NOTE: This applies to US residents buying from US wholesalers. If you live outside of the US, you will not need a Tax ID to purchase from a US wholesaler.
If you are serious about establishing a business on eBay, in most U.S. states, you'll need a Sales Tax ID. Find out why you need one and how to get it.
What is a Tax ID?
A Sales Tax ID is a number you obtain from your state and/or local government that allows you to charge sales tax whenever a buyer in your state, county and/or city purchases an item from you, even if it’s an online purchase. Obviously, it’s only necessary to have a Sales Tax ID if you live in a state that requires its residents to pay sales tax. Most states require it, but there are 5 states that don’t:
- New Hampshire
If you live in a state that requires its residents to pay sales tax, you may also be required to charge your local buyers a separate local sales tax, as determined by your county and/or city. Whether or not your county and/or city also requires sales tax to be paid depends entirely on the area in which you live (we’ll get to that in a minute).
Who needs a Tax ID?
All U.S. businesses located in states/areas that require sales tax to be paid need to charge this tax on all qualifying purchases (more on that later) made by buyers living in the same state/area.
4 reasons you need a Tax ID for your online retail business
As an eBay/online seller, there are a few major reasons why a Sales Tax ID is not only necessary but extremely helpful:
1. It’s the law:
First and foremost, you could get into a lot of trouble for not charging sales tax when it's required. Most states require you to file a quarterly tax return, and any sales tax you collected from buyers in your area during the previous quarter must then be paid to the government along with your return.
2. Business setup and documentation:
Getting your Sales Tax ID is one of the steps you need to take in order to set up your business properly and completely. Some accountants and tax attorneys will be reluctant to even start drawing up paperwork for your business until you’ve obtained your Sales Tax ID and any other relevant IDs or designations the law requires for the business entity you’ve chosen (e.g., an LLC or S-corp).
3. Financial responsibility:
Once you obtain your Sales Tax ID, you’re permitted to start charging sales tax to any buyers located in your area (state, county and/or city, depending on the specific laws in your area). It’s illegal to charge sales tax to buyers in your area if you haven’t yet obtained your Sales Tax ID.
However, if you DON’T charge sales tax to your local buyers after you’ve started selling products, you’ll end up having to pay those taxes out of your own pocket or face legal trouble. This means that you need to obtain your Sales Tax ID immediately, preferably before you actually start doing business.
If you’ve already launched your business and you’ve sold items to buyers in your area, again, be prepared to pay the relevant sales taxes to your state and/or local government out of your own pocket.
4. Opening accounts with suppliers:
Many US suppliers will require you to provide them with your Sales Tax ID before they will do business with you. Requiring you to give your ID number is one of the ways a supplier can verify your legitimacy as a business and make sure you’re not a consumer who’s just trying to obtain products at a significant discount.
How to get a Tax ID
In most cases, it’s actually quite easy to obtain a Sales Tax ID. Most U.S. states have an automated process set up for obtaining a Sales Tax ID right from their websites. Oftentimes, obtaining a Sales Tax ID is 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 take care of everything you need to set up your business according to your state’s guidelines.
Every U.S. state maintains its own state website. It’s usually www.statename.gov. For all the states with websites that don't follow that format, I've provided the links below:
- New York
- North Carolina
- South Carolina
- South Dakota
- West Virginia
When you get to your state’s website, look for a link or button that says “Business” or something similar to that, and click on it to go to the commerce section of your state’s website. Once on that page, look for any links or buttons related to either setting up a business or business taxes, and you should be directed to the right area.
Your state’s website will also most likely specify which counties and/or cities (if any) charge separate sales tax, and whether or not you’ll be required to obtain separate Tax IDs for those areas. And make sure you find out what the state guidelines are for which types of sales are subject to tax, and what those tax percentages are. Some types of sales aren’t subject to tax at all, and some are subject to different percentages than others.
Believe it or not, it’s not nearly as complicated as it might sound. If you get stuck, pick up the phone or send an email to someone in your state government who can help, using the contact information listed on your state’s website (usually on the “Contact Us” or “Help” pages of the site).
Action step: Visit your state's website today and get your Tax ID sorted. It's a crucial step toward starting a successful online business!