An “online business” may be defined as a company that operates either in full or in part over the Internet and generates revenue from online transactions. Texas is a business-friendly state and is a great place to start an online business.
The following is a list of some basic steps that a person needs to take to start an online business in Texas:
- First, decide how they want to structure their business, for example, as a for-profit corporation, sole proprietorship, limited partnership (LP), a limited liability partnership (LLP), etc.;
- File the documents needed to register the business in the desired structure, e.g., as a partnership, an LP, etc., with the Texas Secretary of State;
- Choose a unique business name. They need to check that it is available. A person must find out whether a matching domain name is available as well and determine whether they need to register any forms of intellectual property, e.g., a patent or trademark;
- Obtain 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, possibly in the municipality or county in which a person intends to operate, that may be needed for the legal operation of the business;
- Finally, activate the website and start doing business.
If a person is interested in opening an online business and has more questions, they should speak to a local attorney in Texas for further advice.
What Permits Do I Need?
The forms needed to start a business in Texas vary depending on the type of business structure, the industry in which it operates, and the laws of a particular county or municipality in which it is located. For instance, an owner who forms a corporation will need different documentation than an owner who registers their business as a limited liability company (LLC).
Regardless of which structure is chosen, an owner also needs to obtain a federal employer identification number from the IRS. This process is separate and requires different forms and a separate filing procedure than those used for registering a company.
Also, while this varies 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 a local Texas 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 a Home-Based Online Business?
There are various fees and costs that an owner may have to pay when setting up an online home business in Texas. Of course, the costs are not going to be the same for every business. 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 register as a nonprofit corporation, they only have to pay a $25 filing fee. Thus, the type of business structure chosen is one factor that determines the fees that an owner must consider when setting up an online business.
A limited liability company (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; the cost of reserving a business name is $40. If they intend to register any kind of intellectual property, e.g., trademarks, copyrights, patents, etc.
What Kind of Taxes Will I Pay?
Business owners should be aware of many types of taxes 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 state Internet sales tax. This type of tax changes periodically and will depend on the state in which the customer resides.
It should be noted, however, that there are certain items under Texas law for which customers are not required to pay sales tax, such as food and/or food ingredients. For more information regarding tax exemptions, a person should either speak to a local attorney in Texas or review the Texas Administrative Code, where they can find a list of exempted items.
Do I Need a Business License to Sell Online?
In general, business owners do not need a State of Texas business license to operate their online business. As previously mentioned, however, an owner may be required to get a permit or license depending on the type of business being operated and the kinds of products and/or services being sold.
An owner should check with their local county or city government to determine whether a business license or permit is required for a Texas business. They may also want to visit the website of the Texas Department of Licensing and Regulation for more information. Again, such requirements are specific to a county, so it is always important 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 varies by industry and location. Thus, a smart business owner should conduct research for local business requirements or speak to a local attorney in Texas for help;
- If an owner discovers they do need a business license, they should gather all necessary documents, including:
- Their tax identification number for selling retail goods, if applicable;
- Any insurance policies that they purchased for their business;
- Articles of organization, incorporation, and so forth; 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 located in an area zoned for home businesses in Texas depends 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 may well not need to be in an area zoned for business. However, a person may have both a website and a physical operation. If so, their home may have to be in an area with the appropriate non-residential zoning.
In addition, a person should review both state and local zoning laws just in case. Some Texas counties may have their own zoning regulations that differ from those in other counties. They may require a home to be zoned for business if any type of business activity is taking place in the home. Businesses that fail to comply with zoning ordinances may be fined or even shut down.
Do I Need the Help of a Lawyer for My Online Business Start-up?
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. You definitely want to consult a Texas business lawyer for further guidance.
LegalMatch.com can connect you to an experienced Texas business lawyer who 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 business structures, which one will potentially work best for your business, and how the type you choose will affect what you owe in taxes.
