Is a Sales Tax ID and an EIN the Same Thing?
Demystify crucial business identifiers. Discover how federal and state tax requirements shape their purpose, distinct uses, and the steps to obtain each.
An Employer Identification Number (EIN) and a Sales Tax ID are distinct identifiers for businesses, serving different purposes for different levels of government. This article clarifies the unique roles of these identification numbers and outlines their respective application processes.
What is an Employer Identification Number (EIN)?
An Employer Identification Number (EIN) is a federal tax identification number, similar to a Social Security number for businesses. The Internal Revenue Service (IRS) issues this unique nine-digit number to identify businesses for federal tax purposes. Businesses need an EIN to hire employees, open business bank accounts, and file various federal tax returns, such as payroll taxes on Form 941 and Form W-2.
To apply for an EIN, businesses gather specific information. This includes the legal name of the entity, its physical and mailing address, and the type of entity (e.g., sole proprietorship, partnership, corporation, or Limited Liability Company). The application also requires the responsible party’s Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN), who is the individual in control of the business. The business’s principal industry and the reason for applying, such as starting a new business or changing organization type, are also required.
What is a Sales Tax ID?
A Sales Tax ID, also known as a Seller’s Permit, Resale Certificate, or Vendor’s License, is a state-level identification number. State tax authorities issue these numbers, not the federal government. Its primary purpose is to enable a business to legally collect sales tax from customers on taxable goods and services. Businesses then use this ID to remit collected taxes to the appropriate state revenue department.
Requirements for obtaining a Sales Tax ID vary by state. Businesses need to prepare information such as their legal business name and address, their federal EIN, and the specific type of business entity. A description of the goods or services the business sells is also required. This identification number is also used for purchasing goods for resale without paying sales tax, facilitating audits, and opening wholesale accounts.
Distinguishing the Two Identification Numbers
The fundamental difference between an EIN and a Sales Tax ID lies in their issuing authority and primary purpose. An EIN is a federal identifier issued by the IRS for federal tax obligations and employment tax reporting. It is a broad identifier used for various federal tax and financial activities. In contrast, a Sales Tax ID is a state-specific identifier issued by state revenue departments, exclusively for collecting and remitting sales taxes.
A business generally needs to obtain an EIN first, as it is often a required piece of information when applying for a state Sales Tax ID. A business may need multiple Sales Tax IDs if it operates in various states with sales tax requirements.
The Application Process for Each
Obtaining an Employer Identification Number (EIN) can be completed through several methods. The most common and fastest method is applying online directly through the IRS website. This online application is typically available Monday through Friday and provides the EIN instantly upon successful submission.
To apply online, a business navigates to the IRS EIN Assistant page, selects the appropriate business entity type, and provides the required information. Alternatively, businesses can apply by faxing Form SS-4 to the IRS, which takes approximately four business days to process, or by mailing the form, which can take around four weeks.
The application process for a Sales Tax ID involves registering online through the state’s revenue department website. Most states provide an online portal for business registration. Businesses locate the appropriate state department website, find the business registration or sales tax permit section, and follow the prompts to submit their information.
Some states may issue the sales tax permit immediately online, while others may take anywhere from a few days to a few weeks to process and mail the certificate. It is advised not to begin collecting sales tax until the official Sales Tax ID or Certificate of Authority has been received.