Starting a home-based business takes a lot, and one has to invest a great deal of effort and time to see their business bloom. Conducting proper research before diving in is also essential, but many people skip this vital step. As a result, they face consequences, such as a penalty and even getting shut down. One integral part of your research before starting your business should be finding out the licenses and permits that you need according to your state to make your business legal. Below you will find the necessary licenses and permits for home-based businesses. Specific licenses for home-based businesses. Before we delve into the specifics, it's crucial to understand that the licensing requirements for home-based businesses can vary significantly, depending on the nature of your business and the state you reside in. As such, it's best to consult with your local authorities or a legal professional for more accurate and personalized information. 1. Home occupation permit A home occupation permit is essential if you’re planning to operate your business from home. The permit shows that you will operate your business according to Homeowner Association (HOA) laws and that your property owner is aware of your business. These permits protect your neighbors’ rights and ensure your business will not create any trouble for them. How to apply? As with everything else, each state or city’s application process will be slightly different. However, the fundamental aspects will be the same: Review any restrictions that may apply in your residential zone. Contact your local authorities. Check with your local Sales Tax Division to see if you will also require a Sales Tax License. Fill out an application for a Home Occupation Permit in your area. As previously stated, you must find an application for your city, as each is unique. Pay an application fee. Contact your local government officials or homeowner association if you have further inquiries. 2. Signage permit A sign in front of your house can be an excellent way to promote and advertise your home-based business. However, you will need to obtain a signage permit to do so. Almost every city has specific sign ordinances limiting the sign’s location, type, size, and lighting that you can use for your business. Be sure to learn about the regulations you must adhere to and apply for a permit. If you place a sign without a permit, you will face penalties, and the proper authority will remove your sign. How to apply? Each city has its own set of sign permit regulations, which may include any or all of the following: A paper sign application is usually required. Complete elevations, a site plan, and fabrication plans for the sign are necessary for the application process. Proof of property ownership or written approval from the building owner is needed. You will need materials lists, structural calculations, and other engineering specifications for your one-of-a-kind design. The final fees are determined, and the city will complete the paperwork to approve the permit. After approval, the sign is ready to be constructed and installed. 3. Remote employee license Running a home-based business often involves hiring remote employees or freelancers. In some states or regions, depending on the nature of your business, you may need a remote employee license. This license ensures that you're adhering to labor laws and maintaining fair and decent working conditions for your remote workforce. The necessity for this license varies, so it's crucial to check with your local business licensing office or legal advisor for guidance tailored to your specific situation. How to apply? The procedure to apply for a remote employee license can vary depending on your location and the nature of your business. However, the general steps involved can be summarized as follows: Research your local regulations - The first step is to understand the specific requirements and guidelines set by your local government or business licensing office. These regulations can vary widely based on the region or state, so it's essential to conduct thorough research. Gather necessary documentation - This typically includes business information, proof of home-based business license, employee details, and sometimes even employee contracts. The required documents may differ depending on the local regulations. Fill out the application form - The form for a remote employee license is usually available online through your local government or business licensing office's website. Fill it out with accurate and up-to-date information. Zoning restrictions. Operating a home-based business also often involves navigating through various zoning restrictions. These are laws that define how a piece of property in a specific geographic zone can be used. For home-based businesses, these zones often determine whether or not you can even operate a business from your own home. Zoning restrictions can also control things like parking, noise levels, and waste management. It's crucial to understand these regulations to avoid any legal issues down the line. Consult with your local government or a legal advisor to understand how zoning laws apply to your business. General business licenses and permits. Besides the specific licenses for home-based businesses, there are also general licenses and permits that every business, regardless of its location, needs to operate legally. Let's explore them in the following section. 1. General business license Regardless of the kind of home-based business, most jurisdictions require new businesses to obtain a general business license. This license allows your home-based business to sell products and services both online and in person, as well as collect sales tax on any taxable goods. How to apply? You have three options for obtaining a business license: File on your own. Hire a third-party filing agency to assist you in preparing your licensing applications. Consult an attorney who can help you in obtaining your business license. If you plan to file on your own, follow these general guidelines: Determine which business licenses you will require. If your city or county lacks a business licensing agency, you can find information on acquiring a basic business license from your local tax office. Gather the necessary business documentation for your application. Apply for a business license. Make sure you renew your license in a timely manner. 2. Sales tax license Most states need business owners to collect sales tax when selling taxable items or providing taxable services. To collect sales tax on taxable transactions, a business must obtain a sales tax license, also known as a sales tax certificate of authority. Remember, executing a taxable transaction without a certificate of authority might lead to huge fines, depending on the situation. How to apply? Follow these steps to register with your state to collect sales tax: Gather important information such as your employer identification number (EIN) and other business identifying information. Go to your state’s Department of Revenue website. Search for or click on the “Sales and Use Tax” section. Click the link and follow the information given on the website to register your business. Additional requirements for e-commerce businesses. While conducting business online may seem devoid of many traditional business requirements, e-commerce businesses are not exempt from obtaining necessary permits and licenses. A notable requirement is the Sales Permit, also known as Seller's Permit or Resale Certificate. This permit allows e-commerce businesses to collect sales tax on goods sold to customers in states where they have 'nexus', which typically means a physical presence or a significant amount of sales. The rules and requirements for this permit can vary by state, and some states do not require one at all. Therefore, it is crucial for e-commerce business owners to consult with local authorities or a tax professional to understand their tax obligations correctly and avoid any legal complications. 3. Professional license Professional licenses allow individuals who have satisfied specific education, work experience, and exam requirements to use their skills as their profession. The license demonstrates that you are qualified to execute a given profession. It includes ventures like attorneys, daycare centers, tattoo artists, hairstyling salons, architects, financial advisory services, etc. Each state has its list of licensed occupations. How to apply? Conduct research and learn about the licensure process for your profession. Contact the appropriate state licensing board to obtain complete guidelines and visit their website. The U.S. Department of Education also created a resource that mentions over 50 regulated professions in the U.S. that need to be licensed. You will certainly be requested to demonstrate that you meet the licensing body’s academic standards. You should apply for a credential evaluation in this scenario. 4. Health and safety permits This permit is commonly required if your clients or customers come to your home for business purposes. You may also need an inspection and a permit from the local fire department, but it is usually unnecessary if your home-based business provides service or goods online. However, if you need to keep an inventory of potentially flammable products at your home for your online business, you will have to get a permit. If you are selling food and beverage, you will also need a permit from your health department. How to apply? Visit the directory of local health departments from the National Association of City and County Health Officials (NACCHO). Contact your local county health department for details on the requirements for a health permit. What are the risks of not getting licenses and permits for your home-based business? Failing to get or renew a business license can be a costly mistake, and you can face significant penalties such as fines or lawsuits, and, in extreme cases, the business will get shut down. Because the consequences of operating a home-based business without a license can be far-reaching and have a long-term impact on you and your business, you must understand the risks of non-compliance. Getting necessary permits for your home-based business can be time-consuming and complicated, but making this effort can save your business from facing the difficulties mentioned above. As a result, registering and obtaining the necessary permits and licenses should be one of the first steps to starting your home-based business. The views and opinions expressed in this blog are those of the authors and do not necessarily reflect the official policy or position of Lendio. Any content provided by our bloggers or authors are of their opinion and are not intended to malign any religion, ethnic group, club, organization, company, individual or anyone or anything. The information provided in this post is not intended to constitute business, legal, tax, or accounting advice and is provided for general informational purposes only. Readers should contact their attorney, business advisor, or tax advisor to obtain advice on any particular matter.