Do I Need a Business License for an Online Business?

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Online businesses are popular among people who wish to strike out on their own without taking on the expense of renting or purchasing office or warehouse space. For these entrepreneurs, registering a domain name and posting a website is the equivalent of holding a grand opening. While online businesses do not require a special license to do business, there are nonetheless a number of regulations that apply to online business owners and entrepreneurs.

Man working on computer
Man working on computer (Image: Wavebreakmedia Ltd/Wavebreak Media/Getty Images)

General Business License Requirements

Almost all businesses must register with some agency at the federal, state or local level. Some businesses must register with more than one regulating agency. Business owners in federally regulated businesses must register with one of several federal agencies. Professionals in regulated occupations or business owners who are conducting transactions in particular areas or merchandise must register with the state. Businesses that will generate substantial foot traffic and parking requirements must typically comply with local regulations. These regulations also apply to online businesses. In addition, online businesses must comply with the regulations imposed on e-commerce by the Federal Trade Commission (FTC).

Online business owner
Online business owner (Image: Catherine Yeulet/iStock/Getty Images)

CAN-SPAM

Many online businesses solicit new customers and maintain contact with previous customers through email. The CAN-SPAM act regulates how businesses are and are not allowed to contact individuals for commercial purposes. One of the main requirements of CAN-SPAM is that individuals must be allowed to opt-out, or decline to receive, any commercial or sales solicitations if they so choose.

Man researching online
Man researching online (Image: Arman Zhenikeyev/iStock/Getty Images)

Truth in Advertising

Online businesses must comply with federal regulations concerning advertising and small print restrictions pertaining to too good to be true promotions. For instance, many so-called "free" or low-cost computers require individuals to purchase long term Internet contracts or comply with complex rebate procedures. Yet these details are hidden This practice is a clear violation of FTC regulations, which require proper disclosure of the terms necessary to obtain the merchandise so that consumers can make an informed decision.

Woman online
Woman online (Image: amanaimagesRF/amana images/Getty Images)

Interstate and International Commerce

Many online businesses conduct sales transactions across state lines or internationally. Online businesses should comply with federal import and export laws, and should also be aware of possible tax liabilities if they do business in a particular state. The U.S. Supreme Court ruled in Quill Corporation v North Dakota that merely conducting business with customers who live in a particular state was not sufficient grounds for a state to force that company to collect sales tax on its behalf. However, another Supreme Court case, Wisconsin Department of Revenue v. William Wrigley Jr., Co., stated that maintaining a "nontrivial" presence in a state does subject an online business to the requirement to collect sales tax for that state, even if its main operations are located elsewhere.

Man running online business
Man running online business (Image: shironosov/iStock/Getty Images)

Privacy and COPPA

An area of regulation specific to online businesses concerns privacy rights, especially for children. The Children's Online Privacy Protection Act (COPPA) specifically pertains to online commercial establishments that knowingly collect personal information from children younger than 13. COPPA requires such websites to post prominent notices informing parents of their right to obtain information collected about their children and prohibits collecting certain information from children younger than 13 without their parents' explicit consent. Online businesses should also inform visitors of the site's privacy policy, especially how the company plans to use information that it collects about its customers, and to give customers the ability to opt out if they so choose..

Woman typing
Woman typing (Image: webphotographeer/iStock/Getty Images)

Tax Regulations

Online businesses may be obliged to collect sales tax and may be subject to other regulations imposed upon all business conducted within a particular state. However, online businesses cannot be singled out for taxes which the state does not collect from brick and mortar businesses. The Internet Tax Freedom Act Amendments Act of 2007 extended the moratorium on states preventing them from imposing taxes directed exclusively toward online businesses. The moratorium extension is in place until November 1, 2014.

Tax forms
Tax forms (Image: Drazen_/iStock/Getty Images)

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