How Inkle calculates sales tax on your invoices

Sales tax isn't a single flat rate. What you owe depends on what you're selling, where your customer is, and whether you're required to collect tax in that state at all. Inkle Sales Tax works all of this out automatically as you build an invoice, so you don't have to track thresholds or look up rates yourself. Here's what happens behind the scenes.

It starts with your product

Different products and services are taxed differently from state to state. Software, digital goods, consulting, and physical goods each follow their own rules. When you set up an item, you choose the product description that best matches what you sell, grouped into categories like SaaS, Custom Software, Services, and physical or digital goods. 

This classification tells Inkle how your product is treated for tax purposes in each state, which is the foundation for an accurate rate.

It reads your customer's location

When you create an invoice, you add your customer's details, including the state and address you're billing. Sales tax is based on where your customer is, so this location determines which state's rules apply to the sale.

It checks whether you have nexus there

"Nexus" is the connection that requires you to collect sales tax in a state. It's usually triggered one of two ways:

• Economic nexus: your sales or transaction count in a state cross that state's threshold
• Physical presence: you have an office, employees, or inventory in the state

Based on your activity, Inkle shows a banner on the invoice so you always know where you stand:

• Below the threshold: if your sales in that state are under the registration threshold, no tax is due based on economic nexus alone. Because Inkle can't see physical presence automatically, it will ask you to confirm whether you have an office, employees, or inventory there so the calculation stays correct
• Threshold crossed, not registered: if you've passed the threshold but haven't registered yet, Inkle flags a possible compliance risk and prompts you to register, or to confirm you've already registered elsewhere
• Registered: once you're set up in the state, Inkle applies the correct rate and confirms that sales tax has been calculated

It calculates the tax for that exact sale

Putting it together, your registration status, your customer's location, and the product being sold, Inkle determines the applicable rate and adds the right amount of tax to the invoice. The same product can correctly show tax for one customer and none for another.

Keep track of every state with the Nexus Tracker

The Nexus Tracker gives you a single view of all states and where you stand in each one. For every state you'll see your sales and transactions against that state's thresholds, whether your nexus is physical or economic, and a status like Approaching, Action Required, Registering, or Filing Active. 

This makes it easy to spot states where you're getting close to a threshold and act before it becomes a compliance issue.

Register without leaving Inkle

When you qualify in a state, you can register for sales tax directly through the app. Registration moves through three stages:

1. Not started: the state is added once nexus is established and you provide the required details
2. In review: the Inkle team reviews your information before submitting
3. Registered: you're registered with the state and Inkle takes over your ongoing filings

Once you're registered, Inkle handles the filings for that state and keeps collecting the correct tax on every future invoice automatically.

Still have questions?

Reach out to our support team if you're unsure about a threshold, or whether you need to register in a particular state.