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Home-based and ecommerce businesses often require the same level of business license compliance as traditional brick-and-mortar commercial establishments.
Because a home-based or online business operates with the goal of generating revenue by selling goods or services to the public, most of the rules designed to guard the public and collect tax revenue apply. This includes obtaining required business licenses, permits, and zoning approvals, as well as incorporating or forming an LLC to operate your business legally, protect your personal assets, avoid fines and penalties, and boost your business credibility.
If you are considering a home-based or online business, then it is important to do your research. Obtaining business licenses, permits, and zoning approvals can be a time-consuming process. If you don’t allow enough lead time, you may have to delay your business launch.
CT Corporation can assemble all the licensing applications and instructions you need to operate your online business legally Business Licenses Application Package.
This article will explore some of the obvious — and not-so-obvious — rules and regulations that are frequently imposed on home or online businesses. It will also touch on considerations that are specific to operating a commercial enterprise in a residential area, such as zoning restrictions.
There are licensing rules that are triggered when a business is operated from a home (or in an area zoned as residential) and special considerations that come into play for the general type of permits.
Many city or county governments require home-based businesses to have a “home occupation permit”. These permits are designed to prevent a business from adding significant traffic, noise, or other environmental conditions such as dust or odors that would interfere with the surrounding homeowners’ use and enjoyment of their property.
As a result, most local ordinances describe the types of home-based occupations or businesses that are permitted and the limitations imposed on the operations. These restrictions often include:
Most localities have signage restrictions. However, if your business is in a residential area, you are likely to face very strict limits on the size, number, and placement of signs on your property. You need to verify what you can and cannot display before ordering any type of signage.
If you plan to operate a business in an area that is zoned “residential”, you need to become familiar with the zoning ordinances. Certain business activities are prohibited completely in residential areas. For example, operating a website design company is likely to be permitted, but an auto repair shop may be prohibited.
Your first step is to contact your zoning office. It may be possible to comply with the restrictions with only minor tweaks to your business plan.
However, if your business doesn’t fall within the zoning laws, then you may need to obtain a variance before you can open your doors. Although there are some arguments you can make if you feel you must go the variance route, keep in mind that it might be better to tweak your business plan to fit the zoning requirements because it can be a time-consuming, expensive, and difficult process.
CT tip: Even if your planned business does not run afoul of your local government’s zoning restrictions, you might be violating the terms of your Homeowner’s Association (HOA) agreement. Originally confined to condominiums and cooperatives, many single-family communities now have HOAs that govern what residents can, and cannot, do on or to their property. It may be necessary to get an exception or waiver of the rules.
The types of required permits depend upon several factors: type of business, business structure, number of employees, and geographic location of the business. The following licenses are not home-business or ecommerce specific — they are just part of the process of opening any business. (While few businesses will require all the permits, each business will require some.)
The jurisdiction where your home is located is likely to require a general business license. This license serves a two-fold purpose. First, licensing protects the residents of the city or county by identifying businesses operating in its jurisdiction. Second, licensing raises revenue for the local government. For this reason, most general business licenses must be renewed annually.
If you sell tangible goods — even online — you may need to collect sales tax from your customers. Plus, many states tax a wider variety of services than they have in the past, so you may need to collect sales tax if your business is a service business. If you are required to collect sales tax, you will need to apply for a tax permit. (In most states, you must have registered before your first sale is made.) You can obtain more information from your state’s department of revenue website.
You may also need a sales tax permit and be required to collect sales tax, even in states where you don’t have a physical location. A 2018 US Supreme Court decision (South Dakota v. Wayfair, Inc.) held that a physical presence is not necessary for a state to require a seller to charge and collect tax on sales to customers in the state. A threshold level of activity is required, which may be based on the revenue earned in the state, the number of transactions, or another basis. More information can be obtained from the revenue departments of the states where you make sales. It’s also a good idea to have a conversation with your accountant before you start taking orders. For more information on sales tax requirements for online businesses, see An updated look at the impact of the supreme court’s Wayfair decision on state sales tax laws.
In addition to the licensing requirements imposed on businesses, states require certain professions — such as attorneys, architects, contractors, and hair stylists — to have state-issued licenses or certificates. Every state has its own list of licensed occupations, so it is essential to know your state’s laws.
If you weigh items for sale, your state may require that you have this type of permit.
You may need a permit from a “fire protection district” or the local government if you plan to install a commercial fire alarm system. If you provide home-based childcare, you may have to have your home inspected by the local fire department prior to receiving a permit to operate your business.
If you prepare any type of food products, you may be required to obtain permits and undergo inspections. In fact, you may find you need both state and local permits.
While the licenses and permits listed above are required by almost all home-based businesses, the following are some other registrations you may need. Whether these are required depends on the type of business you intend to run.
Farming out business registration and license research, applications, management, and renewals can help you take the pressure off internal resources. By working with a full-service management provider who specializes in the efficient processing of all the licensing applications and instructions you need to operate your online or home-based business legally, you can focus on starting and growing your business while ensuring you keep up with changing compliance requirements.
For more information on CT Corporation services and how we can streamline your business licensing, please contact us or call us at (844) 701-2064
The CT Corporation staff is comprised of experts, offering global, regional, and local expertise on registered agent, incorporation, and legal entity compliance.
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