Whether you should add tax to your invoice comes down to three questions, and all three have to line up before tax belongs on the bill. Does the buyer’s state impose a sales tax? Does your business have a legal connection (“nexus”) to that state? Is the specific item or service you’re selling taxable there? If the answer to any of them is no, you don’t charge tax. If all three are yes, you charge — at the correct rate, on a properly formatted invoice, after registering for a permit in that state.
Two shortcuts can override the analysis. If you’re selling through a marketplace like Amazon or Etsy, the platform is probably collecting for you and you leave tax off the invoice. If the buyer hands you a valid exemption or resale certificate, you leave tax off and keep the certificate on file. Everything below walks through the decision in the order you should actually make it.
Does the Buyer’s State Charge Sales Tax at All?
Five states have no statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. If your sale is delivered into Delaware, Montana, New Hampshire, or Oregon, sales tax is not on the invoice. Alaska is the trap in that list. The state itself imposes nothing, but individual municipalities levy their own local sales taxes, so a sale shipped into certain Alaska cities can still carry a local obligation.
The other 45 states and Washington, D.C. all have a sales tax. For those, keep going.
Do You Have Nexus in the Buyer’s State?
Nexus is the legal link between your business and a state that gives the state the right to make you collect. Without nexus, you don’t collect, even if the buyer is in a tax state and the product is taxable. There are two kinds of nexus, and either one is enough on its own.
Physical Nexus
You have physical nexus wherever your business has a tangible footprint: an office, a warehouse, a store, employees working in the state. It also reaches less obvious situations. Inventory held in a third-party fulfillment center creates nexus. Owning equipment in the state creates nexus. Attending a trade show to solicit sales can create nexus. If you use Fulfillment by Amazon and Amazon has parked your inventory in a warehouse in another state, that alone can trigger an obligation there.
Economic Nexus
Since the Supreme Court’s 2018 decision in South Dakota v. Wayfair, Inc., states can require you to collect based on sales volume alone, with no physical presence at all.1Legal Information Institute. South Dakota v. Wayfair, Inc. The original South Dakota threshold — $100,000 in annual sales into the state or 200 separate transactions — became the template most states copied.
The trend since then has moved away from the transaction count. South Dakota dropped the 200-transaction prong in 2023, and Colorado, Indiana, Iowa, Louisiana, North Carolina, North Dakota, Washington, Wisconsin, and Wyoming are among those that have done the same. Treat $100,000 in sales into any single state as the number that matters. As you approach it, pull up that state’s current rule and plan on registering.
If you’re going to need to register in a lot of states at once, the Streamlined Sales Tax Governing Board runs a single application at sstregister.org that covers its 24 member states. The program also connects sellers with certified service providers that handle calculation, filing, and remittance at no cost to qualifying businesses.2Streamlined Sales Tax Governing Board. Certified Service Provider (CSP)
Is What You’re Selling Taxable There?
Nexus tells you the state can make you collect. Taxability tells you whether this particular invoice line is something you actually collect on. It varies by state and by category, and getting it wrong is one of the most common compliance failures.
Physical Goods
Tangible personal property — anything the customer can hold — is taxable in virtually every state that has a sales tax. Furniture, electronics, office supplies, clothing: assume taxable unless the state carves out an exemption. Some states exempt groceries or clothing, but exemptions are the exception, not the default.
Services
Services are unpredictable. Most states do not tax the bulk of professional services — legal work, accounting, management consulting — but that’s not universal, and the direction of travel is toward broader service taxation. Some states tax specific categories like data processing, information services, or digital advertising. Repair labor is taxable in some states and exempt in others, and the answer sometimes depends on whether the labor is a separate line item or bundled with the parts.
Software as a Service and Digital Products
SaaS splits the country roughly in half. About 25 states tax it; the rest don’t. A few states distinguish business-to-business from business-to-consumer SaaS and tax one but not the other. Downloaded software, streaming services, and e-books each carry their own rules. If you sell anything digital, check taxability state by state and don’t extrapolate from one state to the next.
Don’t Bundle Taxable and Exempt Items
When taxable products and exempt services share a single price on a single line, many states tax the entire bundle at the full rate. Kentucky’s bundled transaction statute says so explicitly, and Louisiana takes the same approach. The fix is simple: give each component its own line with its own price. Shipping, handling, installation labor, and any charge that might qualify for different treatment should always appear separately.
Is a Marketplace Already Collecting?
If the sale is going through Amazon, Etsy, eBay, Walmart Marketplace, or a similar platform, you probably do not add tax to the invoice yourself. Nearly every state with a sales tax now requires marketplace facilitators to collect and remit on behalf of their third-party sellers.3Streamlined Sales Tax Governing Board. Marketplace Facilitator State Guidance
That is not a blanket exemption from sales tax life. You still need to register in states where you have nexus and file returns, even if the returns show zero because the marketplace handled collection. You still owe tax on sales made through your own website or any channel outside the marketplace. And some states require marketplace sellers to register independently regardless of what the facilitator is doing. Treating “the marketplace handles it” as the end of the analysis is a common and expensive mistake.
Is the Buyer Exempt?
Some buyers are legally exempt, but the burden of proving it sits with you as the seller. The two common scenarios are resale purchases — a wholesaler or retailer buying inventory to resell — and exempt organizations like nonprofits and government agencies. In each case, the buyer should hand you a certificate: a resale certificate for a reseller, an exemption certificate for a nonprofit or government buyer.
Don’t wave these through. You need to confirm the certificate is valid, the buyer’s permit number is active, and the exemption actually covers what’s being purchased. California’s CDTFA portal, Texas’s Comptroller site, and New York’s TIVL system all allow real-time lookup of a buyer’s permit number. Where no online tool exists, call the state’s department of revenue.
Keep every certificate on file. Most states require retention for at least three to four years, and some extend the window longer for audit purposes. If an auditor asks and you cannot produce the certificate, you owe the uncollected tax personally, plus interest.
Which State’s Rate Goes on the Invoice?
Once you know you owe tax on the sale, the next question is at what rate. States split into two camps for in-state sales. Destination-based states, which are the majority, use the rate where the buyer receives the goods. Origin-based states use the rate where your business is located. Twelve states use origin sourcing for in-state sales: Arizona, California, Illinois, Mississippi, Missouri, New Mexico, Ohio, Pennsylvania, Tennessee, Texas, Utah, and Virginia.
For interstate sales, the rule is simpler. Almost every state treats a remote seller as destination-based, so if you ship from Texas to a customer in Georgia and you have nexus in Georgia, you charge Georgia’s rate at the buyer’s address. Local rates can vary by several percentage points within a single state depending on city and county, so use the actual delivery address, not a state-wide default.
Register Before You Charge Anything
You cannot legally charge sales tax without first holding a sales tax permit (sometimes called a seller’s permit) from the state. Collecting tax without a permit is treated seriously. Under Texas law, operating as a retailer without a permit is a Class C misdemeanor on a first offense and escalates to a Class A misdemeanor with potential jail time for repeat violations.4State of Texas. Texas Tax Code 151.708 – Selling Without Permit
Registration is usually free and handled online through the state’s department of revenue. You’ll typically need your federal employer identification number or Social Security number, your NAICS business classification code, and personal information for the business owners or officers. Once approved, you receive a permit number that goes on your returns and, in some states, must be displayed at your place of business. For sellers registering in multiple Streamlined Sales Tax member states, the centralized system saves considerable time.5Streamlined Sales Tax Governing Board. Streamlined Sales Tax
How the Invoice Itself Should Look
Charging the right amount is half the job. The invoice has to present it correctly. Most states require sales tax to appear as its own line, stated separately from the selling price. Some states go further and create a legal presumption that a quoted price does not include tax, even if you and the buyer verbally agreed otherwise. An auditor who sees a lump-sum invoice with no separately stated tax may treat the entire amount as taxable proceeds, meaning tax gets assessed on top of what you already collected.
A compliant invoice shows your business name and address, your sales tax permit number, the buyer’s name and address, a unique invoice number, and a description of each item with quantity and unit price. Below the line items, show the subtotal before tax, the applicable rate for each jurisdiction, the tax amount, and the total due. For exempt sales, reference the exemption certificate number on file so the paper trail leads back to the documentation.
Work through the three questions in order for each state you ship into, keep exemption certificates organized, and let the marketplace handle what the marketplace is required to handle. That’s the whole framework for deciding whether tax belongs on any given invoice.