ComplianceJanuary 25, 2023|UpdatedApril 07, 2025

Home and online business license requirements

Home-based and ecommerce businesses often have the same business license requirements as traditional, commercial, brick-and-mortar establishments.

This article will explore some of the obvious — and not-so-obvious — rules and regulations that are frequently imposed on home-based or online businesses. It will also touch on considerations that are specific to operating a commercial enterprise in a residential area, such as zoning restrictions.

Do you need a business license to sell online or to operate a home-based business?

Because online businesses and home-based businesses operate with the goal of generating revenue by selling goods or services to the public, most of the rules designed to guard the public and to collect tax revenue apply. This includes obtaining required business licenses, permits, and zoning approvals in order to operate your business legally and to avoid fines and penalties.

(This is in addition to fulfilling any required steps if you are incorporating or forming an LLC such as having a registered agent and obtaining an EIN.)

If you are considering an online or home-based business, then it is important to do your research. Obtaining business licenses, permits, and zoning approvals can be a time-consuming process, but a necessary one. If you engage in business for which licensing is required and fail to comply, you risk fines and penalties, or having your operation shut down.

CT Corporation can assemble all the licensing applications and instructions you need to operate your online business legally Business Licenses Application Package.

Licensing considerations for home-based businesses

There are licensing rules that are triggered when a business is operated from a home (or in an area zoned as residential) and special considerations that come into play when it comes to the required permits.

Zoning restrictions and variances

If you plan to operate a business in an area that is zoned “residential”, you need to become familiar with the zoning ordinances. Certain business activities are prohibited in residential areas. For example, operating a website design company is likely to be permitted, but an auto repair shop may be prohibited.

Your first step is to contact your zoning office. It may be possible to comply with the restrictions with only minor tweaks to your business plan.

However, if your business doesn’t fall within the zoning laws, then you can seek the possibility of a variance. A zoning variance is a deviation or exception from the current zoning rules. Although there are some arguments you can make if you feel you must go the variance route, keep in mind that it might be better to tweak your business plan to fit the zoning requirements. The process of obtaining a variance can be a time-consuming and expensive, and there is no guarantee that the local government will grant you one.

CT tip: Be sure you are not violating the terms of your Homeowner’s Association (HOA) agreement, if applicable. Originally confined to condominiums and cooperatives, many single-family communities now have HOAs that govern what residents can, and cannot, do on or to their property. It may be necessary to get an exception or waiver of the rules.

Home occupation permit

Many city or county governments require home-based businesses to have a “home occupation permit”. These permits are designed to prevent a business from adding significant traffic, noise, or other environmental conditions such as dust or odors that would interfere with the surrounding homeowners’ use and enjoyment of their property.

As a result, most local ordinances describe the types of home-based occupations or businesses that are permitted and the limitations imposed on the operations. These restrictions often include:

  • Amount of space that can be used within the home
  • Number of clients or customers that can visit the home each day
  • Number of vehicles that can be at the home
  • Modifications that can be made to the property
  • Number of employees the business can have

Note: In addition to obtaining a home occupation permit, your home-based business may also need to fulfill other licensing and registration requirements that apply to all businesses.

Remote employee license

A local jurisdiction may impose licensing and other requirements for an employee that is working from home. You may need to conduct license research at the city, town, or county level to determine if a home occupation or remote employee license and/or permit is required. For more information, see Remote employees and the regulatory implications for your business.

Signage

Most localities have signage restrictions. But, if your business is in a residential area, you are likely to face very strict limits on the size, number, and placement of signs on your property. You need to verify what you can and cannot display before installing any type of signage.

Business license and registration requirements (ecommerce, home, general)

Your business license, permit, and registration requirements depend upon several factors:

  • type of business
  • business structure
  • whether you have employees
  • geographic location of the business

The following licenses and registrations are not specific to home businesses or ecommerce businesses — they fall under the umbrella of general legal requirements for opening any type of business. (While few businesses will require all the registrations listed below, many will need to comply with more than one.)

Secretary of State registration

Forming a legal business entity such as an LLC or corporation involves filing with the state department that is responsible for business entity formation. This is generally handled by the Secretary of State’s office.

Employer identification number (EIN)

An employer identification number (EIN) is a business tax ID number issued by the IRS. An EIN is the business equivalent of a Social Security number and is used for tax filings. There are a number of reasons why your business may be required to have an EIN. For example, if you have employees, or if you are a corporation or an LLC with more than one member, you will need to obtain an EIN. You may also need an EIN before opening a business bank account.

Business License services

CT Corporation

We have over 130 years of experience and the expertise to help you at every stage of the business life cycle.

General business license

The jurisdiction where your home is located is likely to require a general business license. This license, sometimes referred to as a business privilege license or business tax registration, serves a two-fold purpose. First, licensing protects the residents of the city or county by identifying businesses operating in its jurisdiction. Second, licensing raises revenue for the local government. Most general business licenses must be renewed annually.

Sales tax registration

The selling of tangible goods — even if they are sold online — may require a business to collect sales tax from their customers. Plus, many states tax a wider variety of services than they have in the past, so even service businesses may need to collect sales tax.

If you are required to collect sales tax, you will need to apply for a tax permit with the state tax department. (In most states, you need to be registered before your first sale is made.) You can obtain more information from your state’s department of revenue website.

Additional sales tax requirements for ecommerce businesses

 

You may need a sales tax permit and be required to collect sales tax in other states, even if you don’t have a physical location in those states. A 2018 US Supreme Court decision, South Dakota v. Wayfair, Inc., held that a physical presence is not necessary for a state to require a seller to charge and collect tax on sales to customers in the state.

Generally, a threshold level of activity triggers the sales tax requirement in other states. This may be based on -

  • the revenue earned in the state
  • the number of transactions
  • another basis

More information can be obtained from the revenue departments of the states where you make sales. It's also a good idea to have a conversation with your accountant before you start taking orders. For more information on sales tax requirements for online businesses, see An updated look at the impact of the supreme court’s Wayfair decision on state sales tax laws.

Professional/occupation licenses

States can require certain professions and businesses — such as attorneys, architects, pharmacies, and hair stylists — to have state-issued licenses or certificates. Every state has its own list of licensed occupations, so it is essential to know the laws in your state.

Reminder: Licensing laws and requirements are not consistent from state to state, or city to city. For example, contractors may be subject to licensing requirements at 1) the state level, 2) the local level, or 3) both state and local levels.

DBA or assumed name registration

Every state has its own DBA ("Doing Business As") requirements for businesses. If your business is operating under a name other than your own name (if you are a sole proprietor) or the name of all your partners (if you have a general partnership) or the name of your corporation or LLC (if you formed one), you will need to register that assumed name.

A DBA registration generally takes place with the state and county or city in which the business is located. If you operate out of multiple locations, you may need to register your assumed name in each of those counties or cities.

Unemployment and worker’s compensation registration

If you have more than one employee, you will likely need to meet multiple requirements. These can include needing an EIN, reporting new hires or rehired employees to a state agency, registering with a state agency for unemployment insurance, and obtaining Workers’ Compensation insurance. In some states, you must register with a state agency even if you are the only employee.

Weights & measures registration

If you weigh items for sale, your state may require that you have a weights and measures permit. These permits are state-specific and sometimes even city-specific, so check with your local government to determine what may be required.

Alarm permit

You may need to obtain a permit from the fire department or the local government if you plan to install a commercial fire alarm system. If you provide home-based childcare, you may have to have your home inspected by the local fire department prior to receiving a permit to operate your business.

Health inspection/certification

If you prepare any type of food products, you may be required to obtain permits and undergo inspections. In fact, you may find you need food industry related permits at both state and local levels.

Privacy, advertising, and digital rights/copyright laws

Every business owner needs to be aware of — and comply with — a variety of privacy laws and online advertising and marketing laws.

If your business will be largely conducted online, you will also need to understand your obligations under digital rights and copyright laws. Violating these provisions, even unintentionally, can be a costly mistake.

There are also various regulations concerning personal data. For example, there is the California Consumer Privacy Act (CCPA), which governs personal information collected by businesses from California consumers. The EU has its own data privacy laws known as General Data Protection Regulation (GDPR). Your business may be required to comply with CCPA and GDPR, even if it’s not located in California or Europe.

CT Corporation can help

Farming out business registration and license research, management, and renewals can help take the pressure off internal resources. By working with a full-service management provider who specializes in the efficient processing of all the licensing applications and instructions you need to operate your online or home-based business legally, you can focus on starting and growing your 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.

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John Randazzo, Business Consultant
Business Consultant
John has been consulting with corporations and law firms on corporate legal transactions and business entity compliance since joining CT Corporation in 1994.
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