Sales Tax Guide for US Contractors
A plain-English breakdown of how sales tax works for contractor invoices, what goes on the invoice, and how to get it right — without the accountant jargon. This is general information, not tax advice.
Updated May 2026 · General guidance — rules vary by state
There's no national sales tax or VAT in the US. Instead, each state sets its own rules. Whether you need to charge sales tax depends on where you have "nexus" and whether your state taxes your type of work. A good invoice still needs: your business name, the date, a unique invoice number, a description of work, your customer's name and address, the subtotal, sales tax (if it applies, shown separately), and the total.
Unlike VAT or GST, there's no single national threshold that triggers registration. Instead, two separate questions decide whether you charge sales tax on a job: do you have nexus in the state where the work happens, and does that state tax your type of work in the first place?
Nexus is a business connection to a state — either physical (an office, employees, a warehouse, or regularly working jobs there) or economic (since the 2018 South Dakota v. Wayfair Supreme Court ruling, many states apply this to out-of-state sellers, commonly around $100,000 in sales into that state in a year — thresholds vary by state). Most contractors working jobs in their home state have physical nexus automatically.
Then there's the "does my state tax this" question. Five states — Alaska, Delaware, Montana, New Hampshire, and Oregon — have no general state sales tax at all. In the other 45 (plus DC), most tax tangible materials, but whether labour on real-property work is taxable varies a lot: many states exempt pure labour on new construction or capital improvements, while repair and maintenance labour is more often taxable. There's no single rule that applies everywhere.
If you're not sure whether you have nexus or whether your work is taxable in your state, check with your state Department of Revenue or an accountant before you register or start charging sales tax — getting it wrong in either direction causes problems.
There's no federally mandated invoice format for sales tax the way the UK or NZ have a VAT/GST invoice standard. This checklist reflects common best practice and what most state Departments of Revenue expect to see if they ever review your records:
| Situation | What you need on the invoice |
|---|---|
| No nexus / exempt work | Your name, date, description, and total. No sales tax line at all. |
| Taxable job | Everything above, plus subtotal, sales tax shown separately (with rate and jurisdiction), and the total including tax. |
For a taxable job, here's what to include:
Here's what a complete contractor invoice looks like for a taxable job:
| Description | Qty | Rate | Total |
|---|---|---|---|
| Replace electrical panel — 14 Elm Grove, Austin | 3.5 hrs | $95/hr | $332.50 |
| 200A panel, breakers included | 1 | $310.00 | $310.00 |
| Misc materials (wire, conduit, hardware) | 1 | $85.00 | $85.00 |
The math
There's no fixed national rate — combined state, county, and city rates commonly range from 0% up to around 10%+ depending on where the job is. Here's the math for a typical job where only materials are taxable, at an example combined rate of 8.25%:
Because the taxable base differs by state (some tax the whole job, some only materials, some exempt certain contract types entirely), TradieNotes doesn't try to auto-calculate a rate for you — you fill in the sales tax line based on your state's rules for the job in question.
The US doesn't have a federal equivalent to a VAT Flat Rate Scheme. What does exist is the Streamlined Sales Tax (SST) agreement, a voluntary compact among about two dozen states that simplifies registration and rate look-ups if you sell into multiple member states. It's most relevant if you regularly do taxable work across state lines — most single-state contractors won't need it.
For most contractors working jobs in their home state, the checklist above is all you need. If you're ever unsure whether a job is taxable, it's cheaper to ask your state Department of Revenue or an accountant up front than to get it wrong.
A quote (or estimate) is a price offer before the job starts. It's not a request for payment, though showing an estimated tax-inclusive total on a quote is good practice so there are no surprises.
An invoice is issued after the work is done and is a formal request for payment.
The IRS generally recommends keeping records that support your tax return for at least 3 years from the date you filed, though longer periods apply in specific situations — for example 6 years if you underreported income by more than 25%, or indefinitely if you didn't file a return at all. Separately, most states have their own retention rules for sales tax records specifically, commonly in the 3-4 year range — check your state's requirements, since they don't always match the federal ones. Digital records are fine.
Your invoices saved in TradieNotes count as valid digital records. You don't need to print and file paper copies.
The term sales tax invoice requirements means something different in the US than in a VAT/GST country. There's no single national law setting invoice fields — instead, requirements come from a patchwork of state Departments of Revenue, each with its own rules about registration, rate sourcing, and record-keeping.
The practical requirements for contractors are still fairly simple once you know the key concepts: nexus, taxability of your work type, and sourcing (which jurisdiction's rate applies — usually the job site for contractors, since most states use destination-based sourcing for services performed at a customer's location).
If you have nexus in a state and that state taxes your work, you generally need to register for a seller's permit (sometimes called a sales tax license) with that state's Department of Revenue before you start collecting tax — not a single national registration number like a VAT number.
| Nexus type | What triggers it |
|---|---|
| Physical nexus | An office, employees, a warehouse, or regularly performing work in the state. Most home-state contractors have this automatically. |
| Economic nexus | Selling into a state remotely above that state's dollar/transaction threshold (commonly around $100,000 in sales, though thresholds vary by state) — more relevant to online sellers than most on-site contractors. |
Common mistakes that cause issues down the line:
Sales tax rules and rates change fairly often at the state and local level. This guide covers the general framework, but always confirm current rates and rules with your state Department of Revenue or an accountant before relying on them for a specific job.
Common questions
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This guide is general information for US contractors and is updated periodically, but sales tax rules vary by state and change often. It is not legal or tax advice. For advice specific to your situation, speak to your accountant or check your state Department of Revenue's website.
