Blog Article/Post Caveat (Read First Please: Click the Link)
First let me start by saying I did a search, through several search engines, to see if there were specific laws or ordnances that required martial arts schools to obtain a business license. Most searches provided results to links for martial arts school advisors, etc. while none went to laws or ordinances except for laws and regulations on licensing competitors of MMA/Kickboxing, etc. in regards to competing in tournaments, events, contests and so on.
Second in line now is some personal perceptions and perspectives regarding on a federal level. I am talking about submission of business forms for the self-employed for tax purposes. As to my personal experience if one earns over five hundred dollars in a tax year they are required to submit that amount for income taxes and if that persists for a second year, as in my case, they will require a separate business earnings statement to pay appropriate taxes under a business heading over simple income tax submission. No where in the process, since it caused an audit of a kind, did they require I submit a business license.
Third topic to present at this time in the article is about California’s requirements regarding businesses regardless of whether they are martial arts or simply selling a product to the public. The state does not call it a business license per say but a “Seller’s permit or Use Tax Account.” If you run a dojo that receives at least $100,00 in gross receipts from business operations in a calendar year, not required to hold a seller’s permit or certificate of registration for use tax, are not a holder of a use tax payment permit or are not otherwise registered with the BOE to report use tax then it appears (seek business legal advice before you move forward for sure; I am not a legal expert, professional, advisor, etc.) that you may not need a business, sellers or use tax license unless your school sells tangible property subject to sales tax if sold retail.
Fourth resulted in my trying to get clarification from the California government site by sending an email to the appropriate parties asking if running a school for martial arts required a business license, etc. When that arrives I will add that information. Since it was not clear with the state sources I wanted to make sure that permits or licenses were or were not a requirement for those who would open their own dojo, training halls, or schools, etc.
Fifth is about local governing ordinances, etc. as they apply to a business be it a tangible property or intangible service, etc. The following helps clarify these questions, etc.:
In light of the confusion and convoluted laws, ordinances and requirements of the government I present the following:
California Seller’s Permit: If you are doing business in California and intend to sell or lease tangible personal property subject to sales tax sold at retail, you are required to have a seller’s permit and prominently display it at your place of business. Read our Seller’s Permit FAQ for more information.
Then two more additional pieces of the puzzle:
Who must obtain a seller's permit?
You must obtain a seller's permit if you:
- Are engaged in business in California and
- intend to sell or lease tangible personal property that would ordinarily be subject to sales tax if sold at retail.
The requirement to obtain a seller's permit applies to individuals as well as corporations, partnerships, and limited liability companies. Both wholesalers and retailers must apply for a permit.
If you do not hold a seller's permit and will make sales during temporary periods, such as Christmas tree sales and rummage sales, you must apply for a temporary seller's permit. Such permits are normally issued to selling operations lasting no longer than 90 days at one location.
What does engaged in business mean?
You are engaged in business in California if you:
- Have an office, sales room, warehouse, or other place of business in this state (even if the location is only temporary).
- Have a sales representative, agent, or canvasser operating in this state.
- Receive rental payments from the lease of tangible personal property in this state.
There are other activities that may qualify a selling operation as being engaged in business in California. Due to the various rules that apply, you should contact the BOE's Information Center 800-400-7115 or contact your nearest BOE office to determine if you must obtain a permit.
Read more here: http://www.boe.ca.gov/sutax/faqseller.htm#1
Is my seller's permit the same as a business license?
No. You should contact your city and/or county business license department to obtain a separate business license. To locate the department, check the government pages of your telephone directory (for example, look for the terms license or business license under City Government Offices and County Government Offices).
Sixth as it pertains to local laws and ordinances I use my home town as an example where the city states, “all individuals, partnerships, corporations, and sole proprietors conducting business in the City of Alameda are required to have a business license. This includes persons dealing with residential and commercial real estate rentals or who operate home-based businesses within the City. In most cases, licenses are based on the gross receipts of your business. (Note: issuance of a business license should not be construed as authorization to conduct a business, unless the business has complied with all federal, state and local regulations.)”
https://www.municode.com/library/ca/alameda/codes/code_of_ordinances?nodeId=CHVLIPE_ARTIPRLI_5-2LIRE
It appears in my city that a fee is charged for a license according to gross receipts, i.e., “Every person conducting or carrying on the operation of an administrative headquarters shall pay a license fee of forty ($0.40) cents for each thousand ($1,000.00) dollars of gross payroll of all persons employed by the business at such administrative headquarters.”
Seventh is that although the provided information tends to leave us all scratching our heads in confusion I did find in the local city municipal codes lists of businesses that require a license and payment of taxes and none listed give me an impression a martial arts school requires a business license ergo why I await some guidance from the sources, i.e., state and city, etc.
Ok, it is getting clearer and clearer that this issue is so confusing, so mired in mud and so critical that one MUST seek advice from a legal professional with expertise in business requirements of the city, state and even as to the federal levels.
Do you need a business license? Maybe not but it is absolutely clear that both federal and state will require you report the income from your school/dojo for income tax purposes. At least on the federal level you may have to submit a separate business form with your tax return on that income but as to a license my personal view is if you are going to conduct a business you need to contact the city and state and get clarification or at least contact your professional tax consultant for information to make sure the city and state don’t come down on you later.
An aside is I know of at least one dojo who does not have a license, teaches karate, takes a fee monthly from the students and in all probability reports that as income for tax purposes. He/She has run this dojo for over ten years without any repercussions from city or state but I would add that this does not mean a license in not necessary, required or even a smart idea.
Now that I have made an attempt to answer this question I would next try to address issues that could result from not doing appropriate business requirements to run a dojo such as liability insurances, etc., along with personal law suits say when your student defends themselves with your great self-defense instruction and ends up either dead or in jail and paying out compensation from civil suits, etc.
p.s. I published an inquiry on my blog about dojo business licenses, etc. I will post the results later.
p.s.s. I received no feedback on the above.
p.s.s.s. I received no reply from either the state or federal sources on licensing.
In other words, no one will or can say whether a license is needed either way. I suspect, at a minimum in my state, a reseller’s license for the local city will be required and at a minimum the income you derive from teaching martial arts will require a form under business income will be required for your federal return. In the end, ask you tax person or seek advice from a business attorney.
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