California Tax ID (EIN) Number and Business Registration

If you're a prospective Californian business owner, then you're likely aware that the process of starting a business will involve a large amount of tricky navigation. In this article, we'll be focusing on what you need to do to obtain a Tax ID in California and we’ll go over the primary requirements of starting a business in the state of California.

Your business' tax ID (also known as an EIN) is a unique reference number provided to your company. There are a number of different tax obligations for businesses in California, and your EIN is unique to your company. Your EIN will be used to identify your business to the California Franchise Tax Board, the Board of Equalization, and the Employment Development Department.

California Business Registration

First and foremost, you will need to choose the structure of your business. Your options include:

• Sole Proprietorship – A sole proprietor passes all profits from the business on to the owners to claim in their personal tax returns. This is called “pass through” taxation.
• Corporation – A corporation exists as a separate legal entity from its owners provided that the business is properly formed and maintained. Corporations are set up ideally to accept investments from outside parties and can issue stock to such investors.
• Limited Liability Corporation (LLC) – LLCs are similar to corporations but have different tax requirements. LLCs also use the “pass through” tax model, just like Sole Proprietorships.

Obtaining a Federal Tax ID (EIN) Number

A Federal Tax ID is also known as an Employer Identification Number (EIN). It is used to identify a business with the appropriate tax authorities and are federally issued.

Who Needs an EIN?

All of the following businesses require an EIN:

• Businesses that hire employees.
• Businesses that are operated as a corporation or partnership.
• Businesses that file federal taxes
• Businesses that need to apply for local permits and licenses
• Businesses that need loans or federal financial assistance programs
• Businesses that have a Keogh plan

Methods of Applying

• You can apply for your EIN Number online. The person applying for the EIN must have a Social Security Number as well as other important details about the business.
• You can also apply for an EIN by fax or by post, but this tends to take far longer.

California State Tax ID Number

A state tax ID is the same as a federal tax ID, in that it identifies the business to authorities for taxation purposes, however, a California state tax ID only applies to local state taxes and employee withholding requirements. Most businesses need both Federal and State Tax ID Numbers to operate in the state of California.

Primary types and uses of a State Tax ID:

• Sales/Use Tax – All businesses that sell, rent, or lease tangible property and some services have to apply a sales tax. Sales tax applies to all retail sales. Use tax is imposed on consumers of tangible personal property that is used, consumed, or stored in the state. The California State Tax ID Number allows all of these transactions to be tracked and appropriately taxed.
• Withholding Tax – Employers withhold tax from employees to pay their revenue service. If the employer does not withhold tax from employee wages, they are still liable for the tax applied to the employee. Your California State Tax ID Number is used to track this process.

California Local Licenses and Permits Overview

Some businesses are required to obtain licenses and permits to operate their business. Here are a few examples:

• Seller's Permit – Any business that offers goods for sale or lease must obtain a seller's permit and display it on the business premises
• Cigarette & Tobacco Products – If you sell cigarettes and tobacco products, you must obtain a California Cigarette and Tobacco Product Retailer's License in addition to your Seller's Permit.
• Electronics – If selling electronic components, you must obtain an eWaste account in addition to your California Seller's Permit.