One of the most crucial steps of starting a business is the process of getting a business license. You’ll need to know how to get a business license so that you can run your business legally. Don’t worry. We’re going to explain the process.
We’ll cover some of the most pressing questions about business licenses including:
- What is a business license?
- How to apply for a business license
- How much does a business license cost?
- What types of business licenses are there?
- Do I need a local business license, a state business license, or a business license from a federal agency?
We’ll even explain how to get a local license or seller’s permit from the state of California as an example of the processes you’ll go through when you are applying for a local business license. Get ready to learn more about business licenses.
What is a business license?
A business license is a document provided by a local, state, or federal government that allows you to conduct certain activities within their jurisdiction. They may be one-time fees, annual fees, or have ongoing requirements. Let’s look at some of the most commonly asked questions about business licenses.
Do I need a business license?
Short answer: Probably.
The long answer should be broken into three sections:
- Federal business licenses
- State business licenses
- Local government licenses
Let’s look at each.
Federal Business Licensing
For those of you who have read our article on how to register a business, the list of companies that will need a federal license will probably look familiar. They are the same companies you will have to answer questions about when applying for your employee identification number.
You’ll need federal business licenses for:
- Aviation will need licensing from the Federal Aviation Administration.
- Agriculture, along with anyone involved in the sale of food that sells more than 2,000 pounds of fruit and vegetables in a day needs a PACA license.
- Alcohol sales require registering with the Alcohol and Tobacco Tax and Trade Bureau. There are a lot of businesses that fall into this category.
- Manufacturers and sellers of firearms and explosives need to get business licenses from the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF).
- Using oversized vehicles to transport products requires paying a use tax of $100-$550 per year according to USDOT.
Other than that, you don’t need a federal business license. There’s plenty more to learn about businesses. We suggest starting here and then digging through the whole HUB.
State’s Business Licensing Requirements
Most states require them for all businesses, but some only require them if you are in a certain field, such as these requirements in Florida. When I was living in Florida, I could have run a business without any licenses because I was in a location with no local business licensing requirements and I didn’t sell any physical goods.
The most common type of business license on the state level is a seller’s permit or resellers license, but there may be more. Check with your Secretary of State office to find out the exact business license requirements in your area.
Local governments love creating different types of business licenses for small businesses, and they can be ruthless if you run an unlicensed business.
I knew a small business owner whose small business operates out of their home. They were sentenced to 100 hours of community service per month because they didn’t have the industry-specific licenses to cut hair. That’s 25 hours a week, plus they have to work.
If you live in a big city, you’ll probably have a few local government business license requirements. For instance, in Las Vegas, you’ll need a business license for Las Vegas, North Las Vegas, Henderson, and Unincorporated Clark County if you want to be able to conduct business in each of those locations,
You might need a fictitious business name. Good news, no income tax!
Make sure you talk to the local SBA before you get a local license because you might find out that you need multiple licenses. The Small Business Administration will be able to help you navigate what can be a crazy labyrinth of local licenses.
Is a business license the same as an LLC?
No, a business license gives you permission to perform a business activity, while a Limited Liability Company (LLC) is a business structure that is intended to prevent business activity from impacting your tangible personal property (and your business from your personal debts).
To learn more about limited liability companies and other types of business structures, check out our blog on how to choose a business structure. You’ll need to choose one, register it, and get an EIN before you get a business license.
What types of business licenses are there?
Besides the federal licenses that we already discussed the types of business licenses normally fall into the following categories:
- Operating license
- Professional licensing
- Seller’s permit
- Fictitious name (DBA)
- Miscellaneous licensing and permits
Keep reading to find out more.
Operating licenses may be required at both the state and local levels. The government agencies that approve these are just giving you permission to run a business.
If you are a doctor, engineer, lawyer, or similar, you may be required to have a special license called an occupational license. Check your local requirements to establish whether there are specific licenses required for your field by local governments.
A seller’s permit is a state or local licensing requirement for sales tax purposes. This is what connects your general business license to the sales tax office. Some states only require a seller’s permit when you are selling physical goods, while some states require a business to have a seller’s permit to pay sales tax paid on services too.
A business with a seller’s permit will need to pay sales taxes routinely, either monthly, quarterly, or annually depending on the state.
Fictitious name (DBA)
If you are running a business as a sole proprietor or partnership, you will probably need a fictitious name (or DBA, which means Doing Business As). It’s just tying the fictitious name to the small business or person. You may also need it if you have a company that uses multiple names.
Miscellaneous licensing and permits
There are a ton of other licenses or permits a company might need. For instance, many businesses might need zoning permits, building permits, or disrupting traffic permits.
Make sure you check with the relevant agency in your location before you do anything that could possibly be covered under state regulations or at the local level. A government agency isn’t likely to look kindly on the statement “I didn’t know that required licenses.”
How much does a business license cost?
Filing fee costs for a business license will depend on the type of application, the amount of work to process the business license, and how much money the local government wants to make. In general, business license rates will vary from free to $550 per business license needed.
In addition, the business license will need to be renewed on an annual basis. There may also be compliance requirements that can increase the costs of licenses and permits for small businesses. For instance, occupational licenses can come with thousands of dollars worth of licensing requirements that have to be met before you will be eligible to conduct business activities.
How long does it take to get a business license?
The actual process of getting a business license is fairly quick, often taking less than a day, but it may take up to a week for them to review your application. That doesn’t include all the other steps that may come before getting a small business license.
For instance, if you want a Principal Engineers (PE) license, which gives you permission to sign construction documents, you’ll have to go through an engineering school, pass the Engineer-in-Training test, work under a PE for a certain number of years, then pass the PE test before you can run your own engineering firm.
How to Get a Business License Online in 3 Steps
This guide is assuming you have been following our HUB content to set up your business. If you haven’t, you’ll need to create your business structure and get an employer identification number before proceeding. Both of those are covered in our guide on how to register a business, where we walk you through the steps for Washington state business license requirements.
After you have done that, there are three easy steps to answer the question “how do I get a business license?”
- Establish what business license you need and how you get a business license.
- Find a location in your area and apply for a business license.
- Run the business and follow the business licensing requirements for reporting.
Step 1. Establish what business license you need
The first step in the process is establish which business license you need. We’re going to give an example for a California business license on the California Department of Tax and Fee Administration website.
Scroll down until you see a long list of links, the screenshot below shows what you are looking for. The link will say “Register a New Business Activity.” Click it and it will ask a list of questions.
Based on the list of questions, there are two activities most businesses do:
- Selling items or goods in California (Seller’s Permit)
- Purchasing items from out of state for use in California without paying tax
Those are the ones you’ll need for selling almost any type of product unless you purchase everything locally. Make sure there aren’t others that apply to you though.
Then you’ll go to the next page, which will ask if you are selling alcohol, tobacco products, tires, or electronics larger than cell phones. Answer the questions and go to the next step. The next page asks about fuel, wood, cell phones, and batteries with acid in them. Answer that and continue.
On the next page, it asks what business type you have for your California business license. I’m selecting LLC, but there are plenty of options. The next page asks about the jurisdiction, federal employer ID number, SEIN, state of jurisdiction, and the identification number for the LLC. I just made them all up, but you should use your real information.
On the next page, it asks if you have an account with the CDTFA. Once you answer that, it tells you what licenses you need. In this example, it told me I need a seller’s permit, which is the same thing as a sales tax permit or sales tax license.
At this point, I am done with establishing which California business license I need, and I am moving to the next step of getting a business license online.
While I use the California business license as an example, the Washington state business license had a similar setup, as do other states. Just search “my state’s business licensing wizard” and it should come right up.
Next, we’ll show you how to apply for your business license.
Step 2. Apply for your business license
The next step in the wizard is the beginning of applying for a business license. The system offers a temporary sales tax license, I accept, and the system asks what date I’d like the temporary sales tax permit to start. After you input the date it goes to the following page:
Put in a valid address and click verify. Then it will ask you to verify the information about the LLC start date and contact information.
The next page tells you to choose whether the responsible party is a manager, member, or manager/member. Then the next page asks for the information about the person responsible. Put in your information.
Then you’ll need to put in your personal information including SSN and driver’s license. After that, you’ll need to input your contact information.
The next screen asks you to add your personal address and verify it with the system. Then the system asks if you have other LLC members. Input the information. Then it will ask for proof of ID, which you should add. On the next page, it asks for your bookkeeper and business activities contact information.
Next, the system asks about sales including:
- Your merchant account
- Your website
- 3rd party websites
You only have to answer the ones that apply.
The following screen will ask about your NAICS codes. Use the keyword search to find the appropriate ones. Clothing is 448140.
Because I selected a temporary permit it asks for the event information, the company hosting it, and estimated sales. If you choose a permanent one, similar, but different questions will be asked.
It continues to ask for detailed information about everything being sold. Answer the questions honestly and eventually, you will get to where you can pay for the business license fees.
Pay and you have your business licenses. For those who haven’t started a business before, California’s regulations are excessive. In most states, it takes about 30 minutes. I went through an hour plus of questions just for one part of the business licensing process.
A cautionary note about some states licenses and permits
Some states do not have computer systems that make it easy for small businesses to get general business licenses, local business licenses, seller’s permits, and any other licenses and permits in one place. They may send you on a wild goose chase to get specific licenses and permits.
If your state is one of the states that are not as business-friendly when it comes to applying for licenses and permits, I would strongly suggest talking to our preferred business starting partner Better Legal and asking them to assist with navigating the maze of local licenses and permits.
Step 3. Run the business and maintain the business license
Once you have received your government-issued business license, you are legal to run your business. Just make sure that you comply with any requirements related to the business license.
Some of the most common requirements include:
- Quarterly or annual payments to the government agency responsible for sales tax collection
- Income tax reports for paying state taxes
- Renewing a business license because a business license or permit will commonly have an expiration date
Failure to follow the license or permit business requirements can result in loss of license or permit, fees to the business, or criminal charges in some scenarios. Keep them up to date if you sell goods, especially alcoholic beverages. Losing a license or permit is not fun to deal with for anyone.
If at some point you decide to discontinue business, there are processes for legally closing a business. If you do not follow them, some states will conclude you are operating without a business license or permit and pursue collections.
Now you know how to obtain a business license, how much it might cost, and what the process of obtaining it will look like. We hope this guide has given you confidence that the process of getting business licenses and permits from the state, local, and federal agencies can be achieved in a matter of hours.
Let us know if this guide helped you establish “where do I get a business license?”
What business did you start after reading this guide? Link to it in the comments so we can keep an eye out for promising businesses to feature in our blogs, videos, and podcasts.