Definition
Sales tax is a consumption tax added to the price of goods and some services at the point of sale, collected by the seller and remitted to the state or local government. In the United States it is set by states, counties, and cities, so rates vary by location. Sellers show it as a separate line on the invoice.
Sales tax in practice
Unlike VAT, sales tax is charged only once, at the final sale to the consumer. Business purchases for resale are typically exempt with a resale certificate. Many services are exempt in some states and taxable in others.
Online and remote sellers may have to collect sales tax in states where they exceed economic nexus thresholds, even without a physical presence.
Frequently Asked Questions
Do I charge sales tax on services?
It depends on the state and the service. Some states tax most services; others tax almost none. Check your state's rules or ask an accountant before invoicing.
How do I show sales tax on an invoice?
Show the subtotal, then the tax rate and amount as a separate line, then the total. If multiple rates apply, list each one.