Having an Internet business can be a lucrative way to gain customers, expand your existing market, or sell a product to a broad audience. Typically, the licenses and permits that are required to start a brick-and-mortar business are the same as those required to start an Internet-based (or "e-commerce") business.
To start a business, your first step is to choose what form it will legally take. In order to avoid personal liability, you may wish to establish something beyond a sole proprietorship. There are a variety of business forms to choose from, the most common being a corporation or a limited liability company.
Depending on the nature of your business, and your state's laws, you will need a special business license beyond mere incorporation to sell goods or services over the Internet. All businesses are required to register with the state and federal government for tax purposes, even if they are being operated out of the owner's home.
Depending on your location, you may also need a city and county license and tax registration. Such licenses and registration forms are relatively easy to obtain and are not too expensive. For local licensing requirements, contact your city or county government offices. Your local chamber of commerce will likely have information about applicable registration requirements.
Not all businesses require the same types of licenses, and requirements vary by state. The best approach is to check with your secretary of state. Different states may or may not require a license for a particular type of business. Some of the more common license types are:
If you operate any business without the required license, you run the risk that it will be discovered by local, state, or federal authorities. Authorities may discover such unlicensed businesses by checking state tax law returns and resale licenses.
If caught operating your business without the required permits and licenses, you risk being fined or ordered to cease operations. This is true regardless of whether you are operating a brick-and-mortar business or an Internet-based business.
Traditionally, the question of whether or not you were required to collect sales taxes over the Internet depended upon whether your business had a physical presence in a state, such as a store, office, or warehouse. If your business did not have such a presence, you were not required to collect sales taxes from customers in that state.
The U.S. Supreme Court called this practice into question in a 2018 decision, South Dakota v. Wayfair Inc. The Court held that states may charge tax on purchases made from out-of-state sellers, even if the seller does not have a physical presence in the taxing state.
Prior to Wayfair, many state governments complained that they were being "cheated" out of valuable tax revenues. And many brick-and-mortar businesses complained that they were unable to compete against online retailers that could effectively undercut them by avoiding charging sales tax with purchases. The Wayfair decision is likely to change these dynamics.
In Wayfair, the Court considered South Dakota, which like most states, taxes retail sales of goods and services. In 2016, South Dakota's legislature passed a law requiring out-of-state sellers to collect and remit sales tax “as if the seller had a physical presence in the state.” This obligation applied only if the retailer delivered goods or services valued at over $100,000, or engaged in at least 200 transactions into the state. Wayfair, a top online retailer with no employees or real estate in South Dakota, meets the legislation's requirements. It disputed the constitutionality of the state's new tax law, which conflicted with prior Supreme Court precedent that required businesses to have a physical presence in a state to be taxed. But the high Court overturned that precedent, calling it "unsound and incorrect," thus permitting South Dakota's tax scheme.
Note that the effects of the Supreme Court's decision are not yet totally clear. However, lower courts, state legislatures, and the Internal Revenue Service (IRS) will surely interpret and apply the Wayfair case in the future, as state taxation of online purchases becomes normalized.
For now, however, if your business does need to charge sales tax, then you must become familiar with the applicable rates. Many online retailers use shopping cart services that are programmed to calculate sales tax rates for their sales transactions. For more information on how different states treat sales tax for sales over the Internet, check out Nolo's 50-State Guide to Internet Sales Tax.
Not every state and locality has a sales tax. Alaska, Delaware, Hawaii, Montana, New Hampshire, and Oregon do not (as of 2018). In addition, most states have tax exemptions on certain items, such as food or clothing.
