US sales tax for freelancers, explained

US sales tax is a transaction tax charged at the point of sale and collected by the seller on behalf of the state, county, and city. There is no federal sales tax. Each of the 45 sales-tax states sets its own rules on what is taxable, at what rate, and when an out-of-state seller has to register. For most freelancers selling professional services (writing, design, consulting, software development), no sales tax is owed. If you sell physical goods, digital goods, or certain specified services, you generally must register, collect the destination rate, and file returns.

The basics in 60 seconds

• 45 states + DC charge sales tax. The five no-sales-tax states are Alaska, Delaware, Montana, New Hampshire, and Oregon (Alaska allows local sales tax).
• Rates are layered. The total rate paid by the customer is state + county + city + special district. New York City, for example, is 4% (NY) + 4.5% (NYC) + 0.375% (MCTD) = 8.875%.
• Sales tax is destination-based in most states — you charge the rate of where the customer takes possession, not where you operate.
• Services are usually exempt. But Hawaii, New Mexico, South Dakota, and West Virginia tax most services by default.

Who has to collect sales tax?

You must register and collect sales tax in any state where you have nexus — a connection that obligates you to comply with that state’s tax rules. There are two main flavors:

Physical nexus

You have a presence in the state — an office, warehouse, employee, contractor, inventory, or even regular travel for sales. If you live and work in California, you have physical nexus in California, period.

Economic nexus

Since the 2018 South Dakota v. Wayfair Supreme Court ruling, every state can require out-of-state sellers to collect sales tax once they cross a revenue or transaction threshold in that state. The most common threshold is $100,000 in annual sales or 200 transactions. Some states (like California and Texas) use $500,000 or no transaction threshold. If you sell digital products nationwide and a single state crosses the threshold, you have to register there.

Services vs goods vs digital products

How an item is classified determines whether tax applies. The classification can be counter-intuitive.

Practical takeaway: always itemize taxable and non-taxable lines on the same invoice instead of rolling them into one. In MakingInvoices.com you can mark each line as taxable or non-taxable individually, and the tool calculates the right total automatically.

How do you find the correct rate?

The rate is the customer’s ship-to or service-delivery address — not your own. To find it:

1. Open your state’s Department of Revenue rate lookup (most have a free address-based tool).
2. Enter the full street address — ZIP-only lookups give the wrong rate ~30% of the time because special districts cross ZIP boundaries.
3. Note the combined state + county + city + district rate.
4. Apply that rate only to taxable line items.

For high volume across many states, services like Avalara, TaxJar, and Stripe Tax automate this lookup. For a few invoices a month, manual lookup is free and fine.

Filing and remitting what you collected

Sales tax is a trust tax — money you hold on behalf of the state. You file a return on a state-assigned schedule (monthly, quarterly, or annually depending on volume) and remit the collected amount. Late filing penalties are steep — often a flat $50 plus interest, even if you collected $0 in that period. Always file zero returns when due.

Keep collected sales tax in a separate bank account so it’s not accidentally spent on operations. Treat it like payroll tax: not yours.

Quick recap

• Sales tax is state-level, not federal. 5 states have none.
• Charge the destination rate, not your own.
• Most freelance services are exempt — check your state.
• Economic nexus kicks in around $100k or 200 transactions per state.
• File on time, even when zero is due.