Tax ID numbers are used to identify an employer and track his payroll tax requirements. It is analogous to the Social Security number for a business and is used as an identification mark. Because federal and state taxes are processed by different institutions, different identification numbers are necessary. Once a business compensates its employees with cash, commissions, bonuses or noncash payments such as meals or lodging, it generally becomes subject to tax ID requirements.
Is a State Tax ID Number Required?
Almost every incorporated business is required to have a federal employer identification number, but not every state requires a state tax ID Number. Those that do, however, usually require all incorporated businesses, including sole proprietorships, corporations, partnerships, LLCs and nonprofits to obtain a tax number even if they don’t have any employees. Some states, such as California, are very strict and require that even private households that employ workers, college clubs and fraternities obtain a tax ID number. If the state assesses a personal income tax, there's a good chance it also requires a state tax ID Number for businesses. The easiest way to check is through the Secretary of State's website, which usually links to a corporate department or business portal.
If a state tax ID number is needed, the fastest way to fulfill this requirement is to use the online forms provided by the state's web portal. Sometimes the form can be filled out online and submitted, but in other cases it will have to be printed and mailed. The form itself is usually very detailed, but the required information is usually general and so not too difficult to complete. In most cases, applicants will have to provide the name of the business, its physical address, its corporate structure, the names of its owners and each one's percentage of the business, partners and the number of employers. Usually, a contact person for the company must be designated. Most states do not charge a filing fee for state tax ID number applications.
Joseph Nicholson is an independent analyst whose publishing achievements include a cover feature for "Futures Magazine" and a recurring column in the monthly newsletter of a private mint. He received a Bachelor of Arts in English from the University of Florida and is currently attending law school in San Francisco.