While only a tax lawyer or accountant can provide information directly relevant to your situation, we’ve put together this information for those who are serious about running a business at Tipzu.
There are two types of licenses that you might need: a sales tax ID and an Employers Identification Number (EIN).
STATE SALES TAX ID
State Sales Tax License. There are several names for this license. You will often hear it called a “reseller license,” Reseller or Resale Permit,” or “Sales Tax ID.” Don’t let these different terms confuse you – they all mean the same thing. If you live in a state that charges sales tax, and you sell goods that will be delivered to a buyer who also lives in that same state, then you are usually required by law to charge that person sales tax and remit the collected tax to the state.
There are some exceptions, but in general, unless you have a physical office in another state, you do not have to collect and pay sales tax on shipments to other states as long as your annual sales are less than $4 million.
Many wholesale companies require you to have a state sales tax ID before they will deal with you. This allows them to sell items to you without charging or paying sales tax.
For more information on getting a state sales tax, google the name of your state and “sales tax license”.
FEDERAL EMPLOYER IDENTIFICATION NUMBER (“EIN,” “FEIN,” or just “tax id”)
An EIN is simply a number that registers your business with the US government. Even though it has the word "employer" in it, you may need one even if you have no employees. It is not always necessary to obtain an EIN, but there are several benefits to doing so. These include:
* Business Bank Accounts – An EIN is necessary to open a bank account for your business, and if you are serious about your site, you will want to keep your personal and business finances separate. Having a business bank account also lends you credibility.
* Protection from Liability - In today's litigious society, almost everything you may sell has some potential liability. To protect yourself from legal damages and judgments, a Limited Liability Company (LLC) or a Corporation structure can help, and that will require an EIN.
* Privacy - One of the advantages of having an EIN is that you don’t have to give out your social security number to companies that you do business with.
* Wholesale Purchases – Most wholesalers will request an EIN (or sometimes a sales tax ID) before selling you products. They are legally required to do so if they don’t charge you sales tax, and one way to tell if you are getting a true retailer's discount is if they ask for proof that you are a business.
* Tax Advantages - There are numerous tax advantages to running a business in general and many of them can be applied to a home-based business. Your accountant can advise you on this specific issue. Unless you have a legitimate licensed business however, these advantages will not be available to you.
It is very easy to get an EIN and there is no charge. In fact, the IRS now has an online system where you can get an EIN immediately. Click here.
