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Hey Buddy; You Got a License for that Thing?

General Business News

May 2003

Hey Buddy; You Got a License for that Thing?

In the good old days, about all you had to do to start your business was find a little capital, get a shop and hang out the “Open For Business” sign. This is definitely not the good old days. In fact, most modern historians refer to the good old days using terms such as “antiquity” and “ancient”; some even include the term “prehistoric”

The objects of our discussion this month centers on a few of the more obscure requirements you may run into in setting up your own business. Please take note that we have geared this article to a wide range of potential users, which in Internet terms basically means the entire planet Earth, so don’t be surprised if your particular state does not have all the different requirements listed in this article.

Professional and Industry Specific Licenses

State requirements vary, but you can bet that if your business is considered a “profession” or if you are in a business that has some direct contact with the public, somewhere in your state there is a licensing board or commission that oversees the conduct of your profession.

Some of these professions are well known, like Certified Public Accountant, medical doctors, dentists and similar professions. Other professional or industrial licenses may not be as well known. For example, in Louisiana, a state board regulates massage therapists and California has a Bureau of Automotive Repair. Most, if not all, states require contractors to be licensed and the same is true of barbers and cosmetologists.

The list could literally go on for pages, but the point is that all states have licensing requirements and you should be certain you have met the requirements for your business. The penalties for practicing a profession or carrying on a business without a license can subject you to severe penalties.

Occupational or Business Licenses

Many local governments and sometimes, state governments, require you to register your business and pay a licensing fee. The amounts can be small or quite large, depending on the revenue needs of the issuing entity.

The critical difference in the Professional/Industrial licenses and Occupational/Business licenses is their purpose. The general reason for a Professional/Industrial license is to protect the public. The boards that issue such licenses require applicants to meet minimum competency levels before issuing the license. The boards generally have ethical standards that must be met and sanctions against licenses for failure to follow ethics and other board rules. The fees collected by such licensing bodies are generally used to cover the costs of the board or commission’s activities as they relate to its assigned profession. The license fees are not normally remitted to the state’s general fund.

Occupational licenses, on the other hand, are not designed to ensure a business meets any specific standards. Rather, they are generally based on the government’s perceived needs for revenue to fund a wide variety of public projects. Occupational license fees may be based on flat rates or sales level. We won’t purport to know the rules for all 50 states, but this is one license you don’t want to forget. If you conduct business in a jurisdiction requiring an occupational license, sooner or later, you will be caught and penalties can be stiff.

Certificates of Occupancy

Certificates of Occupancy are just exactly what they sound like, certifications that your place of business is ready to be occupied. The primary purpose of certificates of occupancy is to maintain adherence to the local building code and, therefore, promote public safety.

Anyone who has ever built or remodeled a building is familiar with the need in most states to obtain permits from the building inspectors office. As work progresses, inspectors make an on-site visit to inspect the work completed and sign off on its completion. Once the building inspector is satisfied the structure meets local code and any other safety requirements, a certificate of occupancy can be issued.

So, how important is this little piece of paper? Quite apart from meeting local business licensing requirements, how would you like to explain to your insurance company that you didn’t get the required inspections on that $1 million addition to your plant? Do you suppose they would have grounds to deny a claim if they found out the recent fire was caused by faulty uninspected wiring in that addition? Think about it.

Sales and Use Tax Registration

If your business sells a tangible product to final consumers, you will be required to collect and remit sales tax to state and local authorities. This may not be true in all states, but it is in most. In this case, you will be required to obtain the appropriate filing numbers to make those remittances.

If you’re sitting there saying to yourself you can skip this part since you don’t sell any products, wipe that smug look off your face. Do you purchase items via mail order catalogs or from out-of-state vendors? If so, you may be liable for Use Taxes. Simply put, Use Taxes are meant to capture the dollars that might otherwise be lost if the transaction is taxable, but the seller is not required to collect the tax.

Use taxes can really jump up and bite you. Imagine you bought a $2 million widget caster from an out-of-state vendor and your combined state/local Use Tax rate is 7%. Let’s see, that equates to $140,000 in tax that, if not paid, most likely accrues penalties and interest at a pretty fast clip.


One other significant registration you need to remember is registering with your state’s department of labor. One of this department’s major jobs is to administer the unemployment compensation insurance program in your state and many states require notification when you start hiring employees.

Concluding Thoughts

There is no way in this short space that we can cover all the various states’ licensing requirements. However, the United States Small Business Administration has been kind enough to provide a web page that will at least help you get started in the right direction. Go to http://www.sba.gov/hotlist/license.html if you are in the process of starting a new business and don’t know where to go.

What we have covered here is a small part of the licensing and registration hurdles you may face in setting up your business. We haven’t even talked about any required liquor licenses, health and welfare department issues and other issues specific to certain industries. Don’t take a chance on skipping an important step. Give us a call today if you are starting a business and don’t know exactly where to turn. You won’t be sorry you did.

By the way, last month we asked you to keep our troops in Iraq in your thoughts and prayers. You did a great job and we know the troops appreciate it!

Have a great May.

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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