Business Law

E-Commerce: Internet Licenses and Permits

Reviewed by Brian Farkas, Attorney

Having an Internet business can be a lucrative avenue for gaining customers, expanding your existing market, or selling a product to a broad audience. Typically, the licenses and permits that are required to start a brick-and-mortar business are the same as those required to start an Internet-based (or "e-commerce") business.

Business Registration

To start a business, your first step is typically to incorporate. There are a variety of business forms to choose from, although the most common are a corporation or a limited liability company.

Depending on the nature of your business, and your state's laws, you will need a special business license beyond mere incorporation to sell goods or services over the Internet. All businesses are required to register with the state and federal government for tax purposes, whether or not they are being operated out of the owner's home.

Depending on your location, you may also need a city and county license and tax registration. Such licenses and registration forms are relatively easy to obtain and are not too expensive. For local licensing requirements, contact your city or county government offices. Your local chamber of commerce will likely have information about applicable registration requirements.

Requirements Vary by Type of Business and State

Not all businesses require the same licenses, and requirements vary by state. The best approach is to check with your secretary of state. Different states may or may not require a license for a particular type of business. Some of the more common license types are:

  • Business licenses: A state business license is the main document required for tax purposes and conducting other basic business functions.
  • Occupational and professional licenses: State licenses are frequently required for occupations as varied as building contractors, physicians, appraisers, accountants, barbers, real estate agents, auctioneers, private investigators, private security guards, funeral directors, bill collectors, and cosmetologists.
  • Licenses based on products sold: Some state licensing requirements are based on what type of product is being sold, such as liquor, lottery tickets, gasoline, or firearms.

Operating Without a License

If you operate without the required license, you run the risk that your business will be discovered by local, state, or federal authorities. Authorities may discover such unlicensed businesses by checking state tax law returns and resale licenses.

If caught operating your business without the required permits and licenses, you risk being fined or ordered to cease operations. Generally, operating without appropriate licensing is not a smart idea, regardless of whether you are operating a brick-and-mortar business or an Internet-based business.

Collecting Sales Tax Over the Internet

Whether or not you will be required to collect sales taxes over the Internet may depend upon whether or not your business has a physical presence in a state, such as a store, office, or warehouse. If you do not have a presence in a particular state, you are not required to collect sales taxes from customers in that state.

If you need to charge sales tax, then you must become familiar with the applicable rates. Many online retailers use shopping cart services that are programmed to calculate sales tax rates for their sales transactions.

Not every state and locality has a sales tax. Alaska, Delaware, Hawaii, Montana, New Hampshire, and Oregon do not. In addition, most states have tax exemptions on certain items, such as food or clothing. For more information on how different states treat sales tax for sales over the Internet, check out Nolo's 50-State Guide.

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