Sales tax on invoices, in plain English

Sales tax is the part of US invoicing that trips people up, because there is no single national rate and no single rule about what is taxable. Here is the shape of it, so you know what you are looking up.

There is no federal sales tax

Sales tax is set by states, and then often again by counties, cities and special districts. That is why the rate on an invoice is usually a state rate plus one or more local rates added together. Two jobs ten miles apart can carry different rates.

Alaska, Delaware, Montana, New Hampshire, Oregon have no statewide general sales tax. Even then, localities in some of those states — Alaska in particular — levy their own, so “no state tax” does not always mean no tax.

Whether you have to collect it at all

You generally collect sales tax only where you have a tax obligation — usually because you operate there, or because you sell enough into that state to cross its threshold — and only on things that state treats as taxable. Many states tax goods and materials but treat certain labor or professional services differently. Some services are taxable; some are not. If you are registered to collect, you will also have a permit number and filing deadlines.

Goods, labor and mixed jobs

A repair invoice often has both parts and labor on it, and those two lines are not always treated the same way. That is why FairInvoice lets you mark each line as taxable or not, rather than applying one rate to the whole invoice. Shipping, permit fees and travel are also handled differently state to state, so put them on their own line where you can.

What a tax line should show

• The taxable subtotal, separate from anything non-taxable
• The rate you applied, as a percentage
• The tax amount as its own line, not folded into the total
• Your permit or registration number, if your state expects it

Showing tax separately is what lets a business customer reclaim or account for it, and it is what an auditor will look for.

How to check your own rate

Rates change, and no invoice tool should quietly guess one for you. Check with your state department of revenue for the current combined rate at the address where the sale is taxed, then enter the state and local parts into the generator. If a job is unusual — resale, exempt customer, out-of-state delivery — ask a CPA before you bill it.

Start with the SBA guide to business taxes to find your state’s revenue department.

FairInvoice is not an accountant, CPA, or tax adviser, and nothing here is tax or legal advice. Sales tax rules differ by state, county, and city, and depend on what you sell and where. You are responsible for the rates you enter and for whether you need to collect tax at all.