Retailers are regulated through a broad range of business license requirements. These will vary depending on the type of facility, operations, business type, and jurisdiction where you are conducting business.
In this article, we explore business licensing for retail businesses, including general obligations, licensing compliance pitfalls, and how to maintain compliance.
Determining retail licensing requirements
Determining the type of licenses your retail business will need to operate legally is a complex undertaking. Licenses are issued by multiple authorities, including federal, state, and local governments. Licenses can also vary between states and local municipalities. Even if you operate in a single location, you may need a variety of different licenses, registrations, and certifications.
As a general rule, business activity and physical location will determine which licenses you need. However, you must also consider your industry vertical and the products and services being offered.
For example, if you sell regulated items like alcohol or tobacco, you will need to review your specific product license types regularly while also fulfilling other requirements. Similarly, regulated retail providers of sensitive products (like pharmacies) are required to obtain special licenses and certifications.
Typically, a retail operation will need licenses in the following four categories:
- General licenses and filings. Including sales tax permits, workers’ compensation filings, and payroll forms.
- Regulatory permits. If you operate within certain industries — such as construction, transportation, and food — you may need to obtain various regulatory permits.
- Local licenses and filings. Local jurisdictions, such as cities and counties, typically require retailers to complete a DBA registration and obtain business privilege licenses, as well as sign and zoning permits.
- Professional licenses. A professional or occupational license demonstrates the level of skill or knowledge needed for a specific job. The licenses are issued by a state, local, or federal government agency and confer legal rights to work in an occupation.
Penalties for licensing noncompliance
Business licenses are in place to regulate your retail store and protect the public. Any violation risks negative media attention and public perception.
Noncompliance can be costly. Many jurisdictions are tightening license regulations. If you are found to be noncompliant, the owners and/or the business could face fines and penalties. Some violations even have criminal penalties or can result in business assets being seized or the business being shut down.
Noncompliance can also impact strategic business plans, such as delaying M&A, your ability to open new locations or offer new product lines.
Retail business license compliance pitfalls
Noncompliance is easy to fall into, mainly due to the complexities of business license requirements. In fact, many businesses are unaware that they have fallen out of compliance. For example, food retailers often overlook local environmental department permits such as food, oil, and grease (FOG) registrations; wastewater discharge; and other food and health registrations.
Business license triggers
To ensure you stay compliant, here are some triggers that may require you to obtain new licenses or update existing ones.
- Company name change, relocating principal office, adding new product or service. Any of these could require you to update your business licenses.
- Doing business in a new jurisdiction requires new licenses.
- Exiting a state will require you to cancel or update your business licenses.
- Establishing sales tax nexus. E-commerce may trigger new requirements. This applies even if your company has no physical presence within the borders of a state that you sell online into. In states with a sales tax, you may need to collect and remit taxes on goods and services sold if your business meets the nexus requirements of the law.
- Change in ownership. If your company's ownership changes, some authorities require updated licensing applications, while most require specific 'Change of Ownership' filings. These can include new owner background checks, fees, and a recommitment to the rules that govern the license.
- Changing regulations. As laws and regulations change, so do the types and numbers of licenses, permits, and registrations your business may need. Up to 65% of license registration requirements change each year.
For more information, see Business changes that can impact business license compliance.
Maintaining licensing compliance for your retail business
To help you stay compliant and avoid fees and penalties, follow these steps:
- Gather all relevant business license data into a single portfolio.
- Establish a process for reviewing license requirements on a regular basis (quarterly, semi-annually, or annually).
- Keep up to date with business licensing requirements in your industry.
- Use technology to keep track of business license filing, management, and renewal timelines and documentation.
- Identify triggers for new business license compliance actions.
For more help, check out these tips for creating a business license compliance plan.
Business license assessment is key
Because business license regulations and requirements are constantly changing, it’s a good idea to employ a business license assessment service.
This service will evaluate your business’ legal footprint based on where you do business and identify gaps in business license and tax registration compliance. This information will then be centralized.
The service will also gather additional information, such as forms, fees, and filing instructions for the licenses you don’t have but legally need. If any licenses are identified as expired, the service will reconfirm renewal dates, account numbers, and present you with a comprehensive audit of what’s required to maintain compliance.
No matter the size of your retail business, licensing compliance is complex. Your retail business will be well prepared for success (and avoid unnecessary fines and penalties) if you understand your licensing obligations and implement the appropriate compliance strategies.
CT Corporation can help determine your licensing requirements. Our comprehensive three-step business license verification service includes the following:
- License identification: We generate a customized report of all required business licenses.
- Gap analysis: The research findings are matched with your current license list.
- License verification: We verify the status of all licenses found to be required (including license numbers, renewal dates, and account numbers of any licenses provided by you to CT)
CT also provides license assessment services to identify gaps in compliance, including licenses you don’t hold but are required to hold and licenses you have that may be out of good standing.