Business licensing is one of the most confusing aspects when starting a business since it varies significantly from state to state and from industry to industry and from profession to profession. Getting a business license is not the same as registering an entity with the Secretary of State. Also, separate business licenses may be necessary on a federal, state, county, or city/town level.
The term “business license” is very broad. It can cover a range of different licenses, and it all depends on your location, industry, and the kind of business you run. A business license is designed to keep people safe. Regulation prevents unscrupulous or incompetent people from opening a business, which in turn protects the general public from scams and unsafe business practices. A business license ensures that the business is operating legally, that they are professional, and that everyone involved is qualified.
The higher the risk to the general public the more licenses the business needs. For example, tattoo parlors and construction companies need a number of different licenses. These businesses are also very dangerous if they’re unregulated.
Licensing is essentially where a government agency gives a business permission to do something so they can provide some level of oversite. In most states, there are three general categories of business licenses.
Sales Tax – If you are collecting sales taxes for a taxing jurisdiction you will need a sales tax license issued by the appropriate department of revenue. Here is a video post that describes what retail businesses need to know about sales taxes.
Professional License – A professional license is a license awarded to an individual such as a general contractor or electrician. Various government agencies issue these licenses and keep track of the persons licensing status. May require continuing education credit to maintain an active professional license.
Trade License – Some industries are regulated based on a government agency’s fiduciary duty to protect the public. For example, in the state of Colorado, a restaurant is not required to employ anyone with a professional license, but the state does require restaurants to register for a trade license with the county health department so they can send out a health inspector from time to time to verify that the restaurant is operating by the state’s food safety guidelines. There are three principal reasons that a business in a specific industry is required to register for a trade license. Here is a video post that explains why you have to get a trade license to practice for some types of businesses.
In the event that a business is in need of a professional/trade license to practice based on a specific industry, many states have an office that develops and maintains a database where a business can search for the appropriate licensing they will need to operate.
In Colorado where I live there are two primary agencies. that do professional/trade licensing. The primary agency for most industries is the Department of Regulator Agencies (DORA). To see if your industry needs a trade license use the What We Regulate dropdown.
In Colorado, there are also a few specialized business groups administered by the Colorado Department of Revenue that regulate eight specific industries:
State licensing varies dramatically from state to state which means that a general Google search for Business Licensing will prove futile and result in more confusing results. Here are a few resources that will have more information to help your find out what business licenses your business may need.
Local SBDC
A Small Business Development Center (SBDC) is a good place to get started. They have locations across America that you can quickly scroll through.
CityApplications
CityApplications.com is another useful source for licensing information. There, you can search for specific information by state. You won’t be able to put in specific information about your business, but the site does a good job of giving you a state-level list of requirements.
Small Business Administration
SBA.gov is a good resource when it comes to getting federal business licenses. Their site is particularly useful because it breaks down licensing requirements by industry.
State by State Business License Resource Guide
The following is a state by state business license resource list that should help get you started:
If your business is regulated by the federal government, for instance, if you are selling guns or making booze, you will also be required to obtain a federal license in addition to the state, county, or city licenses. The list of industries regulated by the Federal government is maintained by the Small Business Administration and can be found on the Federal Licenses and Permits website.
In addition to granting a business license, a business may also require a permit such as a zoning permit or a permit from the health department to operate. The difference between a license and a permit is that a permit comes with some restrictions while a license is much more general.
Does your business need a business license?
UPDATE Steven Imke, April 1, 2022, at 3:10 pm: Although it is no longer current or maintained, below is the URL to the old Colorado Occupational Database courtesy of the Internet Wayback Machine that Colorado businesses can use as a starting point to find the agencies where licensing may be required. Just copy the following URL to your browser to view the old Colorado Occupational Database. https://web.archive.org/web/20200225114107/https://choosecolorado.com/occupational-license-database/
UPDATE Shawna Lippert, : Steve, thank you for highlighting such an important topic! I wanted to share that the City of Colorado Springs just launched a new free tool called “Permit Partner”. The new Permit Partner is an interactive system that allows entrepreneurs to discover which permits, licenses, and inspections may be required for starting a new business. The resource also calculates the estimated fees for these requirements. Additionally, it allows the user to quickly check to see if a location is currently zoned for a certain business type (i.e., coffee shop). Entrepreneurs can easily save their business ideas as ‘projects’ under their own account to help plan and budget for a new business. Lastly, users can easily connect to each of the requiring agencies when they are ready to ask questions or to start the process. Please note that this tool currently estimates the requirements and zoning within the city limits of Colorado Springs. https://permitpartner.coloradosprings.gov/
UPDATE Steven Imke, : I finally have a solution to discovering if your business will require a business or professional license using ChatGPT. I have developed the following prompt that you can use: I want to open a [enter the business type or NAICS code] at [enter the address of the establishment]. What federal or state level business and professional licensing will I need to obtain? Also, provide the contact information for these agencies. Also, please provide me with any other local agencies or departments I will need to contact to obtain the proper permits, sale tax licenses, or any other local licenses or zoning requirements to operate my business. Finally, please provide me with an itemized list of the average costs by agency and department to obtain the proper licenses and permits.
