Tax and VAT

Sales tax

Sales tax is a US consumption tax charged once at the point of final sale to the end consumer by the seller, with rates set independently by states, counties, and cities (so a single transaction can stack two or three layers of tax).

Applies in: United States

Sales tax is the US answer to VAT or GST, but with a fundamentally different mechanic. Where VAT charges at every stage of the supply chain with input-tax reclaims, sales tax is collected once, at the final retail sale, with no reclaim chain. The seller charges, collects, and remits to the state. The buyer pays it and that is the end of the story.

There is no single US sales tax rate. Forty-five states plus the District of Columbia charge sales tax, with state rates from 2.9% (Colorado) to 7.25% (California). Local jurisdictions layer on top: a sale in Chicago carries 6.25% Illinois plus 1.25% Cook County plus 1.25% city plus other local components, ending around 10.25%. Five states (Alaska, Delaware, Montana, New Hampshire, Oregon) have no state-level sales tax, although Alaska localities can still charge it.

The 2018 Supreme Court Wayfair decision changed the rules for who has to collect. Before Wayfair, a seller needed a physical presence ("nexus") in a state to be required to charge that state's sales tax. After Wayfair, economic nexus applies: cross a state's revenue or transaction threshold (often USD 100,000 or 200 transactions) and you owe that state's sales tax, even if you have never set foot there. This is what dragged most US ecommerce sellers into multi-state tax compliance.

B2B sales between businesses are often exempt at the resale stage, but the buyer has to provide an exemption certificate. Keep certificates on file or you are on the hook for the tax if the state audits.

Common questions about Sales tax

Do I need to charge sales tax on every invoice?
Only on taxable sales in states where you have sales-tax nexus. If you sell only to other businesses for resale (and you have valid exemption certificates), most of your invoices will be exempt. If you sell to end consumers in states where you cross the economic nexus threshold, you need to register and charge.
How did the Wayfair decision change things?
South Dakota v. Wayfair (2018) replaced the physical-presence test with an economic-nexus test. States can now require out-of-state sellers to collect sales tax once they cross a revenue or transaction threshold (typically USD 100,000 or 200 transactions per year). Most ecommerce sellers now have nexus in dozens of states.
How do I figure out which state's rate applies?
For most B2B and digital sales, it is the buyer's location (destination-sourced). For point-of-sale physical retail, it is the seller's location (origin-sourced). A handful of states are mixed. Sales-tax calculation tools like our sales-tax calculator handle the lookup once you know the destination zip code.

Use JupiterInvoice for Sales tax

Sales tax on a JupiterInvoice invoice is a field, a label, and an audit trail your buyer can act on without an email back-and-forth.

Sales tax and VAT calculator

Free sales tax and VAT calculator for your invoices. Inclusive or exclusive amounts, multi-line, with EU reverse-charge support.

Invoicing built for freelancers

Branded invoices with PO numbers, international payment details, and version history. The invoicing tool freelancers graduate to.

Related terms

VAT GST Tax invoice TIN EIN

Send an invoice that handles sales tax properly

Free. No signup. Tax labels, payment terms, and PO numbers are first-class fields, not workarounds.

Create an invoice

No signup required. Build now, save later.