Sales Tax Invoice Requirements by State: A Complete Guide

Sales tax invoice requirements by state dictate that each invoice must include the seller's name, address, and tax identification number, a clear description of the goods or services sold, the sale price, the applicable tax rate, and the tax amount separately stated from the item price. States such as New York, Texas, and California impose specific rules governing how tax, shipping, and labor charges must be displayed on an invoice, and those display rules directly determine whether a charge is taxable.

Most compliance guidance available today focuses on tax rates and calculation methods. But the invoice document itself is where compliance is enforced or broken. The way charges are listed, separated, and described on a given invoice directly determines tax liability in many states. A shipping charge bundled into a single line with product costs triggers tax in jurisdictions where it would otherwise be exempt. A labor charge that lacks a separate description becomes taxable by default. These are not calculation errors; they are documentation failures, and they occur at the invoice level.

This guide covers the full scope of sales tax invoice requirements from the perspective of the team that receives and processes the document:

The universal fields every sales tax invoice must contain
Why "separately stated" rules vary by state and how formatting choices change taxability outcomes
A state-by-state reference table of documentation requirements for major jurisdictions
The most common invoice formatting mistakes that create unexpected tax liability
Retention periods by state
A practical AP verification checklist for multi-state vendor invoices

Before examining the state-specific variations that make multi-state compliance particularly difficult, the starting point is the baseline: the core documentation requirements that apply across nearly all US sales tax jurisdictions.

What Must Appear on a Sales Tax Invoice

When a vendor invoice lands in your AP queue, the first question is whether it contains every field your state requires for sales tax compliance. A missing tax registration number or an unlisted exemption reference can turn a routine payment into an audit liability months later. Here are the core fields that virtually every US sales tax jurisdiction expects to see on a compliant invoice.

Seller identification:

Seller's legal name and physical address
Seller's state tax registration or permit number

Buyer identification:

Buyer's legal name and address (particularly relevant where sales tax nexus exists in the buyer's state)

Transaction details:

Invoice date
Unique invoice number
Description of each good or service sold
Quantity and unit price for each line item

Tax and totals:

Total sale amount before tax
Applicable tax rate(s) for each jurisdiction
Tax amount(s) separately stated
Total amount due including tax

These fields form the baseline for US sales tax invoice requirements, but the specifics shift from state to state. Some states mandate that the seller's tax permit number appear on every single invoice. Others require it only when the transaction involves an exemption or when the seller operates above a certain revenue threshold. If you are responsible for understanding invoice fields and what each element means, knowing where your vendor states fall on these requirements prevents compliance gaps before they compound.

Exempt Transaction Documentation

Invoices tied to exempt sales carry additional sales tax documentation requirements beyond the standard fields. When a purchase qualifies for a resale exemption, a manufacturing exemption, a nonprofit exemption, or another category, the invoice should reference:

The exemption certificate number on file with the seller
The nature of the exemption (resale, manufacturing, agricultural, nonprofit, government)
A clear link between the invoice and the corresponding certificate, so auditors can trace the exemption claim without requesting supplemental records

Use tax exposure is a direct risk when these references are missing. If a vendor fails to collect sales tax and the invoice lacks proper exemption documentation, the burden falls on the buyer to self-assess and remit use tax to the appropriate state. AP teams handling different types of invoices and their documentation rules across multiple jurisdictions need a systematic method for flagging incomplete exemption records at the point of receipt, not months later during reconciliation.

Why This Complexity Matters at Scale

For a single-state business with a handful of vendors, verifying these fields is manageable. For organizations operating across five, ten, or thirty states, the compliance burden scales sharply. According to a Tax Foundation analysis of federal tax compliance costs, tax complexity costs the U.S. economy over $536 billion annually, with Americans spending roughly 7.1 billion hours on compliance, equivalent to approximately 1.8% of GDP. A significant portion of that burden falls on businesses navigating multi-state sales tax obligations, where each jurisdiction's invoice requirements add another layer of verification work.

Of all the fields listed above, one carries disproportionate weight in determining actual tax liability: whether tax-related charges are "separately stated" on the invoice. The formatting of that single element can change whether a charge is taxable or exempt, and the rules differ by state.

Separately Stated Tax: Why Invoice Formatting Determines Taxability

How a charge appears on an invoice can determine whether it is taxable. This is not a theoretical distinction. The concept of "separately stated" tax on invoices is one of the most consequential and misunderstood rules in multi-state sales tax compliance.

Separately stated means that a charge for shipping, labor, installation, or another service is listed as its own discrete line item on the invoice, distinct from the price of taxable goods. The opposite is bundling, where these charges are combined into a single line with the product price.

The core principle is straightforward: in many states, when a non-taxable service charge is bundled with a taxable product on one line, the entire amount becomes taxable. Separately listing each charge on the invoice preserves the tax-exempt status of the non-taxable portion. The same dollar amounts, the same services rendered, the same products sold, but a different tax outcome based entirely on invoice formatting.

Shipping and Handling

Shipping charges are among the most common triggers for separately stated sales tax issues. State rules vary significantly:

New York requires shipping and delivery charges to be separately stated on the invoice to remain exempt from sales tax. If shipping is rolled into the product price, the full amount is taxable.
Texas generally exempts shipping charges, but only when they are separately stated on the invoice and the goods are shipped via common carrier. Bundling delivery into the product price eliminates the exemption.
Washington takes a presumptive approach: if shipping is not separately listed on the invoice, the state presumes it is included in the taxable selling price. The burden falls on the seller (and by extension, the AP team reviewing the invoice) to demonstrate otherwise.

For businesses receiving invoices from vendors across multiple states, a shipping charge that is exempt in one jurisdiction may be fully taxable in another, depending on nothing more than how the vendor formatted the invoice.

Labor and Installation

The treatment of labor charges follows a similar pattern, with states drawing fine but financially meaningful distinctions:

California separates fabrication labor (which is taxable because it creates a new product) from installation labor (which is exempt when separately stated on the invoice). If a vendor combines fabrication and installation into a single "labor" line item, the entire charge may be treated as taxable fabrication labor.
Many states exempt repair labor only when the labor charge is separately stated from the parts charge on the invoice. A combined "repair service" line that includes both parts and labor makes the full amount subject to sales tax, even though the labor component alone would have been exempt.

This means that a $2,000 equipment repair invoice with $800 in parts and $1,200 in labor could be taxed on the full $2,000 or only on $800, depending on whether the vendor lists parts and labor as separate line items.

Discounts

Discount formatting creates a less obvious but equally important separately stated sales tax consideration. The way a discount is displayed on an invoice affects the taxable base:

A discount applied proportionally across the entire invoice reduces the taxable amount for all line items. If you receive a 10% discount on a mixed invoice containing both taxable goods and exempt services, the taxable base decreases accordingly.
A discount applied only to non-taxable items, while taxable items remain at full price, requires careful line-item separation. Without clear attribution of the discount to specific line items, a state may apply the discount in a way that does not reduce the taxable base, or may recalculate it in an unfavorable manner during an audit.
Vendor invoices that show a lump-sum discount at the bottom without specifying which items it applies to create ambiguity that typically resolves against the taxpayer.

Separately stated rules are just one dimension of how state requirements vary. The following section covers additional differences in mandatory fields, exemption documentation, and compliance specifics across major jurisdictions.

State-by-State Sales Tax Invoice Requirements

Forty-five states and the District of Columbia impose a sales tax, and each jurisdiction sets its own documentation requirements for what must appear on a sales tax invoice. Five states (Alaska, Delaware, Montana, New Hampshire, and Oregon) have no statewide sales tax, though some Alaska localities do collect local sales tax and may impose their own invoice documentation rules.

For multi-state businesses and AP teams, the challenge is not just knowing that requirements differ, but knowing how they differ in ways that directly affect taxability, exemption eligibility, and audit exposure. The reference below covers key states with the most notable invoice documentation requirements.

Key State Invoice Requirements

State	Notable Separately Stated Rules	Required Seller ID on Invoice	Unique Exemption/Documentation Requirements
California	Separately stated installation labor is exempt; fabrication labor is taxable. Bundled transaction rules require careful line-item breakdowns. If taxable and nontaxable items are combined into a single price, the entire amount may become taxable.	Seller's permit number required on resale certificate invoices.	Resale certificates must include the seller's permit number. Specific rules govern partial exemptions for manufacturing and R&D equipment.
New York	Strict separately stated requirements per TSB-M-79(15)S. Shipping and delivery charges must be separately stated on the invoice to qualify for exemption.	Certificate of Authority number required for registered vendors.	Clothing and footwear under $110 per item are exempt, but the invoice must clearly show individual item prices to prove each item falls below the threshold. Bundling items into a single line can void the exemption.
Texas	"Tax-included" pricing is permitted, but the invoice must explicitly state that sales tax is included in the price. Separately stated shipping via common carrier is generally exempt.	Texas taxpayer ID number required on invoices supporting resale or exemption claims.	The Comptroller requires specific invoice fields for resale and exemption claims, including the buyer's Texas sales tax permit number and a description of items purchased for resale.
Washington	If sales tax is not listed on the invoice, the state presumes tax is included in the stated price, shifting the burden to the seller. Freight and delivery charges must be separately stated to be evaluated independently for taxability.	Buyer's registration number must be referenced on resale certificates.	Resale certificates (including the Streamlined Sales Tax exemption certificate) require the buyer's Washington registration number. The state audits invoice-level detail aggressively.
Florida	No sales tax on most services, but tangible personal property rules are specific and well-enforced. Discretionary sales surtax applies at the county level and must be documented as a separate line item on the invoice.	Dealer's registration number required on all taxable sale invoices.	County-level surtax rates vary and apply only to the first $5,000 of a taxable transaction. Invoices must show the surtax calculation separately from the state rate.
Illinois	Origin-based sourcing applies for most transactions, meaning the seller's location determines the tax rate. Separate tax rates apply for general merchandise (6.25% state rate) vs. qualifying food, drugs, and medical appliances (1% state rate).	Illinois Business Tax (IBT) number or retailer's occupation tax registration.	Invoices must reflect the correct combined state and local rate for the point of sale. Misapplying the rate category (general merchandise vs. qualifying food/drugs) is a common audit trigger.
Pennsylvania	No sales tax on most clothing and most food purchased for off-premises consumption. Separately stated installation charges for exempt property are themselves exempt.	PA sales tax license number required on exemption documentation.	Pennsylvania uses its own exemption certificate format (REV-1220). Out-of-state sellers must confirm they hold the correct certificate version. Specific categories of clothing (formal wear, sports equipment) remain taxable despite the general clothing exemption.

The table above highlights states with the most distinctive invoice documentation rules. Many other states follow similar baseline requirements (seller identification, separately stated tax, transaction detail). Where a state participates in the Streamlined Sales Tax system (see below), its requirements tend to align more closely with the standard definitions.

E-commerce sellers should also note that in states with marketplace facilitator laws, the marketplace (Amazon, Shopify, etc.) handles tax collection and remittance on facilitated sales. However, the seller's own invoices and records must still reflect the correct tax treatment for any direct sales outside the marketplace.

Streamlined Sales Tax Agreement

States participating in the Streamlined Sales Tax (SST) Agreement follow standardized definitions, tax administration procedures, and exemption certificate formats. Currently, 24 states are full members. This standardization reduces documentation complexity because a single SST exemption certificate is accepted across all member states, and invoices from SST-registered sellers tend to follow more consistent formatting. State-specific rate differences and product taxability rules still apply.

Origin-Based vs. Destination-Based Sourcing

The sourcing method a state uses determines which jurisdiction's tax rate and rules apply to each transaction on an invoice. Origin-based states (like Texas and Illinois) apply the tax rate where the seller is located. Destination-based states (like California and New York) apply the rate where the buyer receives the goods. This distinction is critical when verifying multi-state vendor invoices: the correct tax rate on a given invoice depends on whether the vendor's state uses origin or destination sourcing. Applying the wrong sourcing method results in an incorrect rate, and incorrect rates are one of the most common findings in state sales tax audits.

Even with a clear understanding of these rules, the most common compliance failures stem from specific, repeated invoice formatting errors that are entirely preventable.

Invoice Formatting Mistakes That Create Unexpected Tax Liability

Tax liability does not always stem from applying the wrong rate. In many cases, it comes from how charges are presented on the invoice itself. State tax auditors review invoice documentation directly, and formatting errors rank among the easiest findings to flag during an examination.

These five mistakes account for the majority of formatting-related audit adjustments across multi-state businesses.

1. Bundling Taxable and Non-Taxable Items on a Single Line

When a taxable product and an exempt service appear as one combined charge, states that require separate statement will treat the entire amount as taxable.

Incorrect:

Widget with installation: $500

Correct:

Widget: $350
Installation labor: $150

The combined line forces the full $500 into the taxable base. Breaking the charge into components allows the installation labor to qualify for its applicable exemption. This distinction matters in every state that follows the separately stated doctrine, and the dollar impact compounds across hundreds of invoices.

2. Failing to Separately State Shipping Charges

Freight and delivery charges receive favorable tax treatment in many states, but only when they appear as their own line item. Embedding shipping into the product price eliminates that treatment.

Incorrect:

Product including shipping: $120

Correct:

Product: $100
Shipping and handling: $20

In states like New York and Texas, bundled shipping charges become taxable because the invoice does not distinguish them from the sale price of the goods. The fix is straightforward: vendors must list shipping as a separate line item with its own amount.

3. Missing or Incorrect Seller Tax Registration Numbers

Consider an audit scenario: your business purchased $200,000 in materials over the past three years from a vendor that never included a state tax permit number on their invoices. During the audit, the state disallows your resale exemption claims on every one of those invoices because there is no verifiable seller registration linking the transactions to a licensed seller.

Several states require the seller's state tax permit number or registration ID on every taxable invoice. When this field is absent or contains an outdated number, the invoice cannot support input tax credits or exemption claims. Your AP team should verify that every vendor invoice includes a valid state tax registration number (e.g., "TX Sales Tax Permit: 1-23-4567890-1") before processing payment.

4. Incorrect Jurisdiction Identification

A vendor in a 6.5% tax jurisdiction ships goods to your location, where the combined state and local rate is 8.25%. The vendor calculates tax at their own rate. The invoice arrives showing tax at 6.5%. In a destination-based state, that rate is wrong, and the 1.75% shortfall becomes your liability.

This is one of the most common multi-state errors. In destination-based states (the majority), the buyer's location determines the applicable rate, not the seller's. When invoices omit the ship-to address or default to the seller's location for rate calculation, the resulting underpayment surfaces during audits. Verify that the tax rate on every out-of-state vendor invoice matches the correct destination jurisdiction.

5. Incomplete Exemption Documentation

The burden of proof for exemptions typically falls on the party claiming the exemption. If a vendor invoice simply states "Tax exempt" with no further documentation, that claim will not survive an audit. The buyer may be held responsible for the uncollected tax, plus penalties and interest.

A properly documented exempt invoice should reference the exemption certificate number, the type of exemption (resale, manufacturing, nonprofit, government), and the certificate's expiration date. Your AP team should flag any invoice claiming exemption that lacks a traceable certificate reference on file, and request the documentation from the vendor before approving payment.

Catching These Errors at Scale

These are not theoretical risks. Every one of these formatting mistakes has generated real audit assessments, and they become harder to catch as invoice volume and vendor diversity increase. Automated extraction tools can consistently capture tax-critical fields from varied invoice formats, including tax breakdowns, line item details, separately stated charges, and jurisdiction data. Defining custom data points for extraction makes it possible to flag missing registration numbers or bundled charges before they become audit findings.

Beyond correct formatting at the point of transaction, businesses must also retain these invoices for specified periods to support their audit defense. Those retention windows vary significantly by state.

Sales Tax Invoice Retention Requirements by State

State sales tax record retention periods vary significantly, and failing to keep invoices long enough can leave your business exposed during an audit. Most states require retention for 3 to 7 years from the date of the transaction or the date the corresponding tax return was filed, whichever is later. Understanding these timelines is critical for staying compliant across every jurisdiction where you operate.

Minimum Retention Periods by State

3-year minimum: New York and most Streamlined Sales Tax (SST) member states require businesses to retain sales tax records for at least three years. This aligns with the federal baseline set by the IRS, which also mandates a three-year minimum for federal tax purposes.

4-year minimum: California, Florida, Illinois, Texas, and Washington each require a four-year retention period. Florida's Department of Revenue, for example, can audit returns filed within the prior four years, making invoice retention for that full window essential for substantiating any tax positions taken.

5-year minimum: Montana requires five years of retention where local option taxes apply. Businesses operating in Montana jurisdictions with resort or local taxes should plan accordingly.

6-year minimum: Kentucky mandates a six-year retention period for sales and use tax records, one of the longest fixed requirements among US states.

Indefinite (if no return was filed): In most states, there is no statute of limitations on assessments when a required return was never filed. This means invoice records tied to unreported transactions must be kept indefinitely. If your business had nexus in a state but did not file returns during that period, destroying those records creates significant risk.

Practical Retention Recommendations

Because state requirements frequently exceed the federal three-year floor, the safest approach is to retain all sales tax invoices for the longer of the applicable state requirement or the federal requirement, plus one additional year as a buffer. For most multi-state businesses, this means adopting a minimum seven-year retention policy as a practical standard that covers even the longest fixed state periods and provides margin for audit notification delays.

Electronic Record-Keeping

All states accept electronic records in place of paper originals. However, the records must remain accessible and readable upon request by auditors. Scanned copies of paper invoices are acceptable when the original cannot be maintained, provided the digital version captures all required invoice details legibly. Businesses storing invoices digitally should also be aware of IRS electronic record-keeping requirements for invoices, which set additional standards for how electronic tax documents must be stored and produced.

Retention Applies to Both Sides of the Transaction

These retention requirements apply equally to invoices your business issues and invoices your business receives. AP teams must retain vendor invoices as supporting documentation for use tax self-assessments and exemption certificate claims. If your business claimed an exemption on a purchase or self-assessed use tax on an invoice from an out-of-state vendor, that invoice is your primary audit defense. Without it, the presumption shifts against you, and the state can assess tax, penalties, and interest on the unsupported transaction.

How AP Teams Should Verify Multi-State Vendor Invoices

Every invoice that crosses state lines is a potential audit exposure point. For AP teams processing vendor invoices from sellers in multiple jurisdictions, the challenge is not just knowing the rules covered in this guide. It is applying them consistently, invoice after invoice, regardless of format or origin.

The following checklist provides a repeatable verification process for incoming vendor invoices. Run each item as a yes/no check before approving payment:

Does the invoice include the seller's legal name, address, and state tax registration number? Missing seller identification makes it impossible to verify tax authority and creates problems during audits.
Are the items sold described with sufficient detail to determine taxability? Vague descriptions like "professional services" or "supplies" prevent accurate tax classification. You need enough specificity to confirm whether the item is taxable, exempt, or subject to a reduced rate in the applicable state.
Is sales tax separately stated as its own line item, not bundled into product prices? As covered earlier in this guide, bundling tax into the unit price can convert an otherwise exempt or partially exempt transaction into a fully taxable one in many states.
Are shipping, labor, and discount charges separately stated where required by the applicable state? States differ significantly on whether these charges are taxable. Separate statement is the only way to preserve favorable tax treatment where the law allows it.
Does the applied tax rate match the correct jurisdiction? Confirm whether the seller's state follows origin-based or destination-based sourcing, then verify the rate corresponds to the right county, city, or special taxing district.
For exempt transactions, is the exemption certificate number referenced on the invoice, and is a valid certificate on file? An invoice claiming exemption without a supporting certificate on record is an audit finding waiting to happen.
Does the invoice include all fields required by the specific state(s) involved in the transaction? Cross-reference against the state-specific requirements outlined in this guide. What passes in one state may be insufficient in another.

A failed check on any single item should trigger a follow-up with the vendor before payment processing. Paying an invoice with missing or incorrect tax documentation transfers the compliance risk from the seller to your organization.

Practical Next Steps

1. Audit a sample of recent vendor invoices against state-specific requirements. Pull 20 to 30 invoices from your highest-volume multi-state vendors and run them through the checklist above. This reveals where your current vendor base falls short and which states present the most documentation gaps.

2. Establish standard operating procedures for AP staff. Build the verification checklist into your invoice approval workflow so that tax documentation review happens before payment authorization, not after an audit notice arrives. Documented SOPs also protect your organization by demonstrating reasonable compliance efforts. For a broader framework on building these verification processes, see our guide on validating invoice data for compliance.

3. For businesses processing vendor invoices at volume across multiple states, consider automated extraction to ensure consistent capture of tax-critical fields. When AP staff manually review hundreds of invoices in varying formats from vendors in dozens of jurisdictions, inconsistency is inevitable. Automated extraction platforms can capture tax-critical fields from invoices regardless of format, giving your team structured data to verify rather than raw documents to interpret. Organizations handling multi-state invoice volume can automate sales tax field extraction from vendor invoices to standardize this process across their entire vendor base.

Sales tax compliance is enforced at the document level. The rates, the rules, the exemptions: none of it matters if the invoice itself does not contain the right information in the right format for the right state. The invoice is the compliance artifact. Getting the documentation right is not a secondary concern to getting the rate right. They are the same concern.