What Changing Your Business EIN Means for Sales Tax

Oct 30, 2023 | Compliance, Sales Tax

How changing your business's EIN affects your sales tax registrationsOver our 25 years helping businesses stay sales tax compliant, one hurdle we’ve noticed tripping our customers up is the employer identification number (EIN). 

Most businesses will eventually need an EIN. They are necessary for common business tasks like opening a business bank account, paying employees, and often for registering for a sales tax permit

However, changing your EIN, or getting a new EIN, can create an expensive hassle if you already have a sales tax permit under your old EIN or SSN. 

Let’s look at why EINs change and how you can ensure you don’t inadvertently create a sales tax compliance issue when you change your EIN.

Why Employer Identification Numbers Change

Common reasons a business’s EIN changes: 

  • You switched corporate structure – Ex: You went from an LLC to an S-Corp.
  • You purchased an existing business – Using the existing EIN can make you responsible for unpaid taxes or activity of the previous business owner.
  • You open a subsidiary of your current business – If the subsidiary is a different business entity than the parent company (ex: the parent company is a C-Corp and the subsidiary is a partnership) then you’d need separate EINs for each entity. 
  • You’ve never had one – If you started your business as a sole-proprietor, you may have been operating under your social security number. You’ll need an EIN when your business becomes more profitable. This is more common for hobbyists who started as sole-proprietors but decide to formalize their business.

If your business status ever changes, it’s likely your EIN will change, too.

My EIN changed. What does that have to do with sales tax? 

If your EIN changes, you need to immediately also update each state in which you are registered for a sales tax permit. 

Most states will require that you then cancel your old sales tax permit and register for a new permit under your current EIN.

Why? Your sales tax ID is tied to your business entity ID. If you change your EIN without notifying the state, the state is still associating your business with that previous EIN.

In worst case scenarios, the state will expect you to collect and pay sales tax based on a business with the old EIN. And they can state that you are collecting sales tax unlawfully by using your new EIN, one that hasn’t ever registered with the state. 

The bottom line is that failing to notify each state where you have a sales tax permit that you have changed your business’s EIN could lead to fines and penalties. 

How do I change my EIN with each state?

In most cases, when you registered for your sales tax permit, the fine print stated that you should take action should your business entity-type, EIN, address, and other business identifying information change.

With nearly every state, this will mean canceling your current sales tax permit and re-registering for a new one. This is an administrative cost of doing business.

At HOST, we recommend updating your sales tax permits at the same time as you update your EIN. 

You’ll file a final return under your old sales tax ID number, and then start collecting and filing sales tax under the new, updated, number. 

This will prevent issues that can either lead to an audit or get you penalized in the case of a routine audit, such as the state expecting you to continue collecting sales tax under both your old and new business identification numbers. 

Is your business growing and changing? HOST is here to help. We can update your sales tax ID numbers and also perform a routine sales tax analysis to help you avoid risky compliance surprises. Contact HOST today.

Frequently Asked Questions about EINs and Sales Tax

How do I obtain an EIN?

Obtaining an EIN is free and available if your principal business is located in the United States or U.S. Territories. You can apply for an EIN at the IRS website.

Are EINs and sales tax ID numbers the same thing?

No. This can be confusing because they are both long numbers issued by the government. Employer identification numbers (EINS) are numbers that represent your business to the federal government. They are issued by the IRS. 

A sales tax ID is issued by the individual state and permits your business to collect sales tax from buyers in that state. Your business will only have one EIN at a time, but may have sales tax ID numbers from many different states.