Is obtaining a tax ID necessary for conducting an internet-based business?
================================================================
If you're running an online business, you might find yourself in need of a state tax ID number, also known as a seller's permit, sales tax permit, or sales tax license. This article aims to provide a clear, straightforward guide on when you need a state tax ID and how to obtain one.
Online businesses that sell tangible goods or taxable services in a state that imposes sales tax are generally required to have a state tax ID number. This allows the business to legally collect and remit sales tax in that state. The exact requirement depends on whether the state has a sales tax and whether the business has a nexus, or a physical or economic presence, in the state.
Amy, who sells adorable crocheted anime elephants on Etsy, and Joe, who owns an online iPhone repair company, are examples of online sellers who may need a state tax ID number. Amy, being a sole proprietor, is not required to get an EIN number, but she may need a state tax ID number for her online sales. Joe, on the other hand, is required to get an EIN number due to having employees, and he may also need a sales tax ID number for his service-related charges.
To obtain a state tax ID number or seller’s permit, follow these steps:
- Identify the state tax authority responsible for issuing seller's permits in the state where you have nexus.
- Complete an application providing basic business information and your federal Employer Identification Number (EIN) if you have one.
- Submit the application online or by mail/fax according to the state’s process.
- Once issued, you use the permit to collect sales tax from customers in that state and file sales tax returns regularly.
If you do not yet have an EIN, you can obtain it quickly online from the IRS by filling out Form SS-4; the EIN is issued immediately upon verification. An EIN is usually required before applying for a state tax ID.
Remember, if you're in the business of selling things online, you're most likely required to get a state tax ID number. Resources such as TurboTax and LegalZoom provide detailed guides and services to help small businesses through these steps.
In summary:
- Do you need a state tax ID? Yes, if you sell taxable goods/services online and have nexus in a sales-tax state.
- How to get one? Obtain a federal EIN (if needed), then apply for the state seller’s permit with the state tax authority.
For more detailed information, consider reading the articles "Sales Tax 101 for Small Business Owners and Online Retailers," "How to Determine Your Sales Tax," and "What Is an EIN Number and Do You Need One?" These resources can offer valuable insights and guidance for both Amy and Joe, as well as other online sellers.
[1] TurboTax. (n.d.). Get a seller's permit. Retrieved from https://turbotax.intuit.com/tax-tips/small-business-taxes/get-a-sellers-permit/L11396
[2] Sales Tax Institute. (n.d.). Nexus: What is it and why does it matter? Retrieved from https://salestaxinstitute.com/nexus-what-is-it-and-why-does-it-matter/
[3] Internal Revenue Service. (n.d.). How to get an EIN. Retrieved from https://www.irs.gov/businesses/small-businesses-self-employed/how-to-apply-for-an-ein
[4] LegalZoom. (n.d.). Understanding sales tax in service industries. Retrieved from https://www.bizfilings.com/toolkit/sbg/tax-info/sales-taxes/sales-tax-in-service-industries.aspx
- Online businesses that sell tangible goods or taxable services and have a nexus in a state with sales tax are generally required to have a state tax ID number, allowing them to legally collect and remit sales tax in that state.
- To collect sales tax from customers in a specific state and file sales tax returns regularly, online businesses need to obtain a state tax ID number or seller’s permit through the state tax authority, by following the necessary application steps and providing basic business information, including their federal Employer Identification Number (EIN) if they already have one.
