How to Charge Sales Tax on an Invoice
In the United States, sales tax is set by states and local governments rather than federally, so there's no single rule for when to charge it or at what rate. Five states — Alaska, Delaware, Montana, New Hampshire, and Oregon — have no general statewide sales tax, though some local taxes still apply, notably in Alaska. Getting it wrong is expensive: tax you should have collected but didn't usually comes out of your own pocket when it's discovered.
This guide explains when a business has to collect sales tax, how taxability differs between goods and services, how to find the right rate, and how to show the tax on an invoice. It's general guidance, so confirm the details for your situation with your state's revenue department or an accountant.
When you have to collect sales tax
You generally collect sales tax in a state where you have nexus — a connection strong enough to create a tax obligation. A physical presence such as an office, staff, or stored inventory creates nexus. Every state with a sales tax also applies economic nexus once your sales into the state pass a threshold — commonly $100,000 a year, though California and Texas use $500,000, and some states also count the number of transactions.
Register for a sales tax permit before you start collecting. Collecting sales tax without being registered is generally not allowed, and the permit comes with filing deadlines you'll need to meet.
Goods and services are taxed differently
Most states tax sales of tangible goods, with exemptions that commonly include groceries and prescription medicine. Services are a patchwork: some states tax many services, many tax only specific ones, and others tax very few.
For the trades, the detail matters. A repair job might be taxable on the parts but not the labor in one state and taxable on the full amount in another, so check how your state treats your specific kind of work. Where labor is exempt, it often stays exempt only if it's listed separately from the parts, so keep them on their own lines.
Finding the right rate
The rate is usually a combination of state, county, city, and special district rates, so two addresses in the same state can have different rates. Which address counts depends on the state's sourcing rules: many use the destination, where the customer receives the goods or service, while some use the seller's location for in-state sales.
Look rates up by full address rather than by ZIP code alone, since one ZIP code can span more than one taxing district. Most state revenue departments publish a rate lookup tool.
Showing sales tax on the invoice
Show the subtotal, then sales tax as its own line with the rate, then the total. A $1,200 subtotal with "Sales tax 8.25%: $99.00" gives a total of $1,299.00, and if you've given a discount, apply it before calculating the tax.
When an invoice mixes taxable and non-taxable items, the tax line should cover only the taxable ones. Some simple invoice tools apply one rate to the whole invoice, so in that case calculate the tax on the taxable subtotal yourself, or bill taxable and exempt work on separate invoices.
Exempt customers and resale certificates
Some customers don't pay sales tax on some or all purchases — businesses buying goods to resell, many nonprofits, and government agencies, among others. They should give you an exemption or resale certificate to keep on file, because without it an auditor can hold you liable for the tax you didn't charge.
Keep every invoice, the tax charged, and every exemption certificate for as long as your state requires. Sales tax audits can look back several years, and your invoices are the first evidence they examine.