You asked, we answered
Setting up a new online business is an exciting time, but the thought of getting the right licenses in place can quickly dampen your entrepreneurial zeal.
But burying your head in the sand is the worst thing you can do. Fortunately, if you’ve landed on this page, you know that – and you’re being proactive about staying on the right side of the law.
In this post we’ll talk through the main types of business license you’re likely to need as an online business based in the US, where you can get these from, how long they last and how much they’re likely to cost.
There are plenty of business licenses out there, but we’ll be focusing on these three:
- State-issued (or ‘general’) business licenses
- Federal licenses and permits
- Doing Business As name (DBA)
That’s because, along with a sales tax license, these are the three types of license you’re most likely to encounter when researching what you need for your online business.
A sales tax license, also called a seller’s permit or a sales and use tax permit, is a separate entity from the business licenses we’ll discuss in this article. A sales tax license is regulated by state, and allows your business to collect and remit sales taxes to the issuing state.
If you’re making money from a business – online or offline – you will almost definitely need at least one kind of license. How many, and which kind, depends on your industry, business size and business location (among with, we’re sorry to say, many other variables).
State-issued ‘general’ business licenses
As with many things in the US, the rules around business licensing change from state to state (or in this case, even from county to county). That makes it very hard to offer general instructions.
Even the US Small Business Administration can only offer this rather flimsy statement:
‘You’ll have to research your own state, county, and city regulations. Industry requirements often vary by state. Visit your state’s website to find out which permits and licenses you need.’
To find the regulations for your city (and remember, this should be wherever your business is based – even if that just means where you manage it from) then check out the regulations within your state or territory by clicking the relevant link below:
Even if you don’t need a standard business license to open your business (which, in most states, you do), chances are you will once you hit a certain revenue or number of employees. In most cases, we’d say it’s a bit of admin that’s worth doing from the start, especially because licensed businesses can also claim tax deductions.
It’s important to also keep in mind that if your town requires you to have a business license, this will also be the case if your business operates out of your house. However, provided you aren’t taking loads of deliveries or storing inventory, working from home should make the process of obtaining a license much easier.
As an ecommerce business owner, you’re unlikely to encounter many issues, since most areas have relaxed regulations for home businesses. That said, some zoning laws do restrict outward changes to a home’s appearance (like signage) and the number of employees/visitors allowed in the workspace.
Federal business licenses
While most questions around business licenses are answered on a state-by-state basis, if your industry is federally regulated, you’ll also need to apply for a federal license from the relevant governing body.
You can check whether or not this applies to your industry on the US Small Business Administration (SBA) website, as well as finding the right issuing agency to apply to.
Doing Business As name (DBA)
Most businesses will be required by their state to obtain a Doing Business As name (DBA) license, unless you’re trading under your own name, without any amendments.
By that we mean the trading name ‘John Doe’ would be fine without a DBA (if it’s your name), but ‘John Doe’s Web Design’, or anything not including your name at all, would require one.
A DBA is a handy thing to have, and an easy thing to obtain. Even if you’re only running a very small side hustle, we recommend you get one. It stops your business name from being used by anyone else within your state, helps protect you from fraud, and means you can open a business bank account.
If you want to protect your name across the country, you’ll need to spring for a trademark instead. This involves a little more paperwork, but for ecommerce businesses, it could well be worth doing; you may be the only person selling under the name ‘Lily’s Candles’ in Texas, but that won’t help you if there’s another ‘Lily’s Candles’ in California that’s competing for the same top spot on Google!
If you have a trademark, you should only need a DBA if you want to use a different trade name to what you have trademarked. Again, this needn’t be wildly different, so think carefully about whether it’s something you’ll need; Ford is the trade name of Ford Motor Co., for example, so the company needs a DBA to trade as just ‘Ford’.
ASK AN OWNER: WIKILAWN
“My business has a physical location in Texas, but we don’t sell from a brick-and-mortar store. Our services are offered online, with consulting happening both on and offline. I didn’t have to get a general business license, as Texas doesn’t require them for ecommerce. And because my business is not operated out of my home, I’m not required to get an occupational license, either. What I did need to apply for was a sales and use tax permit. Texas has state sales tax, and thus requires anyone selling goods and services to tax Texans appropriately. The license ensures that you acknowledge this, and holds you accountable should you fail to do so. The permit was free, and I applied for it online through Texas’ tax registration site. It took a bit of time to be approved, but nothing excessive.”
Dan Bailey is the president of lawn care services company WikiLawn, which operates nationwide to connect people with the best lawn care companies in 4,000 cities.
What information do I need?
When applying for a business license, there are a few things you should have in order first:
- Your business’ legal structure – e.g. a sole proprietor or a limited liability corporation
- Your business’ activity. Have this prepared in detail, and be prepared to answer questions
- A sales tax license, which you can get from your state agency
If you need a federal license or permit, get this in order before applying for anything state-level.
When and where to apply for a business license
How you get a general business license or DBA is – surprise surprise – up to your state. And we recommend you apply for a business license from the start, even if your state doesn’t require that you have one at your current revenue threshold. For most towns, it’s a case of going to your city hall to fill in some paperwork. In some states, you can download this, fill it in, then drop it off in person. Even if your business is online-only, you’ll almost definitely have to do something in person, whether that’s just dropping off the forms, or having your fingerprints taken, too.
If your industry is federally-regulated (if you sell alcohol, for example), you’ll need to apply to the relevant issuing agency for a license too. The SBA has helpfully outlined which issuing body you’ll need to contact in each case.
State-issued business license cost
A state-issued business license will typically cost between around $50 and $400. Some have an additional processing fee of around $25.
Business licenses renew annually, and normally expire at the end of the fiscal year (September 30). While getting a business license can be a bit of a pain, renewing it should be fairly easy; you can normally do this over the phone, in person or by mail.
The cost of a DBA varies from state to state, and even county to county. They can cost between $10 and $50, although most are in the $20-$25 bracket.
Remember to renew your DBA; most expire after three to five years.
ASK AN OWNER: BEST ONLINE TRAFFIC SCHOOL
“The requirements for a business license vary from city to city, so you would need to research what your city’s finance department says. In our case, we have to renew it every year, and pay around $200 a year. For the DBA, you should apply for one if you plan to sell under a trade name. We had to apply through the LA County Clerk’s Office, publish a notice in the newspaper, and send a notarized form. This cost us around $100, and requires an annual renewal of $29.”
Rodney Yo is the founder of Best Online Traffic School, which allows California drivers to fulfill their traffic school obligation through an online course.
If you operate without a business license when you should have one, your business will be operating illegally. This comes with some pretty serious consequences, the severity of which depends on state laws and the size and nature of your business.
The penalty for not having a business license could include:
- Being forced to stop selling online. This may only be until a license can be obtained, or there may be a mandatory probationary period to wait out.
- Receiving a fine. Depending on the size of the business, this could be just from local authorities, from your state, or at a federal level.
- Potential lawsuits. An aggrieved customer could have a case for suing you for fraud if you don’t have the proper licensing in place.
Basically, it’s not worth taking the risk!
We’d usually love to give you a clear conclusion at this point, but the fact of the matter is that business licensing is a complex topic; you’ll almost definitely need a sales tax license, probably need a business license, may need a DBA or a trademark, and might need a federal license, too.
If you’re in any doubt, we highly recommend that you get in touch with someone at your state department – they’re usually really helpful, and it’s a sure-fire way to make sure you’re not missing anything. You also can, and should, seek legal advice if you’re unsure, particularly if you’re going to start employing people.
If you’ve been through the process of applying for any of the licenses above, please share your experiences in the comments below to help other users on their journey!