Online businesses still need to adhere to real-world tax and license regulations
1. Do I really have to get a business license? This is one requirement that many e-business entrepreneurs think they can skirt because they don't have a brick-and-mortar establishment.
Sorry, Charlie. Operating an e-business out of your office or home doesn't get you off the hook when it comes to licensing. Depending on your location, you may need a city and county license. Luckily, such licenses are relatively easy to obtain and aren't expensive. For local licensing requirements, contact your city or county government offices.
Homebased businesses are also 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 courthouse or by calling your local license department.
Legalities aside, the best reason to get a business license is that it allows you to set up a business bank account using what's called a DBA. A DBA is another name that you use in the operation of your business instead of your personal name. For example, your name might be Joe Jones, but you might use Jones Internet Services as your business name. Having a business license will enable you to set up a business account and get checks printed with your business name, giving you that all-important air of professionalism that many e-businesses lack.
2. 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 within that same state. For example, if your online business is based in California, you must collect and report sales tax derived from fellow Californians making purchases on your site. We talked about this topic in a column from last year.
For this reason, you'll be required to have a tax ID number if you're selling taxable goods. (Most services are not taxed.) Getting a tax ID number is usually a simple process of filling out a form and paying a nominal fee. You'll 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 mean death to your business and jail time for you. Many times, this mistake is innocently made when a business owner commingles 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.
3. Do I really have to pay taxes on income from my website? We've talked about this before, and the answer is still the same: Just because your income is derived from an e-business doesn't mean the income isn't taxable. It's not manna from heaven. It's income, so report it.
The point to remember is this: The "e" on the front of "e-business" doesn't stand for "exempt." In the eyes of the law, your e-business is susceptible to the same laws and regulations that govern the corner mom-and-pop store, so make sure your conduct your business as such.
