When starting a business or engaging in commercial activities, it’s essential to navigate the intricacies of legal requirements and obtain the necessary documentation. Two critical elements for businesses are the Seller’s Permit and the Employer Identification Number (EIN).
In this blog post, we’ll explore the differences between these two permits, their purposes, and why they are essential for various types of businesses.
What Is a Seller’s Permit?
A Seller’s Permit, also known as a Sales Tax Permit or Resale Permit, is a state-issued license that allows businesses to collect sales tax on taxable goods and services. It is necessary for businesses involved in selling products or services subject to sales tax within a specific state.
The purpose of the Seller’s Permit is to ensure that businesses comply with tax laws and remit collected taxes to the appropriate state authorities.
Key points to know about the Seller’s Permit:
- It is required for businesses selling tangible goods, certain digital products, and taxable services.
- The permit is specific to each state and must be obtained from the state’s tax authority.
- Some states may have different names for this permit, such as Sales Tax Permit or Resale Certificate.
- Businesses without a physical presence in a state but making sales to customers in that state may also need to apply for a Seller’s Permit.
What Is Employer Identification Number (EIN)?
The Employer Identification Number (EIN) is a unique nine-digit identifier assigned by the Internal Revenue Service (IRS) to businesses, similar to a Social Security Number for individuals. It is used for tax purposes and identifies businesses when filing taxes, opening business bank accounts, and conducting various financial transactions.
Key points to know about the EIN:
- The EIN is required for businesses that have employees, operate as partnerships or corporations, or withhold taxes on income paid to a non-resident alien.
- Sole proprietors without employees may choose to use their Social Security Number (SSN) instead of obtaining an EIN.
- Businesses can apply for an EIN online through the IRS website.
Is an EIN Number the Same as a Seller’s Permit?
No, an EIN (Employer Identification Number) and a Seller’s Permit are not the same. They are two separate identification numbers, and each serves a different purpose for businesses.
- EIN (Employer Identification Number): An EIN is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to identify businesses and other entities for tax-related purposes. It is often referred to as a business’s “tax ID number” or “federal tax ID.” Businesses use an EIN when filing tax returns, opening business bank accounts, hiring employees, and conducting various financial transactions. It is required for businesses with employees, partnerships, corporations, or entities that withhold taxes on income paid to non-resident aliens.
- Seller’s Permit (Sales Tax Permit or Resale Permit): A Seller’s Permit, also known as a Sales Tax Permit or Resale Permit, is a state-issued license that allows businesses to collect sales tax on taxable goods and services. It is necessary for businesses involved in selling tangible goods or taxable services within a specific state. The Seller’s Permit ensures that businesses comply with state sales tax laws and remit collected taxes to the appropriate state authorities.
In summary, while both the EIN and Seller’s Permit are identification numbers associated with businesses, they serve different purposes:
- EIN: It is a federal identification number used for tax-related purposes and is assigned by the IRS.
- Seller’s Permit: It is a state-issued identification number that allows businesses to collect and remit sales tax and is obtained from the state’s tax authority.
Businesses may need both an EIN and a Seller’s Permit, depending on their activities and location. It’s essential to understand the requirements for your specific business and comply with both federal and state regulations to ensure smooth operations and legal compliance.
Differences between Seller’s Permit and EIN Number
- The Seller’s Permit is primarily for collecting and remitting sales tax on taxable goods and services.
- The EIN is used for tax-related purposes, including income tax reporting, employment tax withholding, and opening business bank accounts.
- Issuing Authority:
- The Seller’s Permit is issued by the state’s tax authority where the business conducts taxable transactions.
- The EIN is assigned by the IRS and is applicable nationwide.
- A Seller’s Permit is required for businesses that sell taxable goods or services in a specific state.
- The EIN is necessary for various types of businesses, including those with employees, partnerships, corporations, or that file certain types of taxes.
How to Apply for the Employer Identification Number (EIN)
Applying for an Employer Identification Number (EIN) is a straightforward process, and there are several methods available for doing so. Here’s a step-by-step guide on how to apply for an EIN:
- Determine Eligibility: Before applying for an EIN, ensure that you are eligible to obtain one. EINs are typically required for businesses with employees, partnerships, corporations, certain types of trusts, and entities that withhold taxes on income paid to non-resident aliens.
- Choose the Application Method: There are three main ways to apply for an EIN:a. Online Application: The fastest and most preferred method is applying online through the Internal Revenue Service (IRS) website. This service is available for businesses with a principal location in the United States.b. Phone Application: If you are located within the United States, you can apply for an EIN by calling the IRS Business & Specialty Tax Line at 1-800-829-4933. The phone service is available from Monday to Friday, 7 a.m. to 10 p.m. local time.c. Mail/Fax Application: If you prefer not to apply online or by phone, you can complete Form SS-4 (Application for Employer Identification Number) and mail or fax it to the appropriate IRS office.
- Gather Required Information: Before starting the application process, make sure you have all the necessary information on hand. You will need to provide details about your business, such as the legal name, trade name (if applicable), physical address, mailing address, and the reason for applying for an EIN.
- Access the Online Application: If you choose to apply online, go to the IRS website and search for “EIN Online Application.” Click on the link to start the application process.
- Complete the Application: Follow the instructions on the online application form, providing accurate and detailed information about your business. Double-check all the details before submitting the application.
- Receive Your EIN: Once your application is complete and submitted, the IRS will generate your EIN immediately for online applications. If you applied by phone or mail, you will receive your EIN through the contact information provided on the application.
- Keep a Record: After obtaining your EIN, make sure to keep a record of it for future reference. You will need the EIN for various tax-related purposes, including filing tax returns and opening business bank accounts.
Remember that obtaining an EIN is free of charge from the IRS. Be cautious of third-party websites that may charge a fee to apply for an EIN on your behalf. The official IRS website is the safest and most reliable source for applying for your Employer Identification Number.
How to apply for Seller’s Permit
Applying for a Seller’s Permit, also known as a Sales Tax Permit or Resale Permit, is essential for businesses engaged in selling tangible goods or taxable services. The process may vary slightly depending on your location, as Seller’s Permits are issued by individual states. Here’s a general guide on how to apply for a Seller’s Permit:
- Determine Your Nexus: Before applying for a Seller’s Permit, determine the states where your business has a “nexus” or a significant presence. A nexus can include having a physical location, employees, inventory, or making sales within a particular state.
- Visit Your State’s Tax Authority Website: Go to the official website of the tax authority in each state where you need a Seller’s Permit. Search for “Sales Tax Permit” or “Seller’s Permit” to find the relevant application information.
- Create an Account (If Required): Some states may require you to create an account on their website before starting the application process. Follow the registration instructions if applicable.
- Complete the Application: Fill out the online application form with accurate and detailed information about your business. You will typically need to provide details such as your business name, physical address, mailing address, contact information, type of business, and estimated monthly or annual sales.
- Provide Additional Information (If Necessary): Depending on your business type and the products or services you sell, you may be required to provide additional information, such as your federal Employer Identification Number (EIN), business structure, and industry classification.
- Submit the Application: Review all the information you provided and submit the application electronically. Some states may require you to print the completed application and mail it in.
- Pay Any Required Fees: In some states, there may be an application fee for obtaining a Seller’s Permit. Make sure to pay any required fees, if applicable.
- Await Processing: After submitting your application, wait for the state’s tax authority to process your request. The processing time may vary, but most states will issue the Seller’s Permit within a few business days to a few weeks.
- Receive Your Seller’s Permit: Once your application is approved, you will receive your Seller’s Permit via email or mail, depending on the state’s procedure. Keep a record of the permit, as you may need to display it at your place of business or provide it to vendors or customers.
Remember that complying with state sales tax regulations is essential for businesses selling taxable goods or services. Regularly file sales tax returns and remit collected taxes to the appropriate state authorities to maintain compliance with the law. If you have any specific questions or concerns regarding your Seller’s Permit application, contact your state’s tax authority for assistance.
Obtaining the correct permits is crucial for businesses to operate legally and efficiently. While the Seller’s Permit focuses on sales tax collection and remittance, the EIN Number is essential for tax-related purposes and business identification. Understanding the differences between these permits helps entrepreneurs and business owners navigate the complexities of compliance and ensures smooth operations within the bounds of the law. If you are unsure about the permits your business requires, consulting with a tax professional or legal advisor can provide invaluable guidance tailored to your specific business needs.