Online and Home-Based Businesses May Need Business Licenses or Permits
Governmental agencies impose license, permit, and registration requirements on businesses for two primary reasons: to safeguard the public and to collect revenue. And, home and online businesses are seldom exempt from these requirements—indeed, they are often subject to additional ones triggered by operating a commercial enterprise in a residential area.
Work Smart. Research the rules that apply to your business in your specific geographical area. BizFilings' Business License Wizard can jump start the process. It is essential to know the requirements as soon as possible because obtaining the business licenses, permits, and zoning approvals can be a time-consuming process. If you don't allow enough lead time, you may have to delay your business launch or, worse yet, find your business shut down.
Every Business Faces General Licensing Requirements
Every activity that is operated to make a profit (even if it is not currently doing so) is a business. And nearly every business needs one or more licenses to operate.
What licenses and permits are required depends upon:
- The type of business
- The number of employees
- Geographic location(s) of the business
Licenses and permits fall into several broad categories. Some or all of the following may be required for any business—whether it operates in a traditional brick-and-mortar commercial building, from a home, or in cyberspace. (Few business would require all of these.)
- General business license. The jurisdiction where your business is physically located will probably require a general business license. Because these licenses are a source of revenue for the locality, they often must be renewed every year.
- Sales tax registration. If you sell tangible goods—even online—you may need to collect sales tax from your customers. And, there is a growing trend to impose a sales tax on services that traditionally were exempt from tax. If you must collect sales tax, you will need to apply for a sales tax permit. In most states, you need your permit before you make your first sale.
- Professional/occupation licenses. All states require certain professions, such as attorneys, architects, hair stylists, and tattoo artists, to have state-issued licenses or certificates. Every state has its own list of licensed occupations, so it is essential to know your state’s laws.
- Unemployment and worker’s compensation registration. If you have employees, every state requires that you register. State rules vary on whether registration is required if the business owner is the only employee.
- Weights & measures registration. If you weigh items for sale—regardless of whether it’s in a storefront or your kitchen, your state may require this permit.
- Alarm permit. You may need a permit from a local governmental unit if you plan to install a commercial fire alarm system. Home-based child care provides may need a home inspection by a local fire department.
- Health inspection certification. If your business involves food preparation, you may need to obtain permits and undergo inspections, from both the state and your local government.
Online Businesses Don’t Escape License Requirements
Even if your business is solely online, you may still have to comply with some of the general licensing requirements. If you have employees, you will need to register with the workers' compensation and unemployment departments.
While it’s unlikely you will have to worry about alarm permits or zoning restrictions, you may still face sales tax requirements. In fact, the sales tax rules for online sales are often more complex, idiosyncratic, and ambiguous than those that apply to in-store or traditional mail order transactions. Major internet sites, such as eBay, provide basic guidance to their sellers regarding sales tax obligations. But, as with all areas of tax law, it is wise to consult an accountant to fully understand your obligations to collect and pay sales tax.
Home-Based Businesses Face Zoning and Signage Restrictions
In addition to the general license rules, special considerations often come into play for home-based business or businesses located in an area zoned as residential.
- Home Occupation Permit. Many city or county governments have rules to protect adjacent homeowners from annoyances, such as additional traffic, noise, or odors, created by a business in their neighborhood. Most local ordinances describe the types of home-based occupations or businesses that are allowed and impose limitations on the operations. These restrictions often include: the amount of space that can be used within the home; the number of clients or customers that can visit the home each day; the number of vehicles that can be at the home; the modifications that can be made to the property; and, the number of employees the business can have. If the business meets all the qualifications, then it is granted a “Home Occupation Permit.”
- Signage. Even with a permit to operate, you are likely to be limited in what type of signs you can display. While many localities have signage restrictions even in commercially zoned areas, residentially zoned areas have far more stringent requirements on the size, number, and placement of signs. If you plan to use signage to attract passersby, make sure to verify what you can display before ordering any type of signage.
- Zoning Restrictions and Variances. As noted above, certain business activities are prohibited completely in residential areas. For example, an event planning business is far more likely to be permitted than an auto repair shop. If you discover the zoning ordinances bar your proposed business, you should contact your zoning office. If you can’t comply with restrictions with adjustments to your business plan, you may need to obtain a variance before you can launch your business. It’s often best to work with a local attorney to obtain a variance.
- Homeowners’ Association rules. Even if the zoning allows the business, you might be violating the terms of your Homeowners’ Association (HOA) agreement. Originally confined to condominiums and cooperatives, many communities of single-family homes now have HOAs that govern what residents can, and cannot, do on or to their property. It may be necessary to get an exception or waiver of the rules.
Few businesses can escape license requirements completely. But, learning about the requirements that affect your business and allowing ample time to obtain the needed permits can ensure the path to opening your business is a smooth one.