Where can I find state and local requirements for running my type of business?
Determining which licenses and permits you will need is an essential part of the process of starting a business. It should be a part of your Business Plan from the beginning.
The Small Business Administration has general information about business licenses and permits. Your state and local permit or license requirements, however, will vary depending on your location and industry. Local organizations as well as government websites and officials, such as the county clerk, can also be excellent resources for learning about your state and local requirements.
You can apply online for many types of business licenses. Filing online is often faster, and you might get a discount on the filing fee. Some licenses, however, require you to file a paper application with the county clerk or a government agency. Be sure to keep a copy of the application and any confirmation number or PIN that you receive.
Many states do not require you to get a general business license before you begin operations, although it depends on how you intend to structure your business:
- If you plan on setting up a business entity like a corporation, you must file paperwork with the secretary of state’s office in your state.
- You might be able to operate a business as a sole proprietorship without state licensure. If you plan on using an assumed business name instead of your own legal name, however, you might need to apply for a DBA (“doing business as”).
You might need one or more state licenses before your business can start operating:
- Many states require businesses that sell goods or provide services to get a sales tax permit.
- Alcohol sales typically require a liquor license.
- If your business will be providing professional services, such as lawyers, accountants, doctors, or architects, you will need the relevant professional licenses.
Local governments, including municipalities and counties, often require businesses to obtain special permits and licenses. The requirements depend on your particular business location and activities, local zoning laws, and other factors.
- Businesses that directly serve the public might need an occupancy permit.
- Permits from the local fire department or health department might be necessary to show compliance with local laws.
- You might need a sign permit if your business uses visible signage.
Keeping all of your business licenses and permits current is essential. Be sure to calendar all of your renewal dates. If you are unsure about which permits or licenses are required for your business, reach out to a Rocket Lawyer network attorney for affordable legal advice.
What businesses require a federal license or permit?
Most businesses need a tax ID number, also known as an Employer Identification Number (EIN), to engage in certain business activities. Banks, for example, require an EIN to open an account in the name of a business. An EIN is not a business license, but it does require registering with the IRS, as they handle EINs for new businesses.
Businesses that are subject to federal regulation may need one or more federal business licenses. This type of license typically comes from the federal agency that has regulatory authority over the business. Examples of federal business licenses include the following:
- Agriculture: A business that transports plants or animals across state lines must get a license from the U.S. Department of Agriculture.
- Alcoholic beverages: Manufacturing, importation, and retail sales of alcohol require a license from the Alcohol and Tobacco Tax and Trade Bureau.
- Firearms: Manufacturing, importing, and selling firearms or ammunition require a license from the Bureau of Alcohol, Tobacco, Firearms and Explosives.
- Trucking: Businesses that operate large commercial trucks are subject to regulations from the U.S. Department of Transportation and may need licenses from both the federal and state governments.
Federal business license requirements are in addition to state and local requirements. A business that operates a liquor store, for example, may still require state and local permits and licenses. State governments may also have agencies that issue licenses for specific business activities, such as state-level departments of agriculture.
How much do business permits and licenses cost?
Business license costs vary from place to place but are often less than people expect. The fees for registering a business entity with a state, for example, can range from $40 to $300 or more. Obtaining a tax ID number from the IRS costs nothing. Most application fees are somewhere in between the two, with some exceptions.
The more specialized the business license, the more expensive it can be. Applications for special permits often require large amounts of documentation. This can take time, and it could require you to hire lawyers, engineers, accountants, or other professionals to help.
Most application fees and other business license costs are set by statute. It might be possible to get discounts, such as if you file online rather than submitting a paper application.
The good news is that business licenses and permits are tax deductible. The bad news, of a sort, is that the rules for deducting these expenses can be complicated. The IRS may not allow certain business license costs to be deducted in a single year. These special expenses, such as a liquor license or broadcast permit, which may have large one time expenses, must be amortized, or deducted, over several years.
Does a home business or side hustle require a permit or license?
Most home-based businesses or side hustles require the same federal, state, or local business license or permit as any other business, but it may also depend on the business activities. A home-based business may still benefit from a tax ID number for banking and other purposes, or a DBA to create a separate brand identity.
Side hustlers and new home-based business owners might want to consider registering their businesses before they start business operations to avoid having to pay for licenses or permits twice. Registering an LLC or corporation after operations start can lead to increased expenses since business licenses or permits may need to be obtained again in the LLC or corporations name.
What consequences can I face if I do not get the required license or permit for my business?
The consequences of failing to get a required business license vary rather widely, but they can be quite serious. Consequences can include:
- Fines and other monetary penalties. These are often much more costly than the expense of obtaining the license or permit.
- A government official physically shutting your business down.
- Depending on the type of business activity, you could face more severe legal penalties. Jail time could even be a possibility if the government believes that you intentionally avoided obtaining certain required licenses.
If you have more questions about business license requirements, reach out to a Rocket Lawyer network attorney for affordable legal advice.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.