Business license trends throughout the US

Updated July 2022

Whether you’re applying for business funding or just trying to start your business with formation documents, the need for a business license may have become a hurdle. Fortunately, you can reduce the headache by staying up-to-date with requirements in your municipality.

Having or not having a business license can affect your business in a lot of ways.  If you have applied for any local funding lately, you may have noticed one of the requirements was to provide proof of a valid local business license. Or you may have submitted your business formation documents to the secretary of state and received a notice from the city informing you that you must obtain a local business license. 

If these scenarios sound familiar, you probably have at least a general understanding of the need for a business license. Acquiring a business license can feel like a hurdle. In fact, many in the tax industry consider a business license to be a nuisance tax. Read on to learn how you can navigate business license regulations and stay up-to-date with changes to requirements in your area.

What is a business license?

A business license is typically issued by a municipality (town, city, village, borough, township) within a county to a business owner to operate a business within a jurisdiction. The term “Business License” is used interchangeably with the following terms – occupational license, occupational tax, business registration, business permits, privilege license, business privilege license, business license, and occupational tax, business tax, city permits, etc. The titling depends on the local government. 

The issuing municipality primarily determines business licenses regarding the fee amount, frequency of payment, document requirements, processing time, prior or concurrent approvals by other departments within the municipality, a timeline for renewal, and penalties for late renewal/payment. Business license requirements vary according to the business’s location and the nature of the business.

The duration of most business licenses runs on a fiscal or calendar year or any other period. Upon expiration, a business license may be renewed annually, monthly, biannually, every 60 or 90 days, odd years, even biennially, triennially, or quadrennially. Penalties may apply for non-renewal of license within a specific time frame.

Best practices 

Business licenses are dynamic, making the process unique depending upon each jurisdiction's rules. Most states stipulate their exact requirements and processes to carry out business activities within the state.

To operate certain businesses, an owner may be required to comply with a combination of licenses and permits from federal, state, or local government agencies. They may also be required to comply with additional permits from the health, police, fire, building, or zoning departments. These requirements vary based on industry, location, and rules in place. 

For example, the New York Department of State’s Division of Licensing Services (DLS) oversees certain occupations' licensure, registration, and regulation throughout the state. Hence, it would be insufficient to obtain only one level of approval to be engaged in a business. 

Businesses of a more complex nature, such as mining, drilling, or nuclear energy, may require the approval of a federal agency. An example may be found in Arizona, where providing or selling a specific service/product may require obtaining the state transaction privilege tax (TPT) license from the Arizona Department of Revenue. 

In some cases, business license processes are handled by the state department of revenue, which is responsible for collecting and administering state and local taxes within the state. There might be an additional requirement for some businesses to obtain a Unique Entity Identifier (UEI), which is different from the Federal Employer Identification Number (EIN). 

Licensing trends

More states are progressively adopting online uniformed licensing systems and business portals. These state-operated portals serve as a one-stop shop for all business and tax filings, business license registration/renewals, obtaining approvals from municipality departments, information, and resource tool.

Other developments include revising municipal ordinances regarding business licensing regimes. This can ensure that a municipality captures all business types and activities. 

Some municipalities are also streamlining license applications for specific services/activities by issuing special permits or licenses rather than applications for a range of business activities.

Check and stay up-to-date about requirements in your area

In 2021, a record-breaking 5.4 million applications were filled to form new businesses. This means there are a lot of new businesses, and each one is required to carry a license. 

It is imperative to be sure your business complies with local regulations and doesn’t suffer setbacks and penalties for not complying with regulations. As noted earlier, the nature of business licensing regimes is dynamic. Luckily, processes are becoming increasingly streamlined with the adoption of various technological platforms that ensure information is available to business owners. 

It is still important to stay up-to-date as regulations and procedures can change. Reach out to the designated municipality government official for questions and clarification if you’re unsure about any requirements.