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  3. Sales and Use Tax Identification Numbers (EIN)

Sales and Use Tax Identification Numbers (EIN)

What are Sales Tax Licenses and Numbers?

A state issued license and identification number for businesses collecting sales tax. If you sell certain types of goods, your state likely requires that you collect sales tax from the purchasing customer. A business must generally collect sales tax on any tangible item sold. Rental of consumer goods, storage, use of personal property, and certain services may also be covered.

 

Sales Tax

Sales tax is an amount of state tax paid by the consumer when purchasing a good in a particular state. Any business that sells tangible goods must have a sales tax number  before opening. The State’s Department of Revenue generally issues the numbers along with instructions for collection of tax and remittance to the treasury.  Remember, sales tax must be paid by the customer and not the business. It must be remitted to the State on a monthly basis, with a few exceptions for certain types of businesses.

 

Use Tax

Use tax is a tax on goods that are purchased in another state (at a tax free or lower tax rate) and used, consumed, stored, etc. (but not for resale) in the taxing state. If the goods are sold in the state there is an applicable value-added tax that may be assessed.  The amount of the Use Tax is normally the same as the state sales tax.  However, when the good is purchased in another state with a lower sales tax, the state of use charges a use tax equal to the difference between the sales tax in the state of use and the sales tax in the state of purchase.  The purpose of the use tax is to disincentivize buying goods in another state, simply because there is lower applicable sales tax.

 

Sales Tax Licenses and Numbers

If you sell a product your state will require a sales tax number. This is because all sellers of products are required to collect sales tax on the item from the individual purchasing the item.  This is true even if your state does not collect or charge sales tax on goods sold. The sales tax number is part of the system used by the state to track sellers of goods (merchants).  It allows merchants to report and deposit the sales taxes withheld to the state each month. The state treasury department generally regulates the charging and collection of sales tax.

Note:  Some states require the collection of sales tax on other activities, such as rental activity. Research you own state’s requirements for sales tax withholdings and numbers.

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