If Internet Businesses need City Business Licenses

Question

Say you have registered a cloud technology business with the state you live in to obtain your Business Entity Number, and you have also obtained your EIN tax number. It seems that the next step is to obtain a Business License in the city you are living in. But I can't tell if that's actually necessary, since the cloud is inherently everywhere. For example:

If you are planning on starting a business located in the City of Foo or conducting business within the City's limits, you must first complete a business license application.

This makes sense if you have a storefront or building where customers come within the city. But I am not sure about if you have an internet business. Since internet businesses are potentially mobile, the idea of "doing business" is unclear. The actual doing of business, where a transaction occurs (i.e. a customer buys something) likely occurs in the cloud, in some remote Amazon server perhaps. You might do some administrative work at a coffee shop here or there, etc. So I'm wondering if you need to obtain a city business tax license at all, or if so, in which cities the license must be obtained. I don't imagine you would need a license in every city you would sell to, as that would be a lot of work. At the same time, you could be a traveling entrepreneur living in a motor home traveling all across the states. Wondering if in that case, too, you would need to register in each city.

But for the more simple case, of just working from coffee shops or coworking spaces within a single city (or within a few nearby cities), wondering what the consensus is on if you need to obtain a city business tax license, or what exactly you need to obtain other than the state entity ID.

For clarification, let's say the business does one or all of the following:

1. Sells physical goods online.
2. Sells cloud goods (like data storage space, or compute power).
3. Has a subscription service for digital products in the cloud.
4. Does research.

Business A does 1, 2, and 3. Business B does only 2 and 3. Business C does only 4. That is, it doesn't sell any products, just does internal research.

In all cases, there won't be any customers visiting any place physically.

Answer 1

For business A, the place where the person sits who transmits the orders to ship the goods to the customer, the place where the person sits who transmits the orders to authorize customers to access their newly purchased cloud goods, and the place where the person sits who authorizes customer subscriptions are all places where A does business. If any of these are done by an automated script, then the place where the person sits who starts and stops that script, and potentially troubleshoots it, is a place where it does business.

For D, if it does not sell any of this research, then it does not do business. if it does, then the place where the person (or people) who do the research do it is a place where it does business, and so also is the place where the person sits who takes orders for the research, or runs the script which does this.

If any of these are multiple variable places, such as cofeeshops with wifi, but they are all within the city Foo, then the company does business within Foo. The Foo City Clerk can probably say how the form should be filled out in such a case.

This is assuming that Foo has an ordinance requiring a Business License, not all localities have such a requirement. Or the requirement may differ depending on the type of business, all this varies widely depending on the location/jurisdiction. But the business is done where a human does it, not in the cloud, even if the human uses cloud tools to do business. A human must be at some physical location at any given time.

Answer 2

This is an extremely jurisdiction-specific question: you have to look up the answer for each municipality of concern. Let's say that you are doing this in Seattle. They assert licensing power over retail sales and service, manufacturing and wholesale, also home-based businesses and non-profits. In another week,

Any person or business whose annual value of products, gross proceeds of sales or gross income of the business in the city is equal to or less than $2,000 AND does not maintain a place of business within the city shall be exempt from the general business license tax certificate requirement. The exemption does not apply to regulatory license requirements or activities that require a specialized permit.

There are also specific classes of regulated businesses, such as operating a rental housing agency. If you do business in the city but are located outside the city, you still need a license. They also say

Contact us if you have questions about licensing for online-only businesses. You may need a Seattle business license if your business originates from Seattle or has servers within city limits.

To answer your question about your online business, they will consult the municipal code to see if you are exempt (SMC 5.45.090: dozens of things listed, online sales are not included), apparently SMC 5.45.060 (about doing business with the city, possibly renumbered) or the safe harbor provision SMC 5.30.030(B)(4). An online enterprise that sells goods or services to customers in Seattle is not excused by the safe harbor provision.