Contractor sales tax by state: where to start

You have a deck job forty minutes away, across a state line, and you are working out whether to put tax on the number. The supply house charges you tax on lumber. Your last three customers never asked. The one time you looked it up, the state's page was about "tangible personal property" and you closed the tab.

It is four questions, answered in order. Which state can make you collect. Whether you are registered there. Whose rate applies. Whether this job is taxable at all.

There is no U.S. sales tax

There is no federal sales tax and no national rate. It is a state tax, and in most states one with county, city and special-district taxes stacked on top. As of this writing, forty-five states and the District of Columbia levy a statewide sales tax. Five do not:

"No sales tax state" does not mean "no tax obligation." Alaska behaves like a sales tax state, administered town by town.

Everywhere else the rate you charge is a stack. These layers are invented to show the shape; yours comes from a rate lookup.

Combined rates above 10% exist in parts of several states — the Tax Foundation's annual rate survey shows the spread — and two towns twenty minutes apart can differ by more than a point. Most departments of revenue publish an address-level lookup. Use it per job site, not per county, and use it the week you quote.

Nexus: which states can ask you to collect

Nexus is the connection that lets a state require you to register and collect. It starts whether or not anyone sends you a letter.

Physical presence is the version that catches contractors. An office, a shop, a yard, stored materials, employees — and in most states, doing the work at a location inside the state. Crossing a state line to install, build or repair something is about the strongest fact a state could ask for. States differ on whether one short job trips it, so ask before the second job, not after the tenth.

Economic nexus came out of South Dakota v. Wayfair (2018), which let states require sellers with no physical presence to collect on sales volume alone. Nearly every sales tax state now has a version. The usual pattern is an annual dollar threshold of sales into the state — $100,000 is the figure most often cited — sometimes paired with a transaction count. The thresholds, what counts toward them and the measurement window have all been amended repeatedly since 2018, and several states have dropped their transaction test entirely. Confirm any figure on the state's own revenue site before you rely on it.

For most contractors this is secondary. You are not shipping to forty states; you are driving to two.

Registering before you collect a dollar

Collecting sales tax without a permit is not a technicality you clean up later. In many states the tax you collect is money you hold in trust for the state. Collecting it unregistered is treated far more seriously than under-collecting by mistake — in some states personally, past the shield of your LLC.

The sequence is nearly the same everywhere:

1. Get an EIN from the IRS if you do not have one. It is free, and the online application issues the number in the same session. Some states let a sole proprietor register on an SSN instead.
2. Register with the state's revenue agency. The name varies — Department of Revenue, Department of Taxation, Comptroller, Tax Commission. Free in many states, a modest fee in others.
3. Wait for the permit number, then start charging. Some states also require you to post the permit at a fixed place of business.
4. Register locally where local tax is separately administered. Most states collect local tax on their cities' behalf. Some do not: Alaska has no state agency to do it, and Colorado's home-rule cities have long self-collected, though the state's SUTS portal now consolidates filing for many of them. Louisiana's parish-level collection is being reworked, so check its current position.

Registration brings a filing calendar, at a frequency the state assigns — usually monthly, quarterly or annually, based on how much you remit. A return is normally due even for a period where you collected nothing, and skipping that zero return commonly carries its own penalty. Some states allow a small vendor discount for filing on time. It is not universal and states do take it away: Colorado stopped letting retailers keep the state-level service fee on January 1, 2026, leaving some local fees in place.

Whose rate applies: origin, destination, or the job site

Sourcing decides which locality's rate goes on the bill when you and the customer are in different places.

• Destination sourcing — the rate where the customer takes delivery or where the goods end up. Most states use it.
• Origin sourcing — the rate where the sale originates, usually your business location. A minority of states apply it to sales inside the state; Texas is the one most often named, though its local sourcing rule has been in and out of litigation for years. Sales across a state line are generally destination-sourced even in origin states.

For contractors this matters less than in retail: work done on someone's property is usually sourced to the job site, and the house does not move. Counter sales, material deliveries, and fabricating off site then installing are where sourcing changes the answer — take those to your state with the specific facts.

Three more rules decide the invoice

Everything above decides where you sit in the system. What goes on the invoice turns on three more rules, each needing its own guide: whether you are the consumer of your materials, paying tax at the supply house and never charging the customer, or a retailer reselling them (materials versus labor); whether labor itself is taxable, which often turns on repair versus new construction (is labor taxable); and when a resale or exemption certificate applies, in either direction (resale certificates and exemptions).

Keeping the rate from being retyped

A rate you looked up once still has to reach the paperwork, and rates move. If you price from a saved list of services, DoneQuote holds the tax handling on the service itself, so a change is one edit instead of a hunt through the last dozen documents.

What to ask your department of revenue

Call, or use the written-guidance request most states offer:

• Does the work I described create nexus here, and from what date?
• Am I registering as a contractor, a retailer, or both under one permit?
• Are improvements to real property treated differently from repairs?
• Which rate applies at a job site outside my home city?
• What filing frequency am I assigned, and are zero returns required?

Write down who answered and when. Then take it to a CPA who works with contractors in your state. Start at the IRS list of state government websites. If you work across several states, the Streamlined Sales Tax Governing Board publishes member states' rules in a common format.