I’ve received quite several emails recently from ebusiness owners who appear to think that simply because their business is done on the internet or from the comfort of home that the rules and regulations that govern brick and mortar businesses don’t apply to them.
The ebusiness questions I receive most often do not include building web sites or conducting ecommerce.
They’re more what I call the “Do I really Have To” line of questions, such as:
“Do I really have to get a business license?”
“Do I really have to obtain a tax ID number?”
“Do I really have to pay taxes on income from my website?”
Yes, yes, and yes.
Do I really have to get a business license? This is one requirement that many ebusiness entrepreneurs think they can skirt because they do not have a brick and mortar establishment.
Sorry Charlie. Running an ebusiness out of your office or out of your home does not get you free when it comes to licensing.
Depending on your location, you might need a city and county license.
Luckily, this kind of licenses are relatively easy to get and aren’t expensive. For local licensing requirements, talk to your city or county government offices.
Home businesses are likewise subject to zoning laws that regulate how property can be used and may restrict various activities. You should check local zoning requirements and property covenants.
You can find this information at the court house or by contacting your local license department.
Legalities aside, the best reason to obtain a business license is it allows you to set up a business bank account using what’s known as a DBA.
“DBA” stands for “doing business as.”
A DBA is another name that you use in the operation of your business rather than your personal name. For instance your name may be Joe Jones, but you might use “Jones Internet Services” as your business name. Having a business license will allow you to create a business account and get checks printed with your business name, giving you that all important air of professionalism that many ebusinesses lack.
Do I really have to get a tax ID number? Online companies with a physical presence, or nexus, in a state are required to collect and report taxes on sales of taxable goods made to customers living in that same state.
For instance, if your online business is established in California, you must collect and report sales tax derived from fellow Californians making purchases on your website.
For this reason, you’ll be required to have got a tax ID number if you’re selling taxable goods (most services are not taxed).
Obtaining a tax ID number is usually a simple process of filling out a form and paying a nominal fee. You will file quarterly reports and remit any sales tax that’s due.
One word of warning: many entrepreneurs have gotten themselves into deep trouble because they saw fit to spend the sales tax they had collected instead of sending it to Uncle Sam. This can indicate death to your business and jail time for you. Many times, this mistake is innocently done when a business owner comingles funds collected as sales tax with their normal business checking account.
Open a separate bank account and deposit sales tax monies into the account and don’t touch it until the time comes to send the money in with the quarterly report.
Do I really have to pay taxes on income from my website? We’ve discussed this previously and the answer is still the same: Just because your income is produced from an ebusiness does not imply that the income is not taxable.
It’s not manna from Heaven. It’s income, therefore report it.
The point to remember is this: the “e” on the front of “e-business” does not stand for “exempt.”
In the eyes of the law, your ebusiness is prone to the same laws and regulations that rule the corner mom and pop, so make certain you conduct your business as such.