4 reasons you need a Tax ID for your online retail business
What is a Tax Identification Number (Tax ID)?
A Sales Tax ID is a number you get from your state or local government that permits you to charge sales tax whenever a buyer from your state, county, or city buys something from you, even if they buy it online. Obviously, having a Sales Tax ID is only required if you live in a state that compels residents to pay sales tax. The majority of states require it, however, there are five that do not:
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- New Hampshire is a state in the United States.
If you live in a state that requires residents to pay sales tax, your county and/or city may compel you to charge a separate local sales tax to your local buyers. Whether or not you must pay sales tax in your county and/or city is totally dependent on where you live (we’ll get to that in a minute).
Who needs a tax identification number?
All U.S. businesses in states/areas where sales tax is required must charge it on all qualified purchases (more on that later) made by customers from the same state/area.
For your online retail firm, there are four reasons why you need a tax ID.
There are a few significant reasons why a Sales Tax ID is not only necessary but also incredibly advantageous as an eBay/online seller:
1. It’s the law: For starters, not charging sales tax when it’s needed might get you in a lot of trouble. Most states require you to file a quarterly tax return, and any sales tax you earned from local buyers during the previous quarter must be remitted to the government with your return.
2. Firm setup and documentation: Obtaining your Sales Tax ID is one of the first steps to correctly and thoroughly establishing your business. Some accountants and tax attorneys will be hesitant to begin preparing documentation for your business until you’ve gotten your Sales Tax ID and any other necessary IDs or designations for the business entity you’ve established (e.g., an LLC or S-corp).
3. Financial accountability: Once you have your Sales Tax ID, you can begin charging sales tax to any buyers in your area (state, county, or city, depending on local laws). If you haven’t yet gotten your Sales Tax ID, it’s illegal to charge sales tax to customers in your area.
If you don’t charge sales tax to your local customers after you’ve started selling things, you’ll either have to pay the taxes yourself or risk legal consequences. This implies you should get your Sales Tax ID as soon as possible, preferably before you start doing business.
If you’ve already started your business and sold things to local purchasers, be ready to pay the applicable sales taxes to your state and/or local government out of your own pocket.
4. Creating accounts with suppliers: Before doing business with you, many US suppliers will ask you to give them your Sales Tax ID. One of the ways a supplier may verify your legitimacy as a business and ensure you’re not a consumer looking for a good deal is to ask for your ID number.
How to Obtain a Tax Identification Number
In most circumstances, obtaining a Sales Tax ID is rather simple. The majority of states in the United States have an automated system in place for acquiring a Sales Tax ID directly from their websites. Obtaining a Sales Tax ID is frequently integrated into the entire process of registering your business with your state and/or local government so that going through the automated process on your state’s website will handle everything you need to set up your business according to your state’s guidelines.
Every state in the United States has its own webpage. Usually, it’s www.statename.gov. I’ve included links to all of the states’ websites that don’t follow that format:
- New York
- North Carolina.
- South Carolina
- South Dakota
- West Virginia
When you arrive at your state’s website, look for a link or button that says “Business” or something similar to it, and click it to access the commerce section. Look for any links or buttons relating to starting a business or business taxes on that page, and you should be directed to the appropriate section.
Your state’s website will probably also tell you which counties and/or cities (if any) have their own sales tax, as well as whether or not you’ll need to get separate Tax IDs for them. Also, find out what the state’s tax criteria are for which types of sales are taxed and what the tax percentages are. Some sales are exempt from tax altogether, while others are taxed at different rates.
Believe it or not, it isn’t quite as difficult as it appears. That’s that about “4 reasons you need a Tax ID for your online retail business”
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