In both the private and public sectors, businesses and organizations are subject to many laws and regulations, including taxation, which requires the identification of entities. As part of this process, you will most likely be asked to provide either a Tax ID Number or a Corporate Number for your business. Although these terms and their purposes may appear to be interchangeable, a Tax ID Number (also known as an Employer Identification Number or EIN) is not the same as a Corporate Number.
In this article, we will provide an overview of the key differences between a Tax ID Number and a Corporate Number, the procedures each organization must go through to get one, and how they can benefit each organization.
What Is a Tax ID Number?
A Tax ID Number (also named an Employer Identification Number, or EIN), is a nine-digit identifier assigned by the Internal Revenue Service (IRS) to identify a business. To obtain a Tax ID Number, businesses and organizations must apply directly to the IRS.
A Tax ID Number is used when filing business taxes, employee records, investments, and legal documents such as some business contracts. It’s important to note that a Tax ID Number is for taxation purposes only; a Tax ID Number does not prove the legal existence of a business, or replace the need for registering with the government.
When Do You Need A Tax ID Number?
In general, if the business activity involves activities such as filing tax returns, opening or managing a bank or other financial account, applying for a loan, or entering into contracts, it will likely require a Tax ID Number.
Additionally, a Tax ID Number may be required to purchase certain wholesale or retail items, or to obtain licenses or permits.
In most cases, a business must have a Tax ID Number if one or more of the following apply:
• The business has employees
• The business is a corporation or partnership
• The business is involved in any type of business activity that is subject to taxes
• The business is a non-profit organization
• The business has taxes to report
• The business is required to withhold income tax on income it pays to a non-resident alien
• The business is a trust, estate, or sole proprietorship
What Is a Corporate Number?
A Corporate Number is a unique registration number assigned by the Secretary of State in the state or province where your company is registered.
Depending on the jurisdiction, the Corporate Number may also have different names such as a Certificate of Formation (also known as a Certificate of Incorporation in some states), or a Company Number.
When Do You Need a Corporate Number?
Since a Corporate Number identifies a business as a legal entity, most businesses in the United States must have one in order to qualify for certain benefits such as the ability to enter into contracts, open a business bank account, and access loans or lines of credit. Generally speaking, if there is any business activity that requires any paperwork that lists legal entities, it will likely require a Corporate Number.
Benefits of Having a Tax ID Number and a Corporate Number
Having both a Tax ID Number and a Corporate Number is beneficial for a number of reasons, as each serves a different purpose depending on the situation.
Tax ID Number Benefits
A Tax ID Number is required for businesses to pay their taxes, open bank accounts, apply for business loans, and enter into contracts. It also helps to protect your business’s privacy by allowing you to use the ID instead of your Social Security Number when making business transactions.
Corporate Number Benefits
A Corporate Number is required for certain legal activities, such as signing contracts, opening a business bank account, establishing a line of credit, and forming a corporation or limited liability company. A Corporate Number also builds credibility for a business as it shows that it’s a registered entity, which is beneficial when forming partnerships or alliances with other businesses.
Tax ID Numbers and Corporate Numbers are two important types of identification used by businesses and organizations in the United States. While both are used to identify entities for certain activities, they are not interchangeable and serve two very different purposes.
A Tax ID Number is used to identify a business to the Internal Revenue Service (IRS) and is needed when doing business activities that involve taxes and employee records. A Corporate Number, on the other hand, is used to register a business and is required for certain legal and financial activities.
By having both a Tax ID Number and a Corporate Number, businesses can not only benefit from the advantages that each provides but can demonstrate the legitimacy of their organization.