It may take a little effort to discover which business permits and licenses your state requires. Fortunately, small business assistance agencies set up in every state can help you cut through the bureaucratic thicket. To find contact information for small business assistance agencies in your area, visit the website of the U.S. Small Business Administration at www.sba.gov. Most of these agencies offer free or inexpensive publications that list the required state registrations, licenses, and permits. Often the information is available online at the agency website.
Beyond contacting these general purpose agencies, it’s wise to call all state agencies that might regulate your business and ask what they require. In addition, you can often get valuable information from the state chamber of commerce and from trade associations or professional groups serving your business, profession, or industry. In addition to the state requirements for operating a business, you will also need to research federal and local permit and license requirements for your business.
In most states, any business—whether it’s a sole proprietorship, LLC, corporation, or any other type—must have a seller’s permit if it sells any tangible goods to the public. Tangible goods are things you can touch, such as furniture or food. Businesses that sell only services are often exempt from the seller’s permit requirement. In the five states that do not impose general sales taxes (Alaska, Delaware, Montana, New Hampshire, and Oregon), you may not be required to get a permit for most sales transactions. However, local governments such as cities and counties in those states may charge sales taxes (as in Alaska), and certain transactions in those states may be subject to something similar to a sales tax, though it may have a different name. If you live in one of the nontaxing states, be sure to check with the sales tax agency to find out if your specific transactions will be subject to tax and if you’ll need a seller’s permit.
Most states exempt certain sales from state sales tax, such as sales of food or sales to an out-of-state customer. However, you usually still need a seller’s permit to conduct these types of nontaxable sales. You need to track the taxable and nontaxable sales and then you only owe tax on the taxable ones.
To obtain a seller’s permit, contact the agency in your state that governs sales taxes. The process of obtaining a seller’s permit typically consists of submitting a simple application form and, sometimes, paying a fee. Some states require a deposit from businesses that have a blemished history of not paying their sales taxes on time.
States require licensing of people who practice certain traditional professions, such as lawyers, physicians, dentists, accountants, psychologists, nurses, pharmacists, architects, and professional engineers. Most states also require licenses for people engaged in a broad range of other occupations. The list varies from state to state but typically includes such people as barbers, auto mechanics, bill collectors, private investigators, building contractors, cosmetologists, funeral directors, pest control specialists, real estate agents, tax preparers, and insurance agents. Because you can’t always guess the occupations for which licenses are needed, you’ll need to inquire.
The procedures vary, but to get a license for a profession or occupation, you’ll usually have to show evidence of training in the field, and you may have to pass a written examination. Sometimes you must practice your trade or profession under the supervision of a more experienced person before you can become fully licensed.
In all but the few states that still assess no taxes on income, you’ll most likely have to register under your state’s income tax laws. This is done in much the same way that you register under the federal laws. The state agency in charge (such as the treasury department or the department of revenue) can tell you what registrations are necessary. In addition to income tax, there may also be registrations for other business taxes as well.
If your business has employees, you may have to register with your state’s department of labor or with agencies administering the laws on unemployment compensation and workers’ compensation. Some state laws allow a business to be self-insured, but for most small businesses this isn’t practical, so you’ll have to carry workers’ compensation insurance. In addition, if your state has its own version of the federal Occupational Safety and Health Act (OSHA), your business may need to meet certain state-mandated requirements to protect your employees in the workplace.
If you have employees or work with independent contractors, there are a number of tax requirements you will have to comply with. For example, you’ll need to get Employer ID Numbers from both the IRS and state tax authorities. And you’ll have to withhold income taxes and Social Security taxes from your employees’ paychecks, and report the figures to both the employee and the government. With independent contractors, you need to report income annually on a Form 1099, which goes to the independent contractor and the government.
Some licenses for businesses are based on the type of products sold. For example, there often are special licenses for businesses that sell liquor, food, lottery tickets, gasoline, or firearms.
If you are planning on doing business as a corporation, limited liability company (LLC), or limited partnership, you'll need to file organizational documents with your state's Secretary of State or similar office. If you are a sole proprietorship or partnership, you may not have any business entity state filing to do. If you have investors who are not actively involved in running the business, you may need to comply with state (and federal) securities laws.
If your business name doesn't contain the owner's legal name for a sole proprietorship or general partnership or doesn't match the company name on file with the state for a corporation, limited partnership, or LLC, then you must register the name you are "doing business as." This is also called a fictitious business name (FBN), assumed name, or trade name.
Sometimes you register directly with the state, although you usually register with the county clerk in the county where your business is located. For more on FBN registration, see Registering a Fictitious Business Name.
Governmental regulation of environmental concerns continues to expand. As the owner of a small business, you may have to deal with regulators at the state or regional (multicounty) level. It’s unlikely that you’ll become involved with environmental regulations at the federal level.
Here are several activities that affect the environment and may require a special permit:
• Emissions into the air for an incinerator, boiler, or other facility. For example, if you’re going to be venting your dry cleaning equipment into the outside air, you may need a permit.
• Discharge of wastewater to surface or ground water. For example, you may need a discharge permit if byproducts from manufacturing are being disposed of in a nearby pond. And you may need a storage permit if materials that you store on your site could contaminate ground or surface water.
• Handling of hazardous waste. If your business has any connection with hazardous waste, it’s likely that the environmental agency will require you to at least maintain accurate records concerning the waste. You may need special disposal permits as well. Environmental regulations may also require you to register underground storage tanks holding gasoline, oil, or other chemicals. And if there’s an underground tank on your business site that’s no longer being used, you may be required to remove it.
Excerpted from Legal Guide for Starting & Running a Small Business, by Fred Steingold (Nolo).