No federal VAT: sales tax instead
The most important thing to understand about invoicing in the United States is that there is no federal value-added tax (VAT) and no national sales tax. Unlike the EU, the UK, or Canada, the US does not add a single consumption tax to every invoice. Instead, consumption taxes are state and local sales taxes, set independently by individual states, counties, cities, and special districts. That means there is no one nationwide rate and no one nationwide rule; what you charge depends on where the customer is and what you are selling.
Sales tax is generally a tax on the final retail sale of tangible personal property, and increasingly on some digital products and services. It is collected by the seller from the buyer at the point of sale and remitted to the relevant state and local tax authorities. Five states (Alaska, Delaware, Montana, New Hampshire, and Oregon) have no statewide sales tax at all, though some localities in Alaska levy their own. Because rates and rules vary so widely, the same product can carry a different tax line depending on the delivery address.
What a US invoice should contain
Because there is no federal mandate dictating an invoice format, US businesses have flexibility, but a clear, professional invoice should still carry a consistent set of fields. These make the invoice easy to pay, easy to reconcile, and defensible if a customer or a tax authority ever questions it:
- Seller details
- Your business name, address, and contact information, plus your Employer Identification Number (EIN) where you use one.
- Buyer details
- The customer’s name, billing address, and the shipping or service address, which can determine the correct sales tax rate.
- Invoice number
- A unique, sequential identifier so both parties can reference and track the document.
- Invoice date and due date
- The issue date and the payment terms (for example, Net 30), which set when payment is expected.
- Line items
- A clear description of each product or service, the quantity, the unit price, and the line total.
- Subtotal
- The total of all line items before any tax is applied.
- Sales tax
- The applicable state and local sales tax shown as a separate line, charged only where you have nexus and the sale is taxable.
- Total amount due
- The final amount the customer owes, including any taxes and minus any discounts or deposits.
- Payment instructions
- How to pay: accepted methods, bank or ACH details, or a payment link.
Sales tax and economic nexus after Wayfair
Whether you must charge sales tax in a given state turns on nexus: a sufficient connection between your business and that state. Traditionally, nexus meant a physical presence such as an office, a warehouse, inventory, or employees. The 2018 Supreme Court decision in South Dakota v. Wayfair changed this dramatically by allowing states to require remote sellers to collect sales tax based on economic nexus alone, with no physical presence required.
Under economic nexus, most states set a threshold, commonly $100,000 in sales or 200 transactions into that state in a year, though the exact figures and measurement periods differ from state to state. Once you cross a state’s threshold, you generally must register for a sales tax permit there, charge tax on taxable sales to customers in that state, and file returns. If you sell into many states, you may have collection obligations in several of them at once, which is why many growing sellers use sales tax automation tools to track thresholds.
The rate you charge is usually based on the destination of the sale, the buyer’s address, in most states, combining the state rate with any county, city, and district add-ons. A handful of states use origin-based sourcing for intrastate sales. Because of this layering, two customers in the same state can owe different total rates, so the delivery address on the invoice matters.
Exempt sales, resale, and exemption certificates
Not every sale is taxable, and many B2B transactions are not. Two common situations remove the sales tax line from an invoice. First, resale: when you sell goods to a buyer who will resell them rather than consume them, the buyer gives you a resale certificate, and you do not charge sales tax because tax will be collected at the eventual retail sale. This avoids tax being charged at every step of the supply chain.
Second, exemption certificates: certain buyers (such as government bodies, qualifying nonprofits, manufacturers buying production inputs, or farmers) and certain product categories (often groceries, prescription drugs, or some services) are exempt under a given state’s rules. When a buyer claims an exemption, you collect and keep a valid exemption certificate on file and issue the invoice without tax. The certificate is your evidence, during an audit, that the untaxed sale was legitimate, so keep it.
Many professional services are not subject to sales tax in many states, although this is shifting as states expand tax to specific services and to digital products. The safe approach is to confirm, for each state where you have nexus, whether your particular goods or services are taxable before deciding to leave tax off an invoice.
Contractors, W-9, and 1099 forms
If you are an independent contractor or freelancer invoicing US business clients, two federal income-tax forms commonly come up, and they are separate from sales tax. Before paying you, a business client will often ask you to complete a Form W-9, which provides your legal name and Taxpayer Identification Number (your Social Security Number or EIN) so the client can report payments to the IRS. The W-9 is given to the client, not the IRS, and it is not filed with your invoice.
At year end, a business that paid an unincorporated contractor at or above the reporting threshold (commonly $600 for the year) generally issues a Form 1099-NEC reporting that nonemployee compensation to the IRS and to the contractor. You do not put the 1099 on your invoices; rather, your invoices are the underlying records that support the totals reported. Keeping clean, numbered invoices makes it straightforward to reconcile against any 1099 you receive and to report your income accurately.
US invoicing questions
Does the United States have VAT on invoices?
No. The United States has no federal VAT and no national sales tax. Instead, consumption tax takes the form of state and local sales taxes set independently by states, counties, and cities. An invoice adds sales tax only where the seller has nexus in the buyer’s state and the sale is taxable, so many invoices carry no tax line at all.
What does a US invoice need to include?
There is no federally mandated invoice format in the US, but a clear invoice should include your business name and contact details, the customer’s details, a unique invoice number, the issue and due dates, itemized goods or services with quantities and prices, a subtotal, any applicable sales tax as a separate line, the total due, and payment instructions.
When do I have to charge sales tax?
You charge sales tax when you have nexus in the customer’s state and the item or service is taxable there. Nexus can be physical (an office, employees, or inventory) or economic (crossing a sales or transaction threshold, commonly $100,000 in sales or 200 transactions, after the 2018 Wayfair decision). Once you have nexus, you register, charge tax, and file returns in that state.
What is economic nexus after the Wayfair decision?
Economic nexus is the rule, established by the 2018 Supreme Court case South Dakota v. Wayfair, that a state can require a remote seller to collect sales tax based on its sales volume into that state, even with no physical presence. Most states set a threshold around $100,000 in sales or 200 transactions per year, though the exact figures vary by state.
What is a resale or exemption certificate?
A resale certificate is provided by a buyer who will resell the goods, allowing you to invoice without sales tax because tax will apply at the final retail sale. An exemption certificate is provided by an exempt buyer, such as a government body or qualifying nonprofit, or for an exempt product category. In both cases you keep the certificate on file as evidence and issue the invoice with no tax.
How do W-9 and 1099 forms relate to my invoices?
They are income-tax forms separate from your invoices. A business client may ask a contractor to complete a Form W-9 with their name and Taxpayer Identification Number before paying. At year end, a client that paid an unincorporated contractor $600 or more generally issues a Form 1099-NEC to the IRS and the contractor. Your numbered invoices are the records that support those reported totals.