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By Mark A. Balistrieri, CPA

On Jan. 20, 2021, the Pennsylvania Department of Revenue (DOR) issued SUT Bulletin 2021-01 clarifying that nonmedical masks and face coverings are exempt from state and local sales and use tax. Prior to March 6, 2020, masks used for medical purposes were exempt from sales and use tax, but other masks were taxable as clothing accessories. On March 6, 2020, in response to COVID-19, Gov. Tom Wolf issued an emergency declaration authorizing Pennsylvania agencies to use all resources available to cope with the pandemic. The DOR posted an FAQ on its website stating that masks used to prevent the spread of COVID-19 were exempt from sales and use tax. However, the DOR did not issue any official guidance or publish any changes to the Retailers Information Guide (REV-717). Bulletin 2021-01 establishes that, as of Oct. 30, 2020, the department will consider nonmedical masks and face coverings as everyday wear, which qualifies them as exempt clothing for Pennsylvania sales and use tax.

While some retailers and vendors may have exempted nonmedical masks and face coverings from sales tax after March 6, 2020, others continued to charge tax on face coverings in the time since the FAQ was posted. Thus, individuals and business that have purchased masks and face coverings to use in preventing the spread of COVID-19 may have incorrectly paid sales or use tax at the time of purchase. To remedy any tax that was improperly charged, the DOR states in the bulletin that a petition for refund can be filed for the amount of tax overpaid. Under Pennsylvania rules and regulations, individuals and businesses should file a petition for refund for overpayments of sales and use tax to the Board of Appeals within three years of the date the tax was paid. Historically, the three-year refund statute of limitations is considered to be based on the invoice/transaction date for tax paid to the retailer/vendor at the time of sale and the date the return was filed for use tax remitted to the DOR. Any companies that may have been purchasing protective masks and face coverings for use at their place of business should review their purchases to determine if they incorrectly paid sales and use tax. Note: the bulletin states that the refund petitioner will have to document the masks and face coverings were used as protection against COVID-19.

The bulletin also states that the DOR will not assess retailers who did not charge the tax in future audits and reviews. Retailers should make note of this provision for future audits. The department’s statute of limitations for audits and reviews is three years, therefore the department will have the ability to audit and review the 2020 tax periods through Dec. 31, 2023. It should also be noted that a class action lawsuit (Daniel Garcia v. American Eagle Outfitters Inc., et al., Court of Common Pleas of Allegheny County) has been filed against a number of retailers that were charging sales tax beyond March 6, 2020.

Moving forward, since the DOR considers masks and face coverings everyday wear, the distinction of medical vs. nonmedical and use for protection against COVID-19 will not factor in the taxability determination, at least until SUT Bulletin 2021-01 is modified or revoked. Consequently, retailers should review their sales tax tables and software to ensure the tax exemption is properly reflected. Businesses that rely on tax calculation software for use tax determinations should review the tax calculation table and matrices to ensure tax is not being calculated on the purchase of masks and face coverings. Additionally, as bulletins issued by the DOR are not authoritative issuances such as regulations or statutes, so everyone should take steps to stay abreast of any changes the department may issue in the future.

Mark A. Balistrieri, CPA, is a director in KPMG’s Pittsburgh state and local tax practice. He can be reached at mbalistrieri@kpmg.com.

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