Guide

How to get a business license

Before opening a business, you need the right business licenses. Figure out what you need and learn how to get them.

A person looking at stats on their computer.

What is a business license?

A business license gives you legal permission to operate a business within a certain area. It proves your business is in legal compliance with the regulations in your area.

A business license isn't just a single document. Depending on your industry and location, you might need several different licenses and permits. Figuring out what you need is complicated due to the multi-layered demands of local, state, and federal regulations.

It would take a library to cover all the business license requirements in all the industries and locations in the US, but this guide will teach you where to get started and the basics of how to apply for a business license.

Do you need a business license?

Most small businesses need a business license. The only exceptions are freelancers with no employees providing services that are not required to be licensed. In all other cases, one of your first questions when you launch a small business should be, “What business licenses do I need?”

If you're providing a service, find out if it's licensed. Licensed occupations include teachers, doctors, lawyers, plumbers, electricians, nail technicians, morticians, and countless others. The requirements vary widely, but before launching any of these endeavors, you need to complete the right education, pass licensing exams, and set up your license with the relevant board in your state.

Brick-and-mortar businesses almost always need a local business license to operate. If you're selling taxable goods or services in one of the 45 states with state sales tax, you need to obtain a state sales tax license.

But even if you're in one of the five states that don't have state sales tax, you may need to check the rules on how to obtain other business licenses. For instance, Alaska, Montana, and Oregon don't have state sales tax, but they have local sales tax in many areas. The two other states without sales tax, New Hampshire and Delaware, assess excise tax and gross receipts tax respectively, so you’ll need to obtain the correct licenses to collect these taxes if you’re doing business there. When the time comes, software like Xero can help keep tabs on your sales taxes.

Setting up an ecommerce business? The licensing rules vary – but generally, you need to obtain:

  • a business license for the area you're based in
  • a state sales tax license for every state where you have nexus

“Nexus” means you have a significant business presence in the state, and therefore have to collect sales tax from buyers in that state. The rules vary, but most states define nexus as a certain number of sales (often 200+) or revenue over a certain threshold (often $100,000).

Types of business licenses

Figuring out how to apply for a business license is often easier than figuring out which licenses you need. You can consult with a CPA, a business attorney, or another specialist if you're not sure. Your state's Secretary of State website can also be a great place to start your research.

Here are some of the licenses you may need.

  • Federal: You generally only need a federal business license if your business deals with transporting agricultural products across state lines; alcohol manufacture, wholesale, or import; aviation; firearms; import or export of fish and wildlife; maritime transportation; mining and drilling; nuclear energy; or radio and TV broadcasting.
  • Industry: If you're part of a licensed industry, you need the correct licenses. Businesses in the food and accommodation industries, as well as salons and massage facilities, also need licenses from the health department in their areas.
  • Business operating license: Most towns and counties require businesses to have business licenses. Check with the town board or county clerk to learn the rules in your area.
  • Seller’s permit: If you sell taxable goods or services, you need a state sales tax license. Certain items also require their own licenses – for example, you need a special permit to sell alcohol, and most states offer different permits depending on the alcohol type (malt, vinous, spirituous) and the type of business (retail, pharmacy, bar, restaurant, etc).
  • Other permits: You may need other permits, depending on your industry and area. Make sure you understand the rules on the local, state, and federal levels before you open for business.
  • DBA registration: To reserve your business name, you can set up a “doing business as” (DBA) name with your Secretary of State. You can also register LLCs and set up corporations through the Secretary of State.
  • EIN: An EIN is a tax ID number that identifies your business on federal tax forms and banking documents. It's not a business license, but you almost always need this number.

You need to renew all of the above (except EINs, which don’t expire) every year or every other year. The good news is that renewals are often easier than first-time licenses.

How do you get a business license?

Figure out what you need, and then start applying. Give yourself plenty of time to get your licenses in order before your business's start date. Most applications require your business name, type of entity (sole proprietorship, partnership, LLC, corporation, etc), contact information, and details about a responsible party. You may also have to include information about business assets and loans, and details about your premises.

For more information, check out resources from the Small Business Administration. Most Secretary of State websites have a list of essentials for new businesses.

Also, look at your town or county website to learn more about your local requirements. Try to focus on official government websites so you get the best information – and check with an accountant, because the rules are always changing.

Disclaimer

Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.

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