The Difference Between a State Tax ID and an EIN
State tax ID numbers and federal Employer Identification Numbers are assigned to businesses that employ workers, but EINs can also be assigned even if the company has no workers. Unless your work involves processing business documents, such as business loan or license applications, in most cases these identification numbers won’t mean much to you until you prepare your income tax return at the end of the year.
An EIN is issued by the Internal Revenue Service and is used for federal purposes. Some states issue their own tax ID number to businesses for state tax purposes.
State Tax ID Systems
State tax ID numbers are issued by the department of revenue or similar agency in the state where the business is located. This number is associated only with the state that issues it. If a company relocates to another state, it will have to get a new state tax ID. EINs are issued by the Internal Revenue Service and typically stay with a business for as long as the company is open. The IRS is a national agency, so even if a business relocates and has to get a new state tax ID, its EIN will stay the same.
An EIN serves as an identification number for a business, similar to the way a Social Security number identifies a person. Primarily, companies use an EIN to identify themselves on income tax and employment tax returns. However, because the EIN is a national identifier that doesn’t change or get reassigned during a company’s existence unless the structure or ownership changes, a business may also use its EIN to make loan applications, open bank accounts and apply for licenses.
A company generally uses a state tax ID solely for state tax reporting. Some states may also call their identifier a state employer identification number, or SEIN number. Unlike a federal EIN, state tax ID numbers aren’t portable so they aren’t typically requested by other parties or agencies. In addition, some companies may have workers in multiple states. Companies must report and file state payroll returns with each state it has workers in. In this instance a company would have more than one state tax ID, making it an unreliable identifier for anything but state-specific filings.
If you’re ever prompted to enter a state tax ID number or EIN, it’s important to do so – even if you don’t think you need to. If you file your income tax return electronically, for example, you’ll be asked to enter your W-2 information using the same numeric figures and identification numbers for your employer. This allows the IRS to match information you provide about your income and withholding with information provided by your employer. The IRS also sends this information to the state reported on your W-2 so it can match your data as well.
Registering a Business
Many states require you to register a business that is doing business in their state, even if your business is based in or incorporated in another jurisdiction. States may issue you tax ID numbers or various other identification numbers when you do so.
Some local jurisdictions may also require you to register before doing business or to get local tax accounts set up for local income, sales, property or other tax. Of course, you may also need to get licenses or permits depending on the nature of your business.
2018 Tax Law Changes
The 2018 tax law changes don't directly affect EINs or state business identifiers. Still, you should make sure you understand how the tax law changes affect your business, including business income tax and tax on your employees and other stakeholders.
2017 Tax Law
Employer ID numbers issued before 2018 aren't affected by the tax law changes.
With a background in taxation and financial consulting, Alia Nikolakopulos has over a decade of experience resolving tax and finance issues. She is an IRS Enrolled Agent and has been a writer for these topics since 2010. Nikolakopulos is pursuing Bachelor of Science in accounting at the Metropolitan State University of Denver.