1. In Accounts Payable, Records, create an invoice  for the vendor that is subject to the 3.07% withholding.
  2. Create a new Credit memo  for the 3.07% of the total invoice amount.  
  3. Edit the 1099 Distribution on the Credit Memo to remove any 1099 information/amounts
  4. Apply the Credit memo to the invoice to reduce the balance of the invoice by 3.07%.
  5. Record the state income tax withheld amount in box 16 directly in the invoice's 1099 distribution (as this ensures that the amount that shows up in box 16 on the 1099s is positive as opposed to negative).
  6. Produce 1099 Forms or run the 1099 Activity Report
For more information on the 3.07% withholding requirement, refer to the PA Department of Revenue