What is a Business License?
Depending on your business type and location, you may need a license to operate in your state. This can mean a couple different things, so first things first:
What is a business license?
The term “business license” generally applies to any government-issued license or permit required for a company to do business in given state or local jurisdiction. Business licenses are typically issued for one of three reasons:
- To collect sales tax
- To enforce health/safety codes
- To regulate a “professional” business
When it comes to sales tax, a business license can also be called a “seller’s permit,” “sales tax permit” or a “sales and use tax permit.”
What is a professional business license?
Professional business licenses are issued at the state level to individuals who work in highly regulated fields, including:
- Accounting
- Architecture
- Cosmetology
- Insurance
- Law
- Medicine
- Etc.
Such professions provide services that carry a higher degree of risk and liability than, say, sales—thus, they are more closely regulated at the state level. In most states, business owners operating in these regulated professions are prohibited from forming traditional LLCs and must instead form what’s known as a Professional Limited Liability Company (PLLC).
Do I need a business license?
It depends. Unless you operate a PLLC, you may not need a state-issued business license—and you might not need a business license at all. On the other hand, your business may need licensing from local, state AND federal government offices. Here are two important factors to consider:
- Business type – In addition to regulated professions, certain businesses need state licenses in order to operate. (i.e. daycare centers, liquor stores, pawn shops, etc.)
- Location – Local business licenses are sometimes required in jurisdictions that collect their own sales tax, on top of the state’s sales tax. These local sales taxes are usually collected in larger, urban areas.
Ultimately, you should check in with your state office to see what licenses and/or permits you might need to operate your business.
For a comprehensive look at business licenses, including federal requirements and state-level licensing, check out Northwest’s page: How to Get a Business License.
Do I need a business license for online sales?
If the type of business you conduct requires a business license ordinarily, you will probably still need a business license if you take your business online. But it’s a good idea to check in with a business attorney or CPA to discuss the particulars of your business and make sure you’re covering all your bases.
