Everything You Need to Know About State Tax ID Numbers

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 the state will assign to a business entity 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 business 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 entity 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). At the same time, 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 Employer Identification Number (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 likely need to register for a state tax identification 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 as 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 identification number. Applications and processes may vary by state but should be a relatively simple process. 

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FAQs About State Tax IDs

Is the employer's state id number the same as EIN?

The Employer's State ID number and the Employer Identification Number (EIN) are not the same.

The Employer Identification Number (EIN) is a federal tax identification number for businesses. It is issued by the Internal Revenue Service (IRS).

The Employer's State ID number, also known as the state tax ID number, is a unique identifier assigned by a state to a business for tax purposes. This number is issued by the state where the business operates.

Do all businesses need a state tax ID number?

Not all businesses need a State Tax ID Number. It's typically required for companies with employees, that sell goods or services subject to sales tax, or owe excise taxes. You can check with your state tax department to see if your business needs one.

What happens if I don't get a State Tax ID Number for my business?

If your business is required to have a State Tax ID Number and doesn't obtain one, it could face penalties and fines from the state. Your business might not be able to legally operate within the state.