5 Licenses and Permits Needed for a Home-Based Business

Find out what is required for you to operate legally

Fact checked by Michael Rosenston
Reviewed by Khadija Khartit

Starting and running your own business can be a very enriching and exciting venture. Licensing, permits, and zoning regulations vary based on the locality, so it’s important to obtain exact requirements for your state. Here are five that every business needs.

Key Takeaways

• Government agencies issue licenses and permits.
• Permits may be more restrictive and require renewals.
• Specific permits may be issued for professional services or food handling.

License vs. Permit

Government agencies issue business licenses. They are a type of legal contract that allows holders to conduct actions that are otherwise prohibited to those without them, such as driving a car or running a business. Activity is regulated by the issuing government, normally at the state level.

A permit is a legal document that permits you to do something. For instance, if you have a license to run a cafe, your state and/or municipality may require you to get a building permit if you intend to remodel the building where you’ll open the cafe. You’ll also need a health department permit if you have a kitchen from which you intend to serve food to your customers.

1. General Business License

Any business, including home-based businesses, must obtain a local city or county business license that allows the holder to engage in business activities within the local jurisdiction. If your city or county doesn’t have a specific business licensing department, you can obtain information on obtaining a basic business license at your local tax office.

Ensure that your business complies with local zoning ordinances. Sometimes this is certified when you apply for your license, but in other areas, you need to double-check with the city or county zoning department.

Neighborhoods may have restrictions on the operation of home businesses. Rules may be governed by homeowners associations (HOAs). Businesses that do not meet local zoning ordinances or neighborhood requirements may obtain an exception or variance through the municipality.

2. Professional License

Certain home-based businesses require state or federal professional licensing or certification. This includes ventures like daycare centers, hairstyling salons, broadcasting, selling alcohol, or financial advisory services.

The best way to ensure you get the proper documents is to contact your state business office or the relevant country or municipal office. You can also visit the official state website to obtain a list of all occupations or businesses that require professional licensing.

3. Health and Safety Permits

Depending on the type of business you intend to operate, you may need to get a home inspection and a permit from the local fire department. This is commonly required if customers or clients come to your home to conduct business. It’s usually unnecessary if your home-based business only provides goods or services online.

Environmental licenses or health department permits are less common for home-based businesses. These documents are most generally required for those who engage in the wholesale or retail sale of food and beverage products. Check with state environmental protection agencies or local health departments to find out if your business requires this type of inspection or permit.

Warning

Operating a business without a proper sales tax license is a criminal violation in some jurisdictions.

4. Sign Permit

A sign that advertises your business may require a permit under local ordinances. Nearly all cities or counties have specific sign ordinances in effect that govern the size, type, and location of business signs. The lighting of signs is also usually restricted. Many HOAs, condominiums, and apartment complexes have restrictions on commercial signs.

5. Sales Tax License

A sales tax license may be part of the general business license in some areas. However, a separate sales tax license may be required in addition to a local business license. The department from which you obtain a business license can tell you if you must obtain a separate sales tax license and where to get it at either the state or local level.

Additional Requirements

The following are some documents you may need, depending on the type of business you intend to run:

• VAT Tax License: If you sell goods and services to foreign consumers, you may be required to get a special license for the reporting and payment of value-added taxes. You may also use a payment service that collects the tax for you.
• Health Department Permit: This special permit is for anyone with a food-based business, such as a catering service. It outlines food handling, preparation, and storage.
• Employer Identification Number (EIN): The EIN acts like a Social Security number for business tax filing purposes. Sole proprietors commonly use their SSN. An EIN allows you to file your taxes under your business name. If you have employees, you can use this number for payroll purposes.
• Zoning Permits: A zoning permit confirms that your home-based business adheres to local zoning laws, which govern land use and business activities in different areas. Zoning regulations might restrict certain activities or limit operational hours to maintain the residential character of neighborhoods. 
• Homeowners Association (HOA) Approval: If you live in a community governed by a homeowners association (HOA), you may need approval to operate a home-based business. HOAs enforce rules to maintain property values and community standards, and they may have restrictions on business activities, signage, and traffic.
• Environmental Permits: Required for businesses that have a significant impact on the environment, such as those dealing with hazardous materials or generating substantial waste. 

Do You Need to Register a Home-Based Business?

You need to register most home-based businesses at the local, state, and federal levels. Begin by registering at the state level, which entails providing the appropriate agency with the pertinent details like the kind of business you intend to operate. You’ll also need to register it with the local government, which will provide you with any necessary permits. You will have to register with the IRS, typically in the form of an EIN, for taxation purposes.

What Are Considered Hazardous Materials?

The U.S Environmental Protection Agency considers household products that can catch fire, react, explode, or are toxic as hazardous. Products may include paint, cleaners, oils, batteries, and pesticides.

Do I Need a Building Permit For My Home-Based Building?

A building permit is needed if you plan to modify your home to accommodate your business, such as constructing an office space or adding a storage area. This permit ensures that any construction meets local building codes and safety standards.

The Bottom Line

Starting a home-based business requires licenses and permits to operate legally. Essential licenses include a general business license, which allows business activities within a local jurisdiction, and possibly a professional license if your business offers specialized services like daycare or financial advice. Additional permits may include health and safety permits, a sign permit for advertising, and a sales tax license, depending on local regulations.