Starting Your Business: Your Guide to Licensing
There are generally three types of licenses that apply to businesses; Transaction Privilege (Sales) Tax Licenses, Regulatory (Professional) Licenses, and Occupational Licenses/Permits. These licenses are obtained by completing the required forms and then filing the forms with the appropriate regulatory agency. Please keep in mind that only the individuals who are legally responsible for the business may sign the applications. A representative may not sign the application. This rule exists because the individual signing the application will become the “Responsible Person” whose duty it is to make sure that all tax filings are completed and deposits are made on a timely basis. Failure to file returns or make deposits will subject the Responsible Person to personal liability for the tax. If you don’t want this responsibility, then you will need to address this issue before you submit the form!
Let’s review the types of licenses that generally apply:
STATE and/or CITY TRANSACTION PRIVILEGE TAX LICENSE(S)
If your business sells a product then you will need to obtain a state transaction privilege tax (TPT) license from the state Department of Revenue and for the city(ies) where you are based and/or operate. Certain services are also subject to the transaction privilege tax. The states provide tables to identify which services and products are subject to the tax. See these links for the exemption tables for California and Arizona. Other states will publish the exemption tables on the Department of Revenue website.
Some cities collect their own sales/use tax while others have their tax reporting and collection handled by the county. Be sure to review the tax and licensing information provided by your municipal government to determine the correct reporting procedure.
REGULATORY (PROFESSIONAL) LICENSING/PERMITS
Whether your business requires a special license or certification will be dependent on the regulatory authority that oversees the licensed professionals. For example, the Board of Real Estate Commissioners may (and does) impose certain requirements for businesses operated by licensed realtors or brokers, while the State Board of Dental Examiners might decline to impose any additional licensing requirements. Some service businesses may be fully exempted from regulatory and transaction privilege tax licensing. Determining whether your business is subject to these requirements will take some research, but the state generally wants you to get this done correctly and will provide the resources to assist you. The Arizona Commerce Authority Small Business Services’ checklist will give you a good rundown of what licenses will be required based on your business activity and location. The California CalGold program offers a similar service that includes the business activity licenses but also expands the offerings to environmental permitting. The U.S. Small Business Administration also provides a resource to identify the state licensing board and provides the links to information for various business activities across the country at this address. If you have additional questions about your specific licensing requirements, then please contact us and we will be happy to review the pertinent rules and regulations as they apply to you.
LOCAL BUSINESS/OCCUPATIONAL LICENSE/PERMIT(S)
The city or municipality in which you operate may require additional licensing. In this regard your best resource is the local Chamber of Commerce. This entity exists to assist local businesses in getting organized according to the local laws and then helping you to thrive. If your business is exempt from the sales tax licensing it is very likely that you will still be subject to an annual occupational licensing fee from the city. The fee is usually nominal, but the license is required to operate within the municipal boundaries.
What type of license is needed (or whether a license is needed at all) will be highly dependent upon the location of your business and the type of service or product that you sell. If you need any assistance in taking the first step or reviewing your completed applications, then please let us know and we will be happy to schedule a consultation with one of our experienced business attorneys. Call (480) 888-7111 to schedule your free consultation today.