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United States · Pennsylvania · Philadelphia

Card processing rules for Philadelphia merchants

Most of what a payments company will tell a Philadelphia business owner treats Pennsylvania's 6% as the whole story. Philadelphia adds its own local tax on top of that, and a law that took effect this year just changed which sales trigger it.

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Philadelphia's 2% local tax is genuinely local — and where it applies just changed

The Pennsylvania Department of Revenue lists a flat 6% state sales tax rate that applies statewide, and for most of Pennsylvania's roughly 2,500 municipalities that 6% is the entire story. Philadelphia and Allegheny County are the exceptions: Philadelphia adds its own 2% local sales tax, for a combined 8% inside city limits, while Allegheny County (Pittsburgh) adds 1%, for a combined 7%. That difference alone means a business operating in both Philadelphia and, say, Harrisburg or Erie is not charging the same rate at both locations, and a generic "Pennsylvania sales tax is 6%" assumption from a national payments quote is simply wrong for a Philadelphia address.

What makes this year specifically relevant is Act 21 of 2026, enacted 12 July 2026 with a retroactive effective date covering tax years after 31 December 2025. Before Act 21, Pennsylvania sourced Philadelphia's local tax on an origin basis — the tax followed where the seller was located. Act 21 switches Philadelphia (and Allegheny County) to destination-based sourcing, meaning the local tax now follows where the taxable product or service is actually delivered, regardless of where the seller sits. The Pennsylvania Department of Revenue has stated it will not begin enforcing the new rule until 1 October 2026, explicitly to give vendors time to adjust their tax determination systems, but the underlying law is already in effect and retroactive.

Who this actually changes things for

A Philadelphia storefront selling to a walk-in customer is unaffected in practice — the sale was sourced to Philadelphia under the old rule and still is under the new one, since delivery and origin are the same place. The businesses that need to act are a Philadelphia-based company shipping goods to addresses outside the city, which may no longer owe Philadelphia's 2% on those out-of-city deliveries, and any vendor located outside Philadelphia — including out of state — that ships taxable goods to a Philadelphia address, which now has a Philadelphia local tax collection obligation it may not have had before 1 October 2026. If your business ships anything into or out of Philadelphia, this is worth confirming with your accountant before the enforcement date, not after.

8 percent combined in Philadelphia — and you pay card fees on it

Interchange and your processor's discount rate are calculated on the full authorized amount, and the full authorized amount includes the sales tax you collect and remit. At an 8% combined rate, roughly 7.4% of every card-funded ticket in Philadelphia is money you never keep, and your effective processing rate still applies to it in full. On a $100 pre-tax sale you authorize $108, and every basis point of markup lands on that larger number, not the smaller one — the same arithmetic that applies in any high local-tax market, just with Philadelphia's specific components behind it.

We are not going to attach a dollar figure to what that costs you specifically, because it depends entirely on your card mix, average ticket and pricing structure, and any processor who quotes a saving before reading your statement is guessing. What is worth flagging is that a Philadelphia business shipping product outside the city under the new destination-sourcing rule may see its taxable, and therefore its authorized, amounts shift slightly starting 1 October 2026 as fewer out-of-city deliveries carry the 2% local add-on — a small effect on the tax line, but one that shows up in a reconciliation if you are not expecting it.

Philadelphia restaurants versus Philadelphia retail

For a Philadelphia restaurant, Act 21's sourcing change is close to irrelevant, since a restaurant ticket is delivered where it is sold — the operative question is the same one every restaurant faces nationally, tip handling and whether a fee program calculates at authorization or settlement. Our restaurant payment processing hub covers that mechanic.

For Philadelphia retail that ships product, especially e-commerce and mail-order businesses based in or shipping into the city, Act 21's destination sourcing is a real change worth building into your tax determination system before the 1 October 2026 enforcement date. Our retail payment processing hub sets out how to read your effective processing rate off a real statement once tax is accounted for correctly.

Sources

Updated 18 September 2026. General information, not legal or tax advice. Rules change; confirm current rules with the Pennsylvania Department of Revenue, the City of Philadelphia, your attorney and your accountant before you change how you price, source sales or file.

Related pages

Philadelphia FAQ

Philadelphia card processing questions

Pennsylvania's state sales tax rate is 6% everywhere. Philadelphia adds its own 2% local sales tax on top, for a combined 8% inside city limits, while almost every other Pennsylvania municipality charges only the 6% state rate. The Pennsylvania Department of Revenue administers the local add-on directly rather than leaving Philadelphia to collect it separately, which is the opposite arrangement from home-rule cities like Denver.

Act 21, enacted 12 July 2026 with a retroactive effective date for tax years after 31 December 2025, moves Philadelphia's local sales tax from origin-based sourcing, where the tax followed the seller's location, to destination-based sourcing, where it follows where the taxable product or service is delivered. The Pennsylvania Department of Revenue has said it will not begin enforcing the new sourcing rule until 1 October 2026 to give vendors time to update their systems. The 8% combined rate itself did not change; what changed is which sales trigger Philadelphia's 2% local tax.

Not materially. A Philadelphia storefront selling to a walk-in customer already sourced the sale to Philadelphia under the old origin rule and still does under the new destination rule, since the sale is delivered where it is made. Act 21 matters most for a Philadelphia-based business shipping goods to customers outside the city, and for an out-of-state or out-of-city vendor shipping into Philadelphia, who now has to collect Philadelphia's 2% local tax on delivery into the city where it may not have before.

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