How Does a Business License Work?

A Business License Costs a Nominal Amount

Municipalities that issue business licenses often charge a nominal amount, usually in the range of $20 - $50, to license a business. This fee proves to the municipality that the business owner is serious about starting and running the business. In addition, the fees collected help fund regulatory and inspection divisions of the municipality that help ensure the business is legitimate.

Business Licenses Register the Business for Tax Purposes

When a business license is issued, it is registered with the municipality. Cities and counties expect sales (and, sometimes, income) tax revenue from registered businesses and use business license information as a way of enforcing tax collection. If a licensed business fails to report sales or income tax collection during a financial quarter, the municipality may flag the business for investigation.

The Business License Helps Make the Business Legitimate

When a business is licensed, it is registered with the municipality that issued the license. Depending on the type of business, the municipality may require periodic inspections of the business, its operation, its bookkeeping or its premises. Using funds collected from the licensing fee, the municipality employs inspectors who visit the business and inspect it for proper operation.