Key Takeaways:

  • State Issued Organization Numbers (State Tax IDs): Required for businesses to comply with state tax obligations, such as payroll taxes or sales taxes.
  • Difference Between EIN and State Tax ID: An EIN is issued by the IRS for federal purposes, while State Tax IDs are state-specific and are used for state-level tax compliance.
  • How to Obtain a State Tax ID: Applications are typically made through a state's department of revenue or taxation.
  • Advantages: State Tax IDs allow businesses to handle state payroll, sales tax, and other obligations efficiently while staying compliant.
  • When Multiple IDs Are Needed: Businesses operating in multiple states or with employees in various locations often require separate State Tax IDs for each jurisdiction.

What is my state tax ID number for my business? Many business owners ask this question to determine how to obtain a tax ID number, as well as the tax status of their company.

What Are the Types of Businesses That Require an Employer Identification Number (EIN)?

The following businesses require an EIN:

  • Corporation
  • LLC
  • Sole proprietorship with employees that pay personal income tax
  • Partnership

Businesses That Typically Need a State Tax ID

Businesses requiring a State Tax ID often include:

  • Retailers and online sellers collecting sales tax.
  • Employers managing state payroll taxes.
  • Contractors and service providers subject to state-level licensing and taxation.
  • Nonprofits engaging in state-taxable activities.

How Can You Obtain an EIN?

To obtain an EIN, you need to file an application with the IRS in person, online or by phone. It's advisable to have a copy of Form SS-4 with you if you want to apply on the phone.

Where to Download Form SS-4

You can download Form SS-4 through the IRS website.

Where to Obtain an Illinois Business Tax Number

To obtain an Illinois business tax number, you have to apply to the Illinois Department of Revenue.

What Is a Tax ID Number?

Tax ID number often refers to the EIN issued by the IRS. However, it can also represent a state tax ID number.

How to Determine if You Need an EIN for an Online Business

If your online business is a sole proprietorship or limited liability corporation without any employees, all you need is a personal Social Security number. However, you need an EIN if your company has employees.

What Are the Types of Businesses or Organizations That Would Require an EIN?

The following businesses require an EIN:

  • Businesses that file tax returns for employment, excise, or alcohol, tobacco, and firearms
  • Organizations such as trusts, nonprofits, and estates

Where to Take an Online Quiz to Determine if an EIN Is Required

You can take an online quiz on the IRS website to determine if your business requires an EIN.

How to Determine if You Need a State Tax ID Number for an Online Business

If your business involves selling products and services online, you likely require a state tax ID number, also known as a reseller certificate or sales tax permit.

A person who sells goods online will likely have to charge customers sales taxes and also be required to pay taxes on inventory, and this requires a state tax ID number. On the other hand, a person who sells services online may not need a state tax ID number, unless they sell parts to clients and charge sales tax on the parts.

State Tax ID for Multi-State Businesses

Businesses operating across state lines may need State Tax IDs in each state where they have:

  • Employees working or residing.
  • Sales transactions subject to state taxes.
  • Physical presence or nexus through offices or warehouses.

The process for obtaining additional IDs involves applying to the relevant state's department of revenue and ensuring compliance with local laws.

Advantages of Obtaining a State Tax ID Number

State tax ID numbers allow businesses to buy raw materials at discounted prices, making it more affordable for their customers and ultimately boosting sales.

Potential Penalties for Not Obtaining a State Tax ID

Failure to obtain a State Tax ID can lead to penalties such as:

  • Fines for non-compliance with state tax laws.
  • Interest on unpaid taxes.
  • Suspension of business operations in non-compliant states.

To avoid these penalties, it is crucial to determine your tax obligations in each state where your business operates.

The Difference Between a State Tax ID and an EIN

The following are the differences between a state tax ID number and an EIN:

Issuing Agency

Businesses obtain state tax ID numbers from the department of revenue of the state where it is located. The company requires another state tax ID number if it relocates to another state. On the other hand, the IRS is the agency that issues EINs to businesses, and the company retains the number for its active life. The IRS is a federal agency, so the EIN can be used anywhere in the country.

Purpose of EIN

An EIN is a form of business identification, similar to how a Social Security number serves as a personal form of identification. The primary purpose of an EIN is to identify a company's income tax and employment tax returns. EIN is nationally recognized and can be used to identify a company in any part of the country. Also, an EIN doesn't change, and it can't be issued to another company unless the legal status of the business changes. An EIN can be used to obtain loans, apply for business licenses, and open business bank accounts.

Purpose of a State Tax ID

A state tax ID is usually used for reporting state tax. It is not useful outside of the issuing state.

How to Apply for a State Tax ID

The steps to apply for a State Tax ID include:

  1. Determine your business's specific state tax obligations (e.g., payroll, sales tax).
  2. Visit the website of the state’s Department of Revenue or equivalent agency.
  3. Prepare necessary documents, such as your federal EIN, business registration details, and the type of taxes applicable.
  4. Complete the online or paper application and submit any applicable fees.

Processing times vary by state, but most applications are approved within a few business days.

When Is a Company Required to Have Multiple State Tax IDs?

Companies that have workers in multiple states must have state tax ID numbers for every state where they have employees, as they need it to report and file state payroll returns with each state. This makes state tax ID numbers only useful in the state where it was issued.

Frequently Asked Questions (FAQ):

  1. What is a state-issued organization number? A state-issued organization number, or State Tax ID, is used by businesses for state-level tax reporting and compliance.
  2. Is a State Tax ID the same as an EIN? No. An EIN is a federal identifier issued by the IRS, while a State Tax ID is specific to a state and used for state tax purposes.
  3. Do I need a State Tax ID if I only sell online? If you sell products online and have customers in different states, you may need a State Tax ID for each state where you collect sales tax.
  4. Can a business have multiple State Tax IDs? Yes, businesses with operations in multiple states often require separate State Tax IDs for each jurisdiction.
  5. Where can I apply for a State Tax ID? You can apply for a State Tax ID through the Department of Revenue or equivalent agency in your state.

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