While it may not be your favorite part, the tax side of business is a necessary one. There’s plenty of paperwork you have to do just to get started, and then plenty to do on an ongoing basis. When starting a business, you need apply for both a Federal Tax ID Number and a State Tax ID Number; each serves a different important purpose.

First of all, the most obvious difference between the two ID numbers is that one comes from the federal government and the other comes from your state government. The federal ID is going to be pretty much standard for anyone across the country, while the state ID is going to vary slightly depending on where you’re doing business.

The State Tax ID Number may have a different name, depending on what state you’re in. Other terms include: Sales Tax Vendor ID Number, Sales Tax Registration, Reseller Permit, Reseller Tax ID, Certificate Of Authority, and Reseller Certificate; but in essence, they’re all the same thing and serve the same purpose.

This State Tax ID Number is used when as a business collects and pays state taxes. Again, each state’s laws may be a bit different as to what products and services get taxed, and if any types of business and/or charities are exempt from certain taxes. This is why it’s so important to be familiar with your local laws.

The Federal ID Number – a.k.a. the Employer Identification Number (EIN) – works more like a Social Security Number for a business. An EIN is assigned to a company by the Internal Revenue Service. The EIN is then used when hiring employees, filing business taxes, and taking care of other business needs. When a company wants to open a business bank account or apply for permits, they will use their EIN.

These numbers are both important, although they function on different levels and serve different purposes.