Key Takeaways

  • Retail businesses require a variety of licenses, including sales tax, business, resale, signage, and health permits.
  • Legal requirements vary by state and locality; zoning, occupancy certificates, and specific professional licenses may apply.
  • Business structure and name registration (DBA or fictitious name) must be completed before licensing.
  • Retailers should ensure compliance with employment laws, ADA accessibility, and building codes.
  • Online and brick-and-mortar retailers share many licensing requirements, but digital sellers must also adhere to eCommerce-specific laws.

What licenses are needed to start a retail business depends on the city, county, and state laws in place. Depending on the requirements, you may need multiple licenses.

Types of Licenses

Examples of some of the required licenses needed when starting a retail business include:

  • Sales tax license.
  • Resale license.
  • City or county business license or permit.
  • Alcohol license or permit.
  • Doing Business As (DBA) registration.
  • Sign permit.
  • Fire department permit.
  • Health department license.

Additional Permits and Regulatory Considerations

Beyond general licenses like a sales tax or business license, retail store owners may need additional permits depending on the store’s location and operations:

  • Certificate of Occupancy (CO): This document verifies that your building complies with zoning laws, building codes, and safety regulations. A CO is typically issued after passing inspections from local departments like fire, building, and sanitation.
  • Zoning Permits: Some cities require you to confirm that your chosen location is approved for retail operations. Operating in an area not zoned for retail could lead to penalties or forced closure.
  • Sign Permits: Exterior signage may need prior approval from your local government, especially if it’s illuminated or exceeds a specific size.
  • Alarm Permits: If your business installs a security alarm system, certain jurisdictions may require a permit for its operation.
  • Environmental Permits: If your store involves handling hazardous materials (e.g., electronics, batteries, chemicals), you may need environmental permits.
  • ADA Compliance: The Americans with Disabilities Act requires physical retail spaces to be accessible to customers with disabilities. This includes entrance access, parking, and interior layout.

Information About Starting a Retail Business

First, choose the type of business you want to operate. Choices include:

  • Partnership (general or limited).
  • Corporation.
  • Limited Liability Company (LLC).
  • Sole proprietorship.

Each entity type has pros and cons as well as different fees and tax setups and consequences. Consult with an experienced professional, such as a business lawyer or an account to help you make the right decision.

Before going out an investing money in starting a retail business, one of the first things needed is a business plan, which includes a realistic budget. You'll also need to factor in how many employees the business will require and then budget their salaries, benefits, and taxes. When choosing a physical location for your retail business, it is important to check with the city or county about any zoning requirements and if the location you've selected allows retail operations.

You will also want to open a business checking account. You might also want to consider applying for credit under your business name. By doing so, you will establish a credit history for your business. This can make it easier to acquire funding such as loans or lines of credit in the future.

To help all employees be on the same page regarding policies and procedures, create an employee handbook. This ensures that everyone is treated in the same manner with the same rules, which can protect your business in the event an employee files a lawsuit.

You will need an Employee Identification Number (EIN) available through the IRS. Also known as a Federal Tax Identification Number, this is used to identify your business. It's free and can be registered online. Most vendors will require that you have an EIN before they'll do business with you.

How you register and where you register your business depends on the laws of your state. To find out what is needed for you to obtain a business license, start with your state's official website where you'll find resources to guide you through the process. For businesses within the city limits, you may need a business license. Contact your county or city clerk's office for information about what you need to start a business.

If you will be buying products to sell you will need a resale license or a certificate. With a resale license, you can buy goods tax exempt from distributors and manufacturers. A resale permit allows you to purchase merchandise at wholesale prices and sell at retail prices to consumers. It may be required by some wholesale suppliers before an account can be established.

When using a name for a business other than your own, there may be additional paperwork to file based on state requirements. This is when you may need to do a business name registration, file a fictitious name application, or register as a DBA. For businesses offering professional services such as a pharmacist, optometrist, hairdresser, or other professions, you may be required to get a state or local occupational license.

You may also be required to obtain a Certificate of Occupancy, which usually requires an inspection by fire, health, building, and sanitation inspectors. Contact your local county or city government business office for information about registering in your state. Without the proper license, you can be fined or your business closed.

If your city requires it, you may need a general business license to operate. Not all localities require it, so it's best to check with your local government agency. You will be responsible for collecting sales tax on any retail items sold and make pay it to the state. If the city or county where your business is located collects additional sales tax, you may need a tax permit.

Legal Compliance for Online Retailers

While many legal requirements apply equally to physical and online stores, digital retailers must also comply with internet-specific regulations:

  • Sales Tax Nexus: Online sellers may be responsible for collecting sales tax in states where they have a significant presence, even if they don’t have a physical store. Understand nexus laws in all states you ship to.
  • eCommerce Regulations: You must comply with the Federal Trade Commission (FTC) rules regarding online sales, including clear pricing, privacy policies, return/refund policies, and secure checkout processes.
  • Business Licenses: Even without a physical storefront, online retailers still require state or local business licenses and may need a home occupation permit if operating from a residence.
  • Digital Accessibility: Your website should meet Web Content Accessibility Guidelines (WCAG) to ensure it's accessible to users with disabilities, minimizing legal risks.

Employee Compliance and Labor Regulations

If you plan to hire employees, be aware of key labor laws and requirements:

  • Labor Law Posters: You must display current federal and state labor law posters in your store where employees can see them.
  • Workers’ Compensation Insurance: Most states require businesses with employees to carry workers’ comp insurance to cover work-related injuries.
  • Wage and Hour Compliance: Ensure compliance with minimum wage laws, overtime pay, employee classification (exempt vs. non-exempt), and break requirements.
  • Employee Eligibility Verification: Complete Form I-9 for each employee and retain proper documentation.
  • Occupational Safety Compliance: If your store involves physical labor, heavy equipment, or hazardous conditions, follow Occupational Safety and Health Administration (OSHA) guidelines.

Franchise Retail Businesses

If you are opening a franchise retail store, you’ll face unique legal considerations:

  • Franchise Agreement Review: This legal contract outlines your obligations to the franchisor. It's advisable to have it reviewed by a qualified attorney.
  • State Franchise Laws: Some states require franchise registration or filings before you can operate.
  • Disclosure Requirements: Franchisors must provide a Franchise Disclosure Document (FDD) that outlines fees, responsibilities, and legal obligations.

Ongoing Legal Requirements and Renewals

Compliance doesn’t end once your retail store opens. Stay updated on ongoing legal obligations:

  • License Renewals: Most licenses (e.g., business, health, sales tax) require periodic renewal—typically annually or bi-annually.
  • Tax Filings: File your business taxes and sales tax reports accurately and on time. Some states require monthly, quarterly, or annual filings.
  • Business Changes: Report major changes—such as change of ownership, business address, or entity type—to the relevant state and local agencies.
  • Insurance Coverage: Reassess your liability, property, and workers’ comp insurance needs regularly.

Frequently Asked Questions

1. What are the first legal steps to open a retail store? Register your business entity, obtain a Federal EIN, secure necessary licenses and permits, and confirm zoning approval for your location.

2. Do I need a license if I’m only selling online? Yes. Online stores still need business licenses, and depending on your state, you may need sales tax permits and a home occupation permit.

3. What happens if I open a store without the proper licenses? You risk fines, legal action, or being forced to shut down. It can also damage your reputation with suppliers and customers.

4. How do I know what local permits I need? Contact your city or county business office or check their official website for local retail regulations and permit requirements.

5. Can I use my home address for my retail business? Yes, in some cases. However, you may need a home occupation permit, and some local zoning laws restrict retail activity in residential areas.

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