Is a Tax ID Number the Same As a Tax-Exempt Number?

by Sandra Parker; Updated September 26, 2017

A federal tax identification number and a tax-exempt number are quite different. A federal tax ID number identifies a business, regardless of filing status, to the Internal Revenue Service, much as a Social Security number identifies an individual. A tax-exempt number allows a charitable organization or reseller to purchase goods without paying sales tax.

Employer Identification Number

A federal tax identification number is also known as an employer identification number (EIN). Most businesses are required to obtain an EIN. Sole proprietorships are an exception. The owner of a sole proprietorship can use her Social Security number to file taxes. A business must have a EIN, but not necessarily a tax-exempt number.

Tax-Exempt Number

A business that resells products can purchase the products without paying state sales tax if it has a tax-exempt number. (The tax is collected when the reseller sells the products.) And a tax-exempt organization, such as a church, can buy goods sales-tax-free if it has a tax-exempt number.

Applying for a Number

Apply for an EIN online by visiting the Internal Revenue Service website. It's free. You must appply for and obtain a tax-exempt number from the appropriate department of your state government.

Tax Filing Schedule

Businesses that resell products must complete a state tax return to determine how much sales tax they have to pay monthly. Federal income taxes for businesses are usually are paid annually.

Purpose

An EIN can be used only to file federal income tax returns. Tax-exempt certificates can be used to collect and pay state sales taxes as well as identify a company eligible to buy goods tax-free.

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