Business License? Business Registration? What’s the Difference?
Perhaps the most common issue we at business.idaho.gov encounter when responding to inquiries from business owners is confusion between a business license and business registration. They are very different. In Idaho, business licenses are issued at the local level by cities and counties. Most cities license only a few select business activities affecting the general welfare, such as daycares, taxis, alcohol sales and eating and drinking establishments. A few cities license all business activities, including home-based ones, so be sure to check with your local city clerk’s office or visit their website.
Businesses register their name and entity type with the Idaho Secretary of State’s office before starting business or applying for other licenses and permits. All businesses operating in Idaho should be registered, but many do not need a business license. In some states, registering the business is called securing a state business license, hence the confusion.
Using appropriate terminology and explaining the difference to business owners we encounter will help reduce confusion as new business owners or those new to business in Idaho navigate the maze of business requirements.
Out-of-State Employers With Employees Living in Idaho
As Idaho’s rapid growth continues, we are seeing an influx of people moving to Idaho who are working remotely for their out-of-state employer, usually from home and often in an administrative capacity. When an employee lives and works in Idaho, their employer must establish a state income tax withholding account with the Idaho State Tax Commission and a state unemployment insurance tax account with the Idaho Department of Labor. The employer also needs to carry workers compensation insurance issued by a provider licensed to do business in Idaho.
If the employee is actively engaged in soliciting business or selling a product, the business needs to register with the Idaho Secretary of State as a foreign entity in addition to opening withholding and unemployment accounts. A sales tax permit and/or other licenses may be needed as well.
Homeowners Who Provide Temporary Lodging Must Charge Tax
Air B&B, VRBO and similar websites have made it easy for homeowners to rent a room, cabin or another temporary lodging to the public. However, a homeowner cannot just open their doors without first registering as a business with the Idaho Secretary of State’s office and securing required state and local permits. See short-term rentals on the Idaho State Tax Commission’s website for information on properly establishing a temporary lodging facility. The IRS website contains Federal tax reporting information for temporary rentals. Short term rentals must collect sales tax, lodging tax and more. If a lodger remains more than 30 continuous days in the same room or space, taxes do not apply.
Homeowners may not rent space in an RV, travel trailer or similar structure not designed for permanent habitation, nor can they allow someone to park and live in an RV or travel trailer on their property and collect rent for the space.
Check with your local city clerk’s office to find out if you need a local business license or permit, a home occupation permit or something more. Some cities impose additional requirements, including such things as proof of adequate parking and proof of an emergency evacuation plan. There may be an annual license fee, which can be several hundred dollars. Requirements vary by city, including a requirement in some cities that the homeowner be on-site during the time the space is rented.
As of January 1, 2018 short-term rental marketplaces (Airbnb, VRBO, etc.) are required to register with the state and collect applicable taxes. If the marketplace fails to register or the property owner doesn’t use a marketplace, the property owner is responsible for collecting and remitting taxes.
Homeowners who rent storage space at their home for items such as RVs or boats are considered business owners and must register a business name with the Idaho Secretary of State and collect any applicable taxes.
Have You Updated Your W-4?
Recent changes in the Federal tax laws may affect your withholdings. For information on the law and updating your W-4, see Update Your W-4 on the Idaho State Tax Commission’s website.
Free Tax Classes for Small Businesses
The Idaho State Tax Commission offers free tax classes for small businesses. For dates and locations, click here.
Opportunity Zones Stimulate Growth in Depressed Communities
Congress recently created the Qualified Opportunity Zones program to encourage long-term investment in low income and rural communities. Businesses investing 90% or more of their available funds in a project in an Opportunity Zone can receive tax benefits. For details, see the Idaho Department of Commerce Opportunity Zone website.