Everything You Need to Know About State Tax ID Numbers

July 16, 2021
Main post image

What is a State Tax ID Number?

A state tax ID number (also referred to as a state EIN, a state employer ID, or a state tax registration) is the unique number that the state will assign to a business or organization. The state tax ID is associated with the state in which the business operates. 

What is the purpose of State Tax IDs?

State tax IDs serve a couple of main purposes, mainly related to how they’re used to file taxes and hire employees. State tax ID numbers are used by the state and local tax authorities to identify tax reporting entities and to facilitate accurate tax administration. 

State tax ID numbers also allow businesses to apply for Resale Certificates (also referred to as Sales Tax Permits or Seller’s Permits), which allows for tax-exempt status. This tax exemption allows a business to purchase goods and products for the purpose of resale at retail. When those goods and products are sold to the final customer, the retailer collects the sales tax.

State tax ID numbers can also be useful for sole proprietors who wish to protect themselves against identity theft.

How are State Tax ID Numbers different from EINs?

State tax ID numbers are very similar to federal employer identification numbers (EINs) in that they are assigned to businesses by a government entity and they allow businesses to employ workers. 

However, federal EINs are used by the Internal Revenue Service (IRS) while state tax ID numbers are utilized by that specific state for tax administration purposes, typically by that state’s department of revenue or other similar agencies. 

State tax ID numbers only serve their purpose in your specific state and are meaningless outside of the state. So, if you were to relocate your business to a new state, you would need to register for a state tax ID number with the new state while your federal EIN could remain the same. Agencies and reporting administrations outside of your state will rarely request your state tax ID number. 

EINs can also be assigned even if the company has no workers. Unless your work involves processing business documents, such as business loans or license applications, in most cases these identification numbers won’t mean much to you until you prepare your income tax return at the end of the year. 

What Kinds of Businesses Need State Tax IDs?

If your business plans to hire employees or sell goods and services, you will most likely need to register for a state tax ID number. It’s critical that you understand your state’s laws and requirements so you remain in compliance with your local and state tax laws. 

Similarly, any small business that hires employees, is a partnership or corporation, or sells goods will need an EIN. However, sole proprietors and single-member LLCs that do not have any employees can use their Social Security Numbers (they can choose to obtain an EIN if they want, but it is not required.)

How To Apply For a State Tax ID?

Check with your state government’s department of revenue website for more information on how to obtain a state tax ID number. Applications and processes may vary by state but should be a relatively simple process. 

If you’re seeking more guidance and support in establishing your small business, check out 1-800Accountant’s entity formation services. We help entrepreneurs and small business owners get started on the right foot. By taking care of the accounting and entity formation, you can focus on what matters—running and growing your business. 

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.