If you're an eBay seller, you may have wondered what the difference is between a tax ID number and a state sales tax number. Here's a rundown on what they are and why you need them.
Tax ID Number
Your tax identification number is a nine-digit number unique to you that is used when filing tax returns, hiring employees, opening a business bank account and setting up a qualified retirement plan. Most businesses use a federal employer identification number (EIN) obtained from the IRS as their tax identification number (even if they are not an employer because they do not have any employees). This number is used on your income tax return as well as when making tax deposits with the IRS.
Exception: If you are a sole proprietor (or the sole owner of a limited liability company), you can usually use your Social Security number as your tax identification number on your tax return. But even if you have this type of business, you'll still need an EIN for a business bank account, to report payroll taxes and to start a Keogh, SEP or SIMPLE plan. Also, if you pay an independent contractor $600 or more for the year and are required to report this income to the IRS and the contractor on Form 1099-MISC, you may wish to use an EIN for this purpose, rather than giving the contractor your Social Security number.
Where to Get Your EIN
You can obtain your federal EIN by completing IRS Form SS-4, Application for Employer Identification Number, online at the IRS Web site (go to http://www.irs.gov/businesses/small/article/0,,id=102767,00.html and click on "apply Online Now"). You do not need an accountant or an attorney for this purpose; there is no charge for obtaining your number. You'll receive confirmation of your number from the IRS within about two weeks. All EINs obtained online start with the number "20."
Note: By applying online, you are automatically enrolled in the Electronic Federal Tax Payment System (EFTPS), which enables you to make tax payments, including estimated taxes, through your computer (you'll receive an enrollment confirmation, along with a PIN and instructions within a few days). You do not have to use EFTPS, but may choose to do so for the convenience.
States may assign their own tax identification numbers (also called business registration numbers) to businesses for purposes of unemployment insurance reporting for employees and for other purposes. Usually you are assigned a number when you register to do business in your state. Contact your state tax, revenue or finance department for more details.
Note: Businesses in Georgia and New York can register with the IRS and state in one step (go to http://www.irs.gov/businesses/small/article/0,,id=111949,00.html and click on the applicable state).
Resale Number Distinguished
Your federal (or separate state) tax ID number is not the same as your state sales tax number (called a resale number, a seller's permit or sales tax license). This number is obtained from your state to enable you to collect sales tax on items you sell and to avoid paying sales tax on items you buy for resale. In some states assign, you can use your number as long as you are in business; in other states the number must be renewed periodically. For details on obtaining your state resale number, contact your state tax, revenue or finance department.
Note: States without sales tax (Alaska, Delaware, Montana, New Hampshire and Oregon) do not issue resale numbers.