An “online business” can generally be defined as a company that operates either in full or in part over the internet and generates revenue from online transactions. Texas happens to be a business-friendly state and is a great place to start an online business.
The following is a list of some basic steps that you will need to take in order to start an online business in Texas:
- First, you will need to decide how you want to structure your business (e.g., as a for-profit corporation, sole proprietorship, limited partnership, etc.);
- Second, you must file the appropriate formation documents with the Texas Secretary of State;
- Somewhere between the first and third steps, you should choose a unique business name, check that it is available, find out whether a matching domain name is available, and determine whether you need to register any forms of intellectual property (e.g., trademarks);
- Next, be sure to request a federal tax identification number from the Internal Revenue Service (“IRS”);
- Conduct some research and/or speak to a lawyer for more information on whether there are also certain permits and/or licenses that you may need to legally operate your business;
- Finally, activate your website and start doing business!
If you are interested in opening an online business and have more questions, you should speak to a local business attorney for further advice.
What Permits Do I Need?
The forms and documentation needed for starting a business in Texas will vary depending on the type of business structure, industry, and the laws of a particular county. For instance, an owner who forms a corporation will need different forms than an owner who registers their business as a limited liability company (“LLC”).
Regardless of which structure is chosen, an owner will also need to obtain a federal employer identification number from the IRS. This is a separate process and thus requires different forms and a separate filing procedure than those used for registering a company.
Also, while this will vary both by specific location and industry, a business owner may also be required to get certain business licenses or permits. Check with a local business agency or attorney to determine what licenses and/or permits a business may potentially need.
For example, according to Texas law, business owners who sell more than two taxable items in a 12-month period and deliver those items to customers in Texas are required to have a state sales tax permit. The same holds true if a person lives outside the state, but sells to in-state Texas customers.
To apply for a Texas seller permit, business owners must:
- Be at least 18 years of age;
- Provide their social security number as well as the social security numbers of any other partners, owners, directors, etc., affiliated with the business;
- Fill out the registration file number that was assigned to them by the Texas Secretary of State when they registered their company;
- Give the code required for all businesses and is assigned by the North American Industrial Classification System (NAICS);
- Complete form AP-201; and
- File the above information either in person, via fax, or through Texas’s online eSystem.
How Much Does it Cost to Set Up an Online Business in Texas?
There are various fees and costs that an owner may have to pay when setting up an online home business in Texas. For instance, if an owner wants to register their Texas business as a for-profit corporation, then they will need to pay a $300 filing fee.
If they are registering as a nonprofit corporation, they will only have to pay a $25 filing fee. Thus, the type of business structure chosen is one of many fees that an owner must consider when setting up an online business.
An LLC also has a $300 registration fee, but unlike many other states, Texas does not impose an annual registration fee. However, some businesses may be required to pay an annual franchise tax.
Other items that may affect the cost of setting up a business include whether the owner hires employees, what kinds of insurance they purchase to protect their business, if the owner wishes to reserve the name of their company before it is officially registered (cost of reserving a business name is $40), and if they intend to register any forms of intellectual property (e.g., trademarks, copyrights, patents, etc.).
What Kind Of Taxes Will I Pay?
There are many types of taxes that business owners should be aware of when they register a business in Texas. For example, an online retailer that is located in Texas is legally obligated to charge and collect sales from Texas customers who make online purchases.
An online business that has Texas customers will also be required to charge some amount of Internet Sales tax. This type of tax changes periodically and will depend on the state a consumer is from.
It should be noted, however, that there are certain items under Texas law for which customers are not required to pay sales tax on, such as food and/or food ingredients. For more information regarding tax exemptions, an individual should either speak to a local attorney or review the Texas Administrative Code where they can find a list of various exempted items.
Other taxes that Texas business owners should be aware of include:
- If the business has employees, then they must know what rates to pay for employment and/or unemployment taxes;
- If the business is part of a franchise, then the owner should expect to pay some amount of franchise taxes (this will differ depending on tax account status, whether there is a physical location, and so on); and
- Most importantly, the amount to deduct for small business and self-employment taxes.
Where Do I Get a Business License in Texas?
In general, business owners typically do not need to obtain a State of Texas business license to operate their business. As previously mentioned, however, an owner may be required to get a permit or license depending on the type of business being operated, or the kinds of products and/or services being sold.
To determine whether a business license or permit is required for a Texas business, an owner should check with their local county or city agency. They may also want to visit the website for the Texas Department of Licensing and Regulation for more information. Again, such requirements are specific to a county, so it is always important and necessary to review local rules.
In order to start the process of getting a State of Texas business license, an owner should:
- Make sure they have received a tax identification number from the IRS. If not, then they should apply for one right away.
- As discussed above, businesses in Texas do not usually need a business license unless they are operating a specific kind of business.
- Additionally, whether they in fact need a license or permit will vary by industry and location. Thus, a smart business owner should conduct research for local business requirements or speak to a Texas business lawyer if they need assistance.
- How a person obtains a specific license and what kind of license they may need will change according to the industry. Some small business owners may find they need a few licenses to run their business legally.
- If an owner discovers they do need a business license, they should gather all necessary documents, including:
- Their tax identification number;
- Their tax identification for selling retail goods (if applicable);
- Any insurance policies that they purchased for their business;
- Articles of organization, incorporation, and so forth (contingent on the type of business created); and/or
- A statement that explains what the company’s mission is (e.g., to sell make-up products online to consumers).
Does My Home Need to Be Zoned for Business?
Whether or not a home must be zoned to run a home business in Texas will depend on the type of business. For instance, if a person only has an online presence (e.g., a business website), which they operate out of their home, then their home will not need to be zoned for business purposes. However, if a person has both a website and a physical location, then their home will have to be zoned for business.
In addition, a person should review both state and local zoning laws just in case. Some Texas counties may have separate zoning regulations that differ from the general rule of thumb and require a home to be zoned for business. Businesses who fail to comply with zoning ordinances may be fined or even shut down.
Should I Hire a Lawyer?
Starting an online business out of your home in Texas can be challenging. There are many business requirements, tax liabilities, and multiple relevant laws that you must be aware of and abide by before a business can legally operate. Therefore, if you are attempting to run an online business out of your Texas home, then you should speak to a Texas business lawyer for further guidance.
An experienced Texas business lawyer will be able to counsel you on the laws and requirements that you must comply with to open a business in the area. Your lawyer can also explain the different variations of business structures, which one will potentially work best for your business, and how the type you choose will affect what you owe in taxes.
In addition, your lawyer can answer any questions you may have about opening an online business, can help you file the necessary paperwork to form your business, and can tell you whether you need to obtain any special licenses or permits to operate your particular business. Your lawyer can assist you with the paperwork for such licenses and/or permits as well.