Everyone has a tax ID number, also known as a TIN, but not everyone has a resale number. Tax IDs include Social Security numbers and also business identifiers such as an employer identification number, or EIN. The only people who need state resale numbers are those who buy goods to resell to their customers.
TL;DR (Too Long; Didn't Read)
Your business's tax ID number identifies it on federal tax returns the way individual taxpayers use Social Security numbers. Your resale number identifies your business as one that is buying goods for resale.
What Is Your TIN?
The IRS uses TINs to identify taxpayers on paperwork and forms. Most Americans use their Social Security number as their TIN, but there are other versions, such as the ITIN used by aliens who can't get a Social Security number. For most businesses, the key TIN is the nine-digit EIN, or employer identification number.
Not every business needs an EIN. A sole proprietor with no employees may be able to use his Social Security number as his business TIN. Your business needs an EIN if:
- You have employees.
- Your business is a corporation or a partnership.
- You file employment, excise or alcohol, tobacco and firearms tax returns.
- You withhold taxes on income other than wages paid to a nonresident alien. This may include maids or caregivers working in your home, qualifying you as a household employer.
- You have a Keogh plan.
- You're involved with certain types of organizations or taxpayers, such as managing an estate or running a farmer's cooperative.
You can apply for an IRS-issued EIN online at no cost. You can also apply by fax or mail, but the IRS will take longer to respond. The IRS allows overseas applicants to request an EIN by phone call.
Tax ID vs. Resale Certificate
Even though it's important for your taxes, your resale number isn't the same as a tax ID number. Your business's TIN goes on federal tax returns, and if you need to pay state taxes on your business income, you can apply for a state TIN. The resale number involves state sales tax.
You get your resale number when you register in your state to collect and pay sales tax on your sales income. The exact tax rules and tax rates as well as the procedure for collecting it and the procedure for applying for a sales-tax license vary from state to state. Some states don't have a state sales tax, so you don't have to apply.
In addition to putting your business sales-tax license number on the relevant payment paperwork, you'll also use it on resale certificates when you buy goods to resell or buy raw materials for making the goods you sell to your customers.
Using the Resale Certificate
A for-profit business has to pay sales tax on purchases just like individual shoppers. Office furniture, computers, photocopiers, copy paper and janitorial supplies are all taxable. The exception is if you're buying items to resell as part of your business, in which case they're tax free.
Your suppliers aren't supposed to take your word about resale, though. If they're not going to collect sales tax, they need paperwork to explain why. You provide the vendor with a resale certificate that includes your resale number, business name and address, a description of the purchased property and a statement that you're going to resell it.
If you're operating in multiple states, you may need resale certificates for each of them. Oregon, which has no state sales tax, provides a resale certificate that resellers can use but warns that other states may not accept it.
- IRS: Taxpayer Identification Numbers (TIN)
- Delaware Inc.: What Is A Resale Certificate?
- IRS: Do You Need an EIN?
- U.S. Small Business Administration: Get Federal and State Tax ID Numbers
- Oregon Department of Revenue: Oregon Business Registry Resale Certificate
- Sales Tax Institute: What Is a Resale Certificate And Who Can Use One?
- IRS: 2018 Instructions for Schedule H (Form 1040) Household Employment Taxes (2018)
Fraser Sherman has written about every aspect of business: how to start one, how to keep one in the black, the best business structure, the details of financial statements. He's also run a couple of small businesses of his own. He lives in Durham NC with his awesome wife and two wonderful dogs. His website is frasersherman.com