The Difference Between a Business Tax ID & an EIN
Establishing a business requires a variety of registrations, many of which depend on your business's type or legal structure. To complete your registrations and conform to all legal procedures that apply to your business, contact the appropriate federal or local government agency that handles business licenses, business tax identifications and employer identification numbers.
Businesses have a choice of legal structures; these choices determine which registrations you must complete at which local, state or federal government agency. Sole proprietorships and self-employed people often have businesses formed by a single individual, such as a consultant. The business tax registration requirements that apply to sole proprietors depend on your local and state regulations. Partnerships, such as LLCs, are businesses that must also complete state, local and federal registrations. Organizations, such as nonprofits, also register for and obtain business tax IDs and federal EIN numbers.
All businesses, regardless of sizes or legal structures, get their employer identification number from the Internal Revenue Service. The IRS only issues EINS to businesses or entities such nonprofit organizations. The IRS also refers to an EIN as your federal taxpayer ID. Every business owner has the option of calling the IRS to get an EIN or completing the forms online, by mail or by phone. An EIN is similar to your personal social security number, but an IRS EIN is only for businesses. When you submit your business tax returns to the IRS, you file your taxes under your assigned EIN. For this reason, although the IRS uses the term EIN, businesses and self-employed people need an IRS EIN, even when if you have no employees other than the business owner. Your IRS EIN is your business tax ID solely for federal government tax purposes.
Your city or county government also has business licensing agencies or departments that assign business tax IDs to registered businesses. Each of these agencies has regulations that determine what types of businesses require a license and a business tax identification number. When you register your business with the appropriate licensing agency, you get a valid business license that allows you to operate at the location specified on your license. The same agency also assigns you a business tax identification number. In most cases, you must file an annual income or profit and loss statement that the agency uses to calculate the amount of tax that your business owes to the local or state licensing department.
Businesses that sell products to consumers or other businesses often need a sales tax identification number. When you register for a state or local sales tax number, you identify for business as one that collects applicable sales tax on products that you sell. After your business collects the authorized sales taxes, you send the amount collected to the sales tax department of your state, in accordance to the state regulations.