Sales Tax

If you sell taxable goods — physical products, digital downloads, or certain types of software — you are generally required to collect sales tax from customers in states where you have nexus¹. Nexus is a sufficient connection to a state to create a tax obligation. Physical presence (office, employees, inventory) creates nexus in all states. Economic nexus — triggered when your sales in a state exceed a threshold (typically $100,000 or 200 transactions per year) — now also creates a sales tax obligation in most states following the 2018 Wayfair decision. If you provide services, most states don't tax them, but several (including New York, Texas, and Hawaii) tax certain services.

If you determine you have a sales tax obligation, register with that state's tax authority first — don't collect without a permit. Once registered, add the appropriate sales tax percentage to qualifying invoices for customers in that state. Most invoice generators and e-commerce platforms can handle this automatically. Keep the collected tax in a dedicated account, not commingled with operating funds — it's not your money to spend. File and remit returns on the schedule required by each state (monthly, quarterly, or annually depending on your sales volume). Platforms like TaxJar or Avalara automate multi-state sales tax compliance for businesses with complex needs.

Sales tax and VAT are both consumption taxes, but they work differently. US sales tax is collected only at the final sale to the consumer — businesses buying for resale or use in their own products receive exemptions. VAT is collected at every stage of the supply chain, with each business reclaiming VAT paid on inputs. If you sell internationally, you may face VAT obligations in addition to US sales tax requirements. For most US-based freelancers providing services domestically, sales tax is rarely a concern — but the moment you sell physical products or expand internationally, it becomes a material compliance issue.