Pennsylvania Issues Guidance on Requirements for Use of Direct Pay Permits

The Pennsylvania Department of Revenue (DOR) has issued a bulletin with guidance on the requirements for proper use of direct pay permits. The DOR is allowed to issued a Direct Pay Permit to a taxpayer where the taxpayer “acquires tangible personal property or services under circumstances which make it impossible at the time of acquisition to determine the manner in which the tangible personal property or service will be used….” DOR regulations provide that a taxpayer must meet the following five requirements before being issued a Direct Pay Permit:

• Application for direct payment permit shall be filed with the DOR by each taxpayer on a special form provided by the DOR.
• The taxpayer’s business activities shall include, in a substantial amount, purchases or other acquisitions of tangible personal property or services, the use of which is impossible to determine at the time of acquisition.
• The taxpayer must substantiate to the DOR the adequacy of its recordkeeping system with respect to the accumulation, recording, reporting of purchases and remittance of tax incurred.
• The taxpayer’s business classification must be of such nature and size that the issuance of a Direct Payment Permit is prerequisite to economical and efficient accounting for tax incurred.
• Direct Payment Permit holders are required to provide the DOR access to all records maintained to account for the tax due.

Direct Pay Permits must be used in conjunction with a properly completed exemption certificate (form REV-1220). The Exemption Certificate must be dated, and it must be in the possession of the vendor, and available for DOR inspection, on or before the 60th day following the date of the sale to which the certificate relates. Additionally, the holder of the Direct Pay Permit must check box number 4 on the exemption certificate and write the phrase “Direct Pay Permit” and the Direct Pay Permit number in the appropriate boxes. (Sales and Use Tax Bulletin 2019-04, Pennsylvania Department of Revenue)