Is an online business required to obtain a tax identification number?
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As online businesses continue to grow, understanding the requirements for Sales Tax ID numbers becomes increasingly important. Here's a breakdown of what you need to know.
Online businesses generally need a state tax ID number or sales tax permit (often called a seller's permit) if they are required to collect sales tax in that state. This requirement depends largely on whether they have a sales tax nexus there. Nexus can be created by a physical presence such as a storefront, office, warehouse, or sometimes economic activity like sales volume or transactions in the state [1][3].
Key points include:
- State Sales Tax Requirements Vary: Most states impose sales tax and require businesses to have a seller's permit to collect it; some states like Alaska and Oregon do not have a general sales tax [1][3].
- Nexus Determines Obligation: Having a nexus (physical or economic connection) in a state typically mandates registering for a sales tax permit and collecting sales tax on sales to customers in that state [1].
- Seller’s Permit (Sales Tax Permit): This permit allows your business to collect and remit sales tax legally within the state and is issued by the state tax authority. It often requires submitting business information and maintenance by filing regular state sales tax returns [3].
- Online sellers using marketplaces like Amazon may create nexus in multiple states, requiring multiple sales tax permits and tax collections [1].
- A state tax ID number is typically part of or linked to the sales tax permit, serving as the business’s identification for state tax purposes [3].
Separately, a federal Employer Identification Number (EIN) is a federal tax ID issued by the IRS and is necessary if you have employees, operate as a corporation or partnership, or meet other IRS criteria, but it is distinct from state sales tax permits [2][5].
If you're unsure whether you need a state tax ID number or EIN, the IRS has an article titled "Do You Need an EIN?" which could provide further information [4]. The IRS also has an online quiz to help business owners determine if an EIN is required [4]. Additionally, the IRS has a page dedicated to "Employer ID numbers" [5].
For online sellers, the source "Sales Tax 101 for Small Business Owners and Online Retailers" might be a valuable resource [6]. If you're selling goods online, eBay has an article titled "Sales Tax and the eBay Seller" that might be relevant [7]. If you're in a service industry, BizFilings.com has an article titled "Understanding Sales Tax in Service Industries" that may be relevant to your situation [8]. If you're selling goods online as a sole proprietor like Amy, Etsy has an article titled "How to Determine Your Sales Tax" that could be useful [9].
In summary, if you sell goods online and meet nexus criteria in a state, you will likely need to obtain a state sales tax permit and collect sales tax. You should check with each state’s tax authority where you have nexus to understand specific requirements and to register for a permit. If you have employees or certain business structures, also secure an EIN from the IRS.
[1] https://www.sales-tax-support.com/nexus-basics/ [2] https://www.irs.gov/businesses/small-businesses-self-employed/employer-id-numbers [3] https://www.sales-tax-support.com/sales-tax-permits/ [4] https://www.irs.gov/businesses/small-businesses-self-employed/do-you-need-an-ein [5] https://www.irs.gov/businesses/small-businesses-self-employed/employer-id-numbers [6] https://www.sales-tax-support.com/sales-tax-101/ [7] https://pages.ebay.com/sell/taxes/us/sales-tax-overview.html [8] https://www.bizfilings.com/learning-center/understanding-sales-tax-in-service-industries [9] https://www.etsy.com/legal/tax/sales-tax-information
- To legally collect and remit sales tax in a state, online businesses often require a Sales Tax Permit, which also serves as their state tax ID number.
- In addition to obtaining a Sales Tax Permit, businesses with employees or specific business structures may need to secure an Employer Identification Number (EIN) from the IRS for federal finance purposes.
