Licensing
Requirements for Starting and Operating
a Home-based Business
All Missouri businesses, including home-based businesses, are subject
to a number of tax obligations, permit and license requirements,
zoning restrictions and other laws at the city, county, state and
federal levels of government.
Unfortunately, there is no standard answer to provide you
with all the information you need to know to properly license every
business. Regulations vary from city to city, county to county and
state to state. In addition, many requirements vary depending on
the legal structure you choose, the type of business, the estimated
revenues, the number of employees and the physical location of the
business. The best approach to take is to proceed step by step and
research the requirements for your particular business at each level
of government:
Do not rely on another business owner for your information. While
they may be in total compliance, the rules may be different for
your business. In addition, home-based business owners should investigate
any limitations included in their homeowners' association covenants,
if applicable. Homeowners' association covenants are often more
restrictive than city, county or state regulations.
City
City Hall is the first place to call to learn the requirements
of the city where you plan to operate your business. Offices within
City Hall issue zoning clearances, occupational licenses, home-based
business permits, home-based business guidelines and information
on tax obligations.
Each town or city has its own guidelines. Some locations require
a home occupation permit, some require an occupational license,
some require both, some don't require either. However, those that
don't require either usually have a list of guidelines home-based
business must abide by. It is important to note that additional
clearances may also be required. For example, food-serving establishments
require health department clearances in most cities. Some businesses
may need an inspection by the fire department. Ask your City Hall
contact if you need any additional permits or clearances for your
type of business.
Most licenses are issued on a calendar year basis. The cost of
a license may vary by type of business. There may be a flat fee
for first registration or prorated based on the number of months
remaining in the year. Fees may be based on gross sales, square
footage of the business or home-based status.
County
Your next call should be to your county courthouse. Ask for the
department that deals with registering small businesses - it is
often the assessor or the finance department. As with the city,
county requirements vary. You may find that your county requirements
include all, some or none of the following:
- registering your fictitious name
- registering business property for tax purposes
- applying for a merchant's license if you sell tangible items
State
Missouri has a CD-ROM on the "nuts and bolts" of operating a business
in the state. This can be ordered online by visiting www.missouribusiness.net/smallbiz.
There is also a clearinghouse phone line for answering
questions and helping provide assistance about the state's registration
and tax requirements. Contact:
Phone: 1-888-751-2863
Web site: www.missouribusiness.net
E-mail: businesscenter@missouri.edu
As a Missouri business, you may be required to register your business
in other states. For home-based businesses, the need to register
your business and/or obtain a sales tax identification number in
another state often occurs when you are located near a state line
and you will be conducting business in the other state at trade
shows, fairs, etc. However, be aware that there may be other circumstances
in which you are required to register your business in another state.
You can obtain licensing information for the states bordering Missouri
at the web sites listed below:
Arkansas: www.sosweb.state.ar.us/corp_ucc.html
Illinois: business.illinois.gov
Iowa: www.sos.state.ia.us/business/
Kansas: kdoch.state.ks.us/public/resources/businesses/
Kentucky: www.sos.state.ky.us/ONESTOP/PROGRAM/onestop.asp
Nebraska: www.sos.state.ne.us
Oklahoma: www.sos.state.ok.us/business/business_filing.htm
For other states, conduct a web search for a contact.
Typical issues you may deal with at the state level include:
Selecting your form of business organization
– sole proprietorship, partnership, limited liability company
or corporation (C or S)
When making your call to the clearinghouse phone line, be prepared
to tell them the form of business organization you plan to use so
they can send you the appropriate forms. There are four basic forms
of business organization: sole proprietorship, general partnership,
limited liability company and corporation (S and C). There are many
modifications and variations within these forms, but the key to
selection usually revolves around the concept of liability and taxation.
In choosing your business structure, consult with both a qualified
accountant and attorney who are familiar with your resources and
objectives. You can find specific information on each type of business
organization at www.missouribusiness.net/doingbusiness/legalform.pdf
Incorporated businesses from other states planning to do business
in Missouri must register as a Foreign Corporation.
Fictitious Name Registration, if applicable
Anyone who regularly transacts business for profit in Missouri
under a "fictitious name" is required by law to register that business
name with the Secretary of State's office. For a sole proprietorship
or partnership, a business name is generally considered "fictitious"
unless it contains the full name (first and last) of the owner or
all of the general partners and does not suggest the existence of
additional owners. Use of a name which includes words like company,
associates, brothers or sons suggests additional owners and will
make it necessary for the business to file and publish the fictitious
business name on company letterhead, business cards, in advertising
or on its product.
Registering a fictitious name does not offer protection for that
name. If someone already has filed the name you are filing as a
fictitious name, no notice is given to either party. There could
literally be hundreds of companies with the same name. In the case
of a corporation, the business name must be distinguishable from
other corporate names already on file in the records of the Secretary
of State's office. If the name has not been previously registered,
then you can reserve your corporate name for 60 days for a $25
filing fee while the articles of incorporation are being prepared
to be filed.
This does not prevent a national company operating in states other
than Missouri from a suit if you infringe on their national name,
logo or trademark. You may want to do a national name search or
trademark search to insure the use of the name you select. You may
also want to protect the name you select by establishing a trademark
at the state and/or national level. The SBDC at Warrensburg offers
assistance with trademarks and trademark searches. For more information
on their services, contact Mark Manley at (660) 543-4402.
Obtain a sales tax number, if applicable
State sales tax numbers can be obtained through the Missouri Department
of Revenue - (573) 751-7191 or dor.mo.gov/tax.
In Missouri, any person or company making retail sales of tangible
personal property in Missouri is required to collect and remit Missouri
sales tax. It is the business' responsibility to ensure that sales
tax is collected at the correct tax rate. You must have a Missouri
Retail Sales License prior to making sales. If you conduct retail
sales without a valid Missouri retail sales tax license, you will
be assessed a penalty in the amount of up to $500 for the first
day and $100 for each subsequent day, not to exceed $10,000, in
addition to any other penalties or interest that may be imposed.
For the first twenty days, this penalty does not apply to persons
opening a business in the state of Missouri for the first time.
A bond must accompany the application for the license. The amount
of the bond is based on your estimated monthly gross sales. The
amount of your bond is calculated as follows:
Estimated monthly gross sales X your tax rate =
monthly tax
Monthly tax (rounded to the next highest $10) X 3
= amount of bond
Estimated monthly gross sales is the amount of sales you estimate
your business will make in taxable sales in an average month. If
you estimate your sales to be less than $500 for three months, you
can file the minimum bond of $25. Any amount over that starts with
a minimum bond of $100.
Example: Mrs. Jones will be opening a gift basket business
in Jefferson City which has a sales tax rate of 6.225%. Because
the business is new and has no history of sales, she has estimated
her average gross sales per month to be $5000. Her bond is computed
as follows:
$5000 X 6.225% = $311.25
round to the next highest $10 = $320.00
$320 X 3 = $960.00 bond
If you are unable to estimate your bond, you can contact the Tax
Administration Bureau (573) 751-5860. The Tax Administration Bureau
reviews all bond amounts to be sure it is sufficient in accordance
with Missouri Statutes. The following items are taken into consideration
when determining a sufficient bond amounts: previous ownership of
business, types of products or services sold, location of business,
business hours, operating expenses, etc. Bonds may be posted through
a cash bond, surety bond, certificate of deposit or irrevocable
letter of credit. Complete information on the types of bonds is
included in the Missouri Tax Registration Application.
Craft sellers and other vendors selling from temporary sites must
charge the sales tax rate at the point of sale. For example, a vendor
from Independence who sells at a show in Springfield, must charge
the sales tax rate for the city of Springfield and note those sales
separately on their sales tax report to the MO Department of Revenue.
If you go to a show in another state, you need to obtain a sales
tax number for that state unless the sponsor of the show has obtained
a sales tax number and is collecting and reporting for all vendors
at the show.
Out of state vendors making sale of goods to the final consumer
located in Missouri, are required to collect and remit Missouri
Vendors Use Tax. They must obtain a Missouri Use Tax License and
post a bond.
For more information on sales tax, go to www.missouribusiness.net/doingbusiness/taxes.pdf
Obtain industry specific licenses,
if applicable
States generally certify or license certain occupations and/or
activities. Occupational licenses can range from accountants, doctors,
insurance agents and architects to pesticide applicators, junkyard
dealers and egg processors. Some occupational licenses require education
and experience and some require testing. Contact the state to determine
if there are any specific state licensing requirements for your
business. Most licenses are listed in the "Occupational Licenses"
section of www.missouribusiness.net/doingbusiness/legalform.pdf
Register as an employer, if
applicable
As a home-based business owner, first look back at the regulations
you obtained from your own city or town. Many home occupation guidelines
state that "no person shall be engaged in such home occupation
other than a person occupying such dwelling unit as his/her residence."
Such restrictions would allow you to hire a spouse or someone else
who resides within your home, but it would not allow you to hire
others to come into your home to work for you in your business.
If you make it past the hurdle allowing you to have employees,
you may need the following at the state level:
- A Withholding Tax Number. Every business that has employees
will be subject to state withholding taxes for those individuals.
A Withholding Tax Number can be obtained through the Missouri
Department of Revenue, PO Box 3375, Jefferson City, MO 65105 (573)
751-5752. Or visit their web site at www.dor.mo.gov/tax/business/
- Unemployment Insurance. This is required if an employer has
workers in employment in as many as 20 calendar weeks or pays
at least $1,500 in wages in a calendar year. For details, contact
the Missouri Division of Employment Security, PO Box 59, Jefferson
City, MO 65105 (573) 751-3215 . Or visit their web site at www.dolir.mo.gov/es/
- Workers' Compensation Insurance. Workers' Compensation is mandatory
if a business has five or more employees (in the construction
industry it is required for one or more employees). For details,
contact the Missouri Division of Workers' Compensation, PO Box
58, 3315 West Truman Blvd, Jefferson City, MO 65102 (573) 751-4231.
Or visit their web site at www.dolir.mo.gov/wc/
Additional information on registering as an employer in Missouri
can be found at www.missouribusiness.net/doingbusiness/hiring.pdf
Federal
Most home-based business do not require licensing at the federal
level. Check with the state clearinghouse to determine if any federal
regulations will apply to your business. The most common examples
include businesses affected by health and safety requirements or
environmental regulations.
Home-based business owners do have numerous federal obligations
related to taxes. The three main obligations are income tax, self-employment
tax and employment tax. To learn about the federal obligations,
a new business should review the following publications from the
IRS:
Publication 3207 – The Small Business
Resource Guide
Publication
587 - Business Use of Your Home
Call 1-800-829-3676 (TAX FORM) to order publications or visit their
web site at www.irs.gov.
You will be required to identify yourself/your business on tax
forms using either your social security number or a Federal Employee
Identification Number (FEIN). Sole proprietors without employees
generally use their social security number. Partnerships, corporations
and LLCs must have a FEIN even if they do not hire employees. All
businesses that pay wages to one or more employees must apply for
an FEIN number. It is important to note that a Federal ID Number
is a different number than a state ID number and a sales/use tax
number. Each require their own numbers. An immediate Federal ID
number may be obtained by calling 1-866-816-2065 between 7:30 AM
and 5:30 PM customer's local time.
The types of business taxes you may be required to pay:
Federal Income Tax. Every business files an annual income
tax return. Which IRS form to use depends on the legal structure
of the organization. Business taxes are estimated and paid quarterly.
Self-employment Tax. This is the Social Security Tax and
Medicare Tax for those individuals who work for themselves.
Employment Taxes. Any form of business can have employees.
If you have employees, the business is required to withhold the
federal income tax from employees' wages and withhold and match
the Social Security Tax of the employees wages. These dollars are
submitted to the federal government by the employer. No matter what
form of business organization, the owner(s) or stockholders of the
business are personally liable for payment. Request a copy of Circular
E - Employer's
Tax Guide
from the IRS at 1-800-829-3676 or their
web site at www.irs.gov.
Federal Unemployment Tax (FUTA). FUTA is paid by employers
if you pay more than $1,500 in wages or have employees for 20 weeks
in a calendar year.
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