Sales Tax on Invoices (US): When to Charge It and How to Show It

Sales tax in the US is set at the state level (and often layered with county and city taxes), so the right answer to "do I charge sales tax on my invoice?" depends on what you sell, where you are, and where your customer is. This guide covers the logic. Your state's department of revenue has the final word.

The four questions

1. Does the state have a sales tax?

Forty-five states and Washington, DC impose a statewide sales tax. The five without one are Alaska, Delaware, Montana, New Hampshire and Oregon, though some local jurisdictions in Alaska do levy sales taxes.

2. Is what you sell taxable there?

• Physical goods are usually taxable, with exemptions that vary (groceries, prescription drugs, clothing in some states).
• Services are often not taxable, but it varies enormously. Some states tax a wide range of services; others tax almost none. Commonly taxed categories include repairs to tangible property, landscaping in some states, personal services, and some digital and data processing services.
• Digital products (downloads, SaaS, streaming) are taxable in a growing number of states.

A freelance writer or consultant may never need to charge sales tax. A retailer, a repair shop or someone selling digital downloads may need to charge it in many states.

3. Do you have nexus in the state?

"Nexus" is the connection that obliges you to register and collect tax. You generally have it where:

• You have a physical presence: an office, employees, inventory, sometimes even a trade show booth
• You exceed that state's economic nexus threshold, which since the 2018 South Dakota v. Wayfair decision is often around $100,000 in sales into the state in a year (some states also use a transaction count, and some have dropped it)

4. Where is the sale "sourced"?

Most states use destination-based sourcing: the rate is based on where the customer receives the goods. A few use origin-based sourcing for in-state sales. This decides which combined state and local rate goes on the invoice.

How to show sales tax on an invoice

If you're registered and the sale is taxable:

• Show the subtotal before tax
• Show the tax rate and tax amount on a separate line
• If some items are taxable and others aren't, make it clear which
• Show the total including tax

Description	Qty	Rate	Amount
Replacement laptop screen (part)	1	$140.00	$140.00
Screen replacement labor	1	$85.00	$85.00
Subtotal			$225.00
Sales tax 8.25% (on parts only)			$11.55
Total			$236.55

This example assumes a state where parts are taxable and repair labor isn't, which is common but not universal.

In the generator, choose Per line tax to set a rate on some items and 0% on others, and rename the tax to "Sales tax".

Resale and exempt customers

If your customer is buying to resell, or is a tax-exempt organization, they should give you a resale certificate or exemption certificate. Keep it on file, and don't charge tax on those sales. Note it on the invoice: "Tax exempt, certificate on file."

Registering

You must register with a state before collecting its sales tax. Charging "sales tax" without a permit is illegal in most states. Once registered, you'll file returns (monthly, quarterly or annually) and remit what you collected.

Common mistakes

• Charging tax on non-taxable services because it "seems safer." Over-collecting creates its own liability.
• Using your own city's rate for customers elsewhere in a destination-based state.
• Not separating taxable and non-taxable items on the invoice.
• Forgetting shipping. Whether shipping charges are taxable varies by state, and often depends on how they're shown on the invoice.
• Ignoring economic nexus as online sales grow.

This is a general overview. For your business, check your state's department of revenue or talk to a CPA; sales tax is one area where the rules really do differ by state and change frequently.