Is a Sales Tax Number the Same as an EIN?

Businesses frequently encounter various identification numbers for tax and regulatory purposes. These numbers serve different functions and are issued by various authorities, helping to categorize and track business activities for tax administration. Knowing which number applies to specific situations helps business owners meet their obligations effectively.

Understanding the Employer Identification Number (EIN)

An Employer Identification Number (EIN), also known as a Federal Tax Identification Number, is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to business entities. This number functions as a business’s federal tax identification, similar to how a Social Security Number (SSN) identifies an individual. The IRS uses the EIN to identify taxpayers who are required to file various business tax returns.

Businesses need an EIN for federal tax filings, to open business bank accounts, and to handle payroll if they have employees. Corporations, partnerships, and multi-member Limited Liability Companies (LLCs) are required to obtain an EIN. Sole proprietorships or single-member LLCs may choose to get an EIN for reasons like hiring employees, establishing business credit, or separating business finances from personal ones. This number is also necessary for businesses that pay excise taxes or withhold taxes on income paid to non-resident aliens.

Understanding the Sales Tax Number

A sales tax number is an identification number issued by state or sometimes local tax authorities, allowing businesses to collect sales tax from customers. It is commonly known by other names such as a seller’s permit, sales tax permit, sales and use tax permit, reseller’s license, or vendor’s license. The primary purpose of this number is to authorize a business to collect sales tax on taxable goods and services and then remit these collected taxes to the appropriate state or local government.

Businesses need a sales tax number if they sell tangible personal property or certain taxable services. This includes retail, wholesale, and online businesses selling taxable goods. The requirement depends on whether a business has a “nexus” in a state, signifying a sufficient physical or economic presence to trigger tax obligations. This permit also allows businesses to purchase items for resale without paying sales tax, preventing double taxation.

Key Distinctions and Common Misconceptions

Despite both being identification numbers for businesses, a sales tax number is not the same as an Employer Identification Number (EIN). These numbers serve fundamentally different purposes and are issued by different levels of government. A common misconception is that one number fulfills both roles, or that obtaining one automatically grants the other.

The primary distinction lies in the issuing authority: an EIN is issued by the federal Internal Revenue Service (IRS), while a sales tax number is issued by state and sometimes local tax authorities. Their purposes also differ significantly. An EIN serves as a federal tax identification for general business operations, including federal tax filings, employee identification, and establishing business credit. In contrast, a sales tax number specifically authorizes a business to collect and remit sales taxes on goods and services sold to consumers within a particular state or locality. A business may need both, only one, or neither, depending on its structure, activities, and where it conducts sales.

Steps to Obtain an EIN

Obtaining an Employer Identification Number (EIN) is a straightforward process, completed online. The IRS offers a free online application tool that provides the EIN immediately upon completion. This online service is available Monday through Friday.

Before starting the online application, have specific information ready. This includes the legal name of the business, its mailing address, the type of entity (e.g., corporation, LLC, partnership), and the reason for applying. The responsible party’s name and their Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) are also required. For businesses with employees, the first date wages will be paid should be known. The online application guides the user through questions, and the EIN is issued instantly once submitted.

Steps to Obtain a Sales Tax Number

The process for obtaining a sales tax number, also known as a seller’s permit or sales tax license, varies by state and sometimes by locality. Businesses register with the state’s department of revenue or an equivalent tax agency. Many states offer online registration portals, which are the most efficient method.

When applying, businesses need to provide their legal business name and address, their federal EIN, and a description of their business activities. Information about the business owners, including their Social Security Numbers, is also required. States may ask for estimated sales volume or liability to determine the frequency of tax filings (monthly, quarterly, or annually). Some states may also require banking information for tax remittances or a security deposit. Confirm specific requirements with the relevant state tax authority, as details differ considerably across jurisdictions.