Sales tax in the US is notoriously fragmented — there’s no single national rate, and the rules genuinely vary by state, and sometimes by city or county within a state. This is a general overview, not a substitute for advice specific to your business from a tax professional.
Whether you need to charge sales tax at all
This depends on whether you have “nexus” (a sufficient business connection) in your customer’s state, which can be triggered by physical presence, or in many states now, by sales volume alone (economic nexus) even without a physical location there.
What’s taxable varies more than people expect
Physical goods are taxable in nearly every state that has a sales tax, but services are taxed inconsistently — some states tax specific service categories, others don’t tax services at all. Confirm your specific service category’s treatment in each state where you do business.
Digital products are their own category
Many states now have specific rules for digital goods and software-as-a-service, separate from both physical goods and traditional services — don’t assume your physical-goods research applies.
Practical takeaway for invoicing
Once you know your applicable rate, our Sales Tax Calculator handles the math, and our generator supports different tax rates on different line items if you sell a mix of taxable and non-taxable items.
How to show sales tax on an invoice
- List the taxable subtotal separately from non-taxable items.
- Show the rate and the tax amount — “Sales tax (8.25%): $41.25”.
- Use the right rate for the right place — usually the combined state and local rate at the delivery address.
- Note exemptions — “Exempt — resale certificate #123456 on file”.
- Apply tax after discounts in most cases, and check whether shipping is taxable in that state.
Our generator supports a different tax rate on each line, so you can mix taxable products and non-taxable services on one invoice.
States without a statewide sales tax
Five states have no statewide sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon. Alaska allows local governments to levy sales taxes, and a few of the others have specific taxes on certain items or businesses, so “no sales tax” doesn’t always mean no tax at all.
Economic nexus in practice
Since the 2018 South Dakota v. Wayfair Supreme Court decision, states can require out-of-state sellers to collect sales tax once they pass an economic threshold. Many states use $100,000 in annual sales into the state; some also count transactions, although several have dropped the 200-transaction test. Selling through an online marketplace usually shifts collection to the marketplace for those sales under marketplace facilitator laws.
| Step | What to do |
|---|---|
| 1 | Track sales by state each year |
| 2 | Compare against each state’s economic nexus threshold |
| 3 | Register for a sales tax permit before collecting tax in that state |
| 4 | Charge the correct rate on invoices to customers there |
| 5 | File returns and remit the tax on that state’s schedule |
Common taxability differences
| Item | Typical treatment (varies by state) |
|---|---|
| Physical goods | Taxable in nearly all sales-tax states |
| Groceries | Exempt or reduced rate in many states |
| Clothing | Exempt in a few states, sometimes up to a price limit |
| Professional services | Usually not taxed, with notable exceptions |
| Repair and installation labor | Taxed in some states, exempt in others if separately stated |
| Digital products and SaaS | Increasingly taxed, but rules differ widely |
| Shipping charges | Taxable in some states, exempt in others if separately stated |
Exemption and resale certificates
Some customers don’t pay sales tax: businesses buying goods to resell, many nonprofits, government agencies and certain manufacturers. They should give you a valid resale or exemption certificate. Keep it on file — if you’re audited without one, you may owe the tax yourself. Note the certificate number on the invoice.
Example invoice with mixed taxable items
| Item | Amount | Taxable? | Tax at 8% |
|---|---|---|---|
| Installation labor (separately stated) | $300.00 | No (in this example state) | $0.00 |
| Ceiling fan | $180.00 | Yes | $14.40 |
| Mounting kit | $25.00 | Yes | $2.00 |
| Total | $505.00 | $16.40 → $521.40 due |
Setting the tax rate per line in our generator handles this automatically.
Record keeping and filing
Collected sales tax isn’t your money — you hold it for the state. Keep a record of tax charged on every invoice, file returns on the schedule your state assigns (monthly, quarterly or annually, usually based on volume), and keep exemption certificates with the related invoices. Separate the tax in your bank account if it helps you avoid spending it, and check whether your state offers a small discount for filing and paying on time.
Frequently asked questions
Do I have to charge sales tax on my invoices?
If you have nexus in the customer’s state and what you’re selling is taxable there, generally yes. Many services aren’t taxable, but rules vary by state.
Should sales tax be shown separately on an invoice?
Yes. Show the rate and tax amount separately from the price — many states require it, and it’s clearer for customers.
Is shipping taxable?
It depends on the state and sometimes on whether shipping is separately stated on the invoice.
What is economic nexus?
A rule that requires out-of-state sellers to collect sales tax once their sales into a state pass a threshold, often $100,000 a year.
This is a general overview, not tax advice. Confirm your specific obligations with a tax professional familiar with your state and industry.
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