Do I Really Need A Business License And Tax ID?

I've gotten quite a few emails recently from ebusiness owners who seem to think that just because their business is conducted online or from the comfort of home that the rules and regulations that govern brick and mortar businesses do not apply to them.

The ebusiness questions I get most often do not involve building websites or conducting ecommerce.

They are more what I call the "Do I Really Have To" line of questions, such as:

"Do I really have to get a business li...

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Small Business , Business License and Tax ID

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I've gotten quite a few emails recently from ebusiness owners who seem to think that just because their business is conducted online or from the comfort of home that the rules and regulations that govern brick and mortar businesses do not apply to them.

The ebusiness questions I get most often do not involve building websites or conducting ecommerce.

They are more what I call the "Do I Really Have To" line of questions, such as:

"Do I really have to get a business license?"

"Do I really have to get a tax ID number?"

"Do I really have to pay taxes on income from my website?"

Yes, yes, and yes.

Do I really have to get a business license? This is one requirement that many ebusiness entrepreneurs think they can skirt because they don't have a brick and mortar establishment.

Sorry Charlie. Operating an ebusiness out of your office or out of your home does not get you off the hook when it comes to licensing.

Depending on your location you may need a city and county license.

Luckily, such licenses are relatively easy to obtain and are not expensive. For local licensing requirements, contact your city or county government offices.

Home businesses are also subject to zoning laws that regulate how property can be used and may restrict various activities. You should check local zoning requirements and property covenants.

You can find this information at the court house or by calling your local license department.

Legalities aside, the best reason to get a business license is it allows you to set up a business bank account using what's called a DBA.

"DBA" stands for "doing business as."

A DBA is another name that you use in the operation of your business instead of your personal name. For example your name might be Joe Jones, but you might use "Jones Internet Services" as your business name. Having a business license will enable you to set up a business account and get checks printed with your business name, giving you that all important air of professionalism that many ebusinesses lack.

Do I really have to get a tax ID number? Online companies with a physical presence, or nexus, in a state are required to collect and report taxes on sales of taxable goods made to customers living within that same state.

For example, if your online business is based in California, you must collect and report sales tax derived from fellow Californians making purchases on your site.

For this reason you will be required to have a tax ID number if you're selling taxable goods (most services are not taxed).

Getting a tax ID number is usually a simple process of filling out a form and paying a nominal fee. You will file quarterly reports and remit any sales tax that is due.

One word of warning: many entrepreneurs have gotten themselves into deep trouble because they saw fit to spend the sales tax they had collected instead of sending it to Uncle Sam. This can mean death to your business and jail time for you. Many times this mistake is innocently made when a business owner comingles funds collected as sales tax with their normal business checking account.

Open a separate bank account and deposit sales tax monies into the account and do not touch it until the time comes to send the money in with the quarterly report.

Do I really have to pay taxes on income from my website? We've talked about this before and the answer is still the same: Just because your income is derived from an ebusiness does not mean that the income is not taxable.

It's not manna from Heaven. It's income so report it.

The point to remember is this: the "e" on the front of "e-business" does not stand for "exempt."

In the eyes of the law your ebusiness is susceptible to the same laws and regulations that govern the corner mom and pop, so make sure you conduct your business as such.

Do You Need A License? Regulated Industries... Learn More About It...

I once knew a guy whose great idea for a ‘home business’ was to run poker tournaments from his house. Needless to say, that didn’t last long once the police heard about it.

If you think you’ve got an idea that’s going to make you big money, there might be a reason why everyone else isn’t doing it – and that reason could be related to the law. Many types of businesses are strictly regulated and controlled by governments.

Gambling.

However fun and profitable it might b...

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I once knew a guy whose great idea for a ‘home business’ was to run poker tournaments from his house. Needless to say, that didn’t last long once the police heard about it.

If you think you’ve got an idea that’s going to make you big money, there might be a reason why everyone else isn’t doing it – and that reason could be related to the law. Many types of businesses are strictly regulated and controlled by governments.

Gambling.

However fun and profitable it might be to put fruit machines in your house, run a mini card casino or just invite the local old people over to play bingo, it’s almost certainly illegal without a license. Gambling is an industry that’s almost always strictly controlled – it might be fine to gamble privately with your friends (or, depending on where you live, it might not be), but as soon as you start running it as a business you’re on very dodgy ground. You’ll also find that most places have laws against for-profit lotteries – sorry. Applying for a license to turn your home into a gambling premises is unlikely to succeed. If you wonder why, consider what would happen if people in your area could do that. It wouldn’t be pretty.

Alcohol.

Yes, it seems odd to some people that you need a license to serve alcohol – after all, you can invite people round to your own house for a drink perfectly legally, can’t you? As soon as you start charging them for those drinks, though, the nature of what you’re doing changes drastically in the eyes of the law, and you’re going to need a license. If you don’t get one, then you could be heading off to jail for quite a while.

Again, you’re going to have trouble getting an alcohol license for your home, unless you’re holding some kind of event there and the drinking is just incidental. Alcohol licenses are usually subject to appeals from people who live near the premises being considered, and you can guarantee that your whole neighbourhood is going to turn out to say what a bad idea it would be.

Medics.

If you plan to do anything medical, then you’ll probably need a license. When I say medical, I mean doctors, dentists, opticians, and even vets. You might think it’d be fine to turn your home into an ‘animal hospital’, but you need to be qualified and licensed. Of course, if you’ve previously been a doctor, dentist, or whatever, then you shouldn’t have too much trouble getting licensed to do the same thing from home.

Children.

People get jumpy around children, and you’re very unlikely to be able to look after any as part of your business without jumping through all sorts of hoops. Just to be a nanny, there are all sorts of courses to take and regular inspections to go through. If you ever wonder why there’s a shortage of small-scale childcare, it’s because it’s so hard to keep within the rules while making any profit.

Food.

If you’re going to sell food, you usually need to register, for hygiene and safety reasons – imagine if just anyone could sell you food, without any checks! For various reasons most local government agencies are especially strict if you plan to handle raw meat. It’s usually fine to sell cooked meat, but raw meat is considered more dangerous. Food licenses aren’t too hard to get, anyway, provided you have a relevant hygiene qualification and you’re willing to have your kitchen and products inspected at regular intervals.

More.

This list is nowhere near exhaustive – it just covers some of the most common kinds of businesses that people think of. If you’re planning to do something more unusual, then you really need to check your local laws.

Should I Bother?

Most home business owners don’t know about the rules that apply to them, and don’t especially care either. Every day you operate in a regulated industry without a license, though, you risk being shut down, or worse. It’s only going to take one upset customer or neighbour to get you into big trouble – so unless you want to be worrying all the time, make sure you’re properly licensed for whatever you want to do