Sales tax is a tax collected when purchasing goods or services in the USA. Unlike many countries that have a unified national value-added tax (VAT), in the USA, sales tax is established at the state, county, and city levels.
Since Mellow operates on a contractor-subcontractor model, we are obligated to pay this sales tax in the respective US states. Most states require registration as a sales tax payer when reaching a threshold of 200 transactions in the state or $100,000 USD (higher in some states).
What Determines the Tax Rate
The sales tax rate depends on three main factors:
Where your company is located — each state, county, and even city can set their own tax rates
What service you are purchasing — different types of services may be taxed differently
How much the service costs — the tax is calculated as a percentage of the cost
For example, in one state the rate might be 4%, while in another — 8%. Even within the same state, the tax can vary from city to city.
To calculate the tax, we recommend using the official website of our partner Avalara. On the website, you can:
View basic rates by state
Learn about local taxes in your city and county
Get up-to-date information on tax rate changes
This will help you better plan your budget and understand why different projects may calculate different taxes.
How Mellow Collects Sales Tax
Registration
During registration, you will need to fill out a W9 form — this is a tax document requested from all American companies. According to US legislation, we cannot work with US companies if they do not complete the W9 form.
Please ensure you add the correct address, since it will be used for a sales tax calculation.
Example of W9 form
Task Creation
When a US company creates a task and reaches the cost section, Mellow displays the tax rate based on the state and type of service. The tax is added to the task amount and shown as a separate line.
If you work through task imports, after you upload tasks, Mellow will check each one individually and add the tax to the task cost if applicable.
If you use the Mellow API, you will receive the amount including tax.
Example of creating a task with sales tax
Offer Payment
When a US company reaches the offer payment stage, Mellow displays the tax rate based on the state and type of service. The tax is added to the task amount and shown as a separate line.
Example of an offer with Sales Tax
How to Get Confirmation of Tax Payment
If you need confirmation of tax payment for your accounting:
Contact Mellow support — our specialists will provide you with the necessary information or documents
Check the details in your personal account — information about assessed tax is always displayed in the section with your tasks and offers
Request an official statement — if you need an official document for tax purposes, we can prepare it upon request
FAQ
My service type is not subject to tax, but Mellow is charging me Sales Tax. Why? Please write to the support chat or your manager — we will look into the issue. Sometimes, when creating a task, companies select a service from the catalog that is subject to Sales Tax.
For some time Mellow did not collect Sales Tax, and now it has started. Why?
In 2024, we covered the tax from our own funds. But starting from 2025, we have automatically included it in the cost of services.
I have a wrong legal address. What should I do?
Please contact us in a chat. We will help you change your address in your account and calculate Sales Tax properly.
Do I need to pay Sales Tax if my client is in a state where I do not operate?
This depends on the specific rules of the state. Some states operate on the principle of "economic nexus," and tax may be collected even if you do not have a physical presence in the state. Contact us, and we will look into your case in more detail.
How often do Sales Tax rates change?
Some states review rates annually, others less frequently. Mellow always uses current tax rates through the Avalara system, which in turn uses the latest data from local tax authorities in each state.
Does the type of company affect Sales Tax taxation?
Yes, in some states there are differences in taxation depending on the type of organization (LLC, S-Corporation, C-Corporation, etc.). But in most cases, if the service is taxable, the tax will be applied regardless of the legal form of organization.