Specialty contractor licensing

The U.S. construction industry is heavily regulated, and this is especially true for contractors who work in specialized fields. To reduce harm to the public, state and local governments impose strict licensing requirements that stipulate minimum standards of competency and insurance coverage for specialty contractors.

What is a specialty contractor?

Unlike general contractors who oversee an entire construction project, specialty contractors are responsible for the completion of a specific job.

The work performed can include additions, alterations, repairs, and maintenance. Specialty contractors are usually subcontractors hired by the general contractor, although they can also be hired directly by the property owner. A specialty contractor will perform most of the work on site but may also carry out prefabrication work in their own shop.

The most common specialties that require specialty contractor licenses are:

• Electrical
• Plumbing
• HVAC
• Home improvement
• Landscaping
• Roofing
• Solar

How to get a specialty contractor license

Each state has unique contractor licensing laws, specialty classifications, and specialty contractor application requirements.

Sometimes you may be able to obtain a license by submitting the appropriate classification on a general contractor license application. In other cases, a state may require you to complete a separate application pertaining to your specialty.

Most states limit the type of work a specialty contractor can perform and prohibit them from hiring subcontractors.

To obtain a specialty contractor license, you need to demonstrate competency — either through education, references, or both — in the field you are applying for. Other requirements include the following:

• Examination: Certain contractor license classifications may require you to take a specialized state trade exam.
• Surety bond
• Proof of insurance
• Financial statements

Other contractor license requirements

In addition to specialty trade contractor licenses, there are many licensing, permit, and tax registrations that may be imposed on your business. Here are some common requirements for any business:

• Basic business operation license: This is a license from the city in which your business will operate, or from the local county (if the business will be operated outside of the city's legal boundaries).
• Federal tax ID (EIN) number: Issued by the IRS, the EIN is also called a tax identification number or employer identification number and is required for almost all types of businesses.
• State tax ID number: Issued by your state’s department of revenue or taxation, the state tax ID number is also called a tax registration number.
• DBA/fictitious business name registration: The doing business as (DBA) or fictitious business name registration happens with the appropriate state or local jurisdiction.
• Zoning and land use permits: Local government zoning laws may prohibit certain business activity in designated areas.
• Building permit: If you plan on remodeling or building a commercial space, you'll need to get a building permit.
• Sales tax license/sellers permit/resellers permit: This license/permit has many names, and those names vary by state, but it is required for sales tax purposes.
• Workers’ comp insurance: In most states, workers' compensation coverage is mandatory if you have at least one employee.
• Payroll tax registration: If your business has one or more employees, you will likely need to comply with a variety of payroll tax laws at the federal and local levels.

Ramifications of non-compliance

State and local governments are ramping up efforts to prevent the operation of unlicensed contractors through enforcement task forces and public awareness campaigns. If you are a specialty contractor and are found to be operating without a license you could face harsh civil and criminal penalties, including fines or imprisonment.

CT can help

Outsourcing business registration and license research, applications, management, and renewals can help you take the pressure off internal resources. By working with a full-service management provider who specializes in formation solutions for contractors and the efficient processing of business licenses, permits, and registrations, you can free up your time to focus on starting and growing your specialty contractor business while ensuring you keep up with changing compliance requirements.

For more information on CT Corporation services and how we can streamline your business licensing, please contact us.