Business Licenses and Permits for a Home-Based Online Shop

Most online shops need no federal license. What they usually do need is a mix of state, county or city paperwork, and the exact list depends on what you sell and where you operate from. The U.S. Small Business Administration (SBA) says requirements and fees "vary based on your business activities, location, and government rules," so the job is to look up three layers: federal, state and local.

1. Layer 1: federal licenses are for specific activities

The SBA says business activities regulated by a federal agency need a federal license or permit, and it lists them. The list on its page covers:

A shop selling candles, prints, clothing or stationery will not find itself on this list. A shop selling alcohol, anything derived from wildlife, or plants shipped across state lines might.

Some products have their own federal rules without a federal license. For cosmetics, the FDA says it does not license cosmetics firms, but that state or local authorities might. That one sentence is a good reminder: "no license from the federal government" does not mean "no license."

2. Layer 2: state licenses and permits

The SBA says states tend to regulate a broader range of activities than the federal government, and that the license or permit you need from the state, county or city depends on your activities and location. Activities it says are commonly regulated at the local level include auctions, construction, dry cleaning, farming, plumbing, restaurants, retail and vending machines.

Retail is on that list, which is the one that matters for most shops. The SBA's advice is direct: you will have to research your own state, county and city rules, and your Secretary of State's website is the place to find which permits and licenses you need. The IRS also keeps a page that links to each state's website for business, taxation and employer information.

Some practical points from the SBA:

• Fees vary, and some licenses and permits expire after a set period.
• Keep close track of renewal dates. The SBA notes it is often easier to renew than to apply for a new license.
• If you use a trade name, some states also require you to register a DBA.
• If you form an LLC, corporation or partnership, you will probably need to register with each state where you conduct business. The SBA says that generally means a physical presence, frequent in-person meetings with clients, a significant share of revenue from the state, or employees working there.

3. Layer 3: local rules, including zoning for a home business

Location determines the taxes, zoning laws and regulations your business is subject to. If you work out of a property, the SBA says to make sure it conforms to local zoning requirements. Zoning ordinances can restrict or entirely ban certain kinds of businesses in an area, and you might have fewer restrictions if you base the business at home, but zoning rules can still apply to home-based businesses.

Zoning is local, so the SBA points you to the city planning department or a similar office. Questions worth asking them:

• Is a home business allowed at this address, and does the address need a home occupation permit?
• Are there limits on customer visits, signs, deliveries or inventory stored on site?
• Are there separate rules for something like selling food or other regulated goods?

4. State tax IDs

A state tax ID depends on whether the business must pay state taxes. The SBA says to check your state's Department of Revenue website to find out, and that sole proprietors can sometimes use a state tax ID for other functions, such as protection against identity theft. The SBA also notes that an EIN is among the numbers used when applying for business licenses and permits, and that sole proprietors may use a Social Security number for some paperwork such as a bank account.

5. A short research routine

1. Write down exactly what you sell and ship, and where you operate from.
2. Check the federal list above for any activity that matches.
3. Search your Secretary of State's site for business registration and any DBA rule.
4. Contact your city or county for a general business license and zoning.
5. Ask your state revenue department whether you need a state tax ID.
6. Put each renewal date on a calendar.

Free SBA counseling is available through its local assistance network if the research gets confusing, and the SBA page links to it.

6. Key takeaways

• Most online shops need no federal license, but the SBA lists specific activities that do, such as alcohol, firearms, wildlife products and some agricultural goods.
• Retail is among the activities commonly regulated by state and local governments, so licenses and fees differ by place.
• Zoning can apply to home businesses, so check with the city or county planning office.
• Calendar your renewals. Some licenses expire.
• State tax ID rules vary. Ask your state's Department of Revenue.
• "The FDA does not license cosmetics firms" still leaves state and local requirements to check.