical and surgical supplies and mushroom farming. Some of the items that are exempt from these types of Pennsylvania LLC taxes are candy and gum, most types of clothing, food (not ready-to-eat), textbooks, computer services, sales for resale, pharmaceutical drugs, and fuels for residential heating like electricity, oil, gas, firewood, and coal. The Pennsylvania state sales tax rate is 6 percent with a maximum local sales tax rate of 2 percent, while the average combined state and local sales tax rate is 6.34 percent. The use tax in Pennsylvania is also an important Pennsylvania business tax and the rate is the same as sales tax at 6 percent. Last but not least; this state also has a hotel occupancy tax that’s similar to the state sales tax. When calculating these taxes, it’s recommended to use a PA business tax calculator.

    Note: If you’re filing a sales tax then you will need to apply for and obtain the necessary sales tax licenses and certificates.

  • Employer Withholding Taxes – The employer withholding tax is mandatory by law. This tax is for any entity employing individuals in the state where the entity could be an individual, corporation, association, limited liability Company, partnership, or any other entity as specified by the Internal Revenue Code. This is considered to be a component of the Pennsylvania corporate income tax or business tax and requires the withholding of personal income tax from the remuneration paid to resident employees for services performed within or outside the state. Currently, you can withhold and remit employees’ taxes on salary or wages quarterly, monthly, semi-monthly, and semi-weekly. The due date for the taxes will vary depending on the taxable amount and filing schedule. You will need to register for an Employer Withholding online using the Official Pennsylvania Government Website.

    Example: If the PA business tax calculator shows the total withholding per quarter as $300 then this tax will be due on the last day of January, April, July, and October. Similarly, if the total withholding is between $300 and $999 per quarter then the taxes will be due on the 15th day of the following month. If the total withholding is $750 in July-September quarter then your file date would be October 15.

  • City Business Taxes – The city business tax is another important Pennsylvania business tax. This tax is applicable in specific cities like Philadelphia. The applicable taxes in Philadelphia are the Business Income & Receipts Tax (BIRT) and the Net Profits Tax (NPT). According to the city code, if your Philadelphia taxable gross receipts are equal to or less than $100,000 then you will not be required to file the BIRT return. The Net Profits Tax (NPT) is applicable to anyone residing in the city of Philadelphia and operating a business within the city or outside of it. This is also levied on non-residents engaged in business activities within Philadelphia. The due date for filing these types of Pennsylvania LLC taxes is April 18.

Are you thinking of forming a new company in Pennsylvania?

How are Pennsylvania Businesses taxed?

If you’ve decided to start a new business in Pennsylvania then you’ll want to be aware of the important annual requirements, especially filing your business tax returns. The state has a privilege tax also known as a corporate net income tax along with several other types of small business taxes. The type of Pennsylvania business tax and the tax rates will vary according to the type of entity structure you’ve formed, and the business activity. You may also be required to file more than one type of tax. Let’s look at the various entities and their tax obligations in Pennsylvania.

Taxes for an LLC

If you’ve chosen to form a limited liability company in Pennsylvania then for taxation purposes, it will be considered a pass-through entity. A pass-through entity is not required to file any federal or corporate taxes. Since an LLC is a flow-through entity, the income will pass through to the owners and members. In such a situation, the members will have to file a personal income tax at the rate of 3.07 percent instead of filing a Pennsylvania corporate income tax.

A limited liability company may be required to file a privilege tax also known as the Corporate Net Income Tax (CNIT), at the rate of 8.99 percent. This tax is applicable for both domestic and foreign LLCs. Some of the other Pennsylvania LLC taxes that you may be required to file include the Sales & Use Tax, gross receipts tax from any type of business transactions that occurred within Pennsylvania, the Public Utility Realty Tax (PURTA), the Foreign Franchise Tax, and the employer Withholding tax. The above-mentioned taxes can be filed online using myPATH e-services or by applying via the mail.

Taxes for a C Corporation

If you choose to incorporate a Pennsylvania C corporation, your company will be subjected to the Corporate Net Income Tax (CNIT). This tax rate is a flat 8.99 percent. It’s also one of the most important Pennsylvania corporation taxes that’s applicable for both domestic and foreign corporations. As a CNIT taxpayer, your company may also be subjected to the gross receipts tax, corporate loans taxes, gross premiums taxes, and the surplus lines agent tax.

Another important Pennsylvania corporate income tax is the Capital Stock and Foreign Franchise Tax. The capital stock tax is applicable for corporations holding capital stock, while the foreign franchise tax is levied on foreign corporations or entities organized as corporations and operating within the state. Either form of tax is levied on the capital stock value of the said corporation. Apart from these, a C Corporation may be subjected to Sales & Use Taxes, Public Utility Realty Taxes (PURTA), and Employer Withholding taxes. You can file these taxes online using the myPATH e-services.

Taxes for an S Corporation

Whether you form a limited liability company or a C Corporation, you can always apply for S Corporation tax status in Pennsylvania. When a company has an S Corporation status, the tax liabilities also change. The most important Pennsylvania corporate income tax for an S-Corp is the Corporate Net Income Tax (CNIT). Pennsylvania S corporations are subject to the CNIT rate of 9.99 percent on their built-in gains. Since an S Corp is a flow-through entity, the shareholders will be subjected to a personal income tax at the rate of 3.07 percent.

If your S Corporation is involved in retail sales, rentals, or the use of tangible personal property including digital products, then your entity will be subjected to the sales and use tax. These types of Pennsylvania corporation taxes will also be levied on certain services at a rate of 6 percent. The rate for use tax is the same as it is for sales taxes, although there is an additional 1 or 2 percent local use tax if your company is based in Philadelphia or Allegheny County.

Taxes for a Sole Proprietorship

A sole proprietorship is one of the easiest businesses to form in the state of Pennsylvania. A sole proprietorship entity is owned and operated by a single owner, therefore the most important Pennsylvania business tax is the individual income tax return (Form PA-40). The tax rate for the Pennsylvania Personal Income Tax (PIT) is 3.07 percent against the taxable income of the sole proprietor. You can use a PA business tax calculator to determine the tax amount due. Apart from this, depending on the business activity, sole proprietors may also be required to file sales and use tax returns. If a sole proprietor is operating from Philadelphia or Allegheny County, certain city or local taxes like local use tax and Net Profits Tax (NPT) may also be applicable.

Taxes for Partnerships

Various forms of taxes are applicable in Pennsylvania when you form a partnership company. The foremost Pennsylvania business tax for a partnership firm is the corporate net income tax (CNIT). The tax rate is 3.07 percent and the process to file is the same as the process for an LLC or S Corporation. Each partner will also be required to file a Pennsylvania Personal Income Tax (PIT) at 3.07 percent. Apart from this, some of the taxes applicable would be similar to a sole proprietorship or LLC, like the Sales & Use Tax, Employer Withholding tax, and certain city or local taxes.

Ready to Incorporate Your Pennsylvania Company?

You can choose from a wide variety of entity structures in Pennsylvania like a Sole Proprietorship, Partnership, Corporation, or LLC. You can also apply for S Corporation status to enjoy certain tax privileges. The process for a new business formation and the type of relevant taxes will vary according to the entity structure. IncParadise, one of the top incorporation service providers in the state can provide you with information concerning the Pennsylvania LLC taxes corporate income tax. We can also help register your LLC or corporation in the state of Pennsylvania.

Apart from the Pennsylvania business tax, once you’ve registered your new business in the state, there are several important annual requirements that every business must maintain compliance with, including business licensing and annual reports. Hence, IncParadise offers additional services to fulfill several requirements like EIN filing and filing DBAs among others.

Do you want to form a new business in Pennsylvania?