Do you need a license for an internet business?

Aloha:

As I understand it, there are two issues with doing business in Hawaii (I'm on the Big Island).

First, the local government wants you to have a business name (fictitious name statement filed) and get a tax id. Then, anything you buy will be taxed at 0.5% as you purchase it for incorporation in your product. You, in turn, charge the local sales tax, which is then passed on to the state. The actual situation is somewhat different for online products, as you are not purchasing anything, so no 0.5% to the state. If you don't sell here, no sales tax either. So, it looks like the state doesn't get anything from you.... yet. This information is the result of several years working a number of "sideline" businesses since I moved here from California about a dozen years ago. Of course, depending on who I talk to on a given day, their approach, understanding, and/or advice is extremely variable. Welcome to Hawaii.

The second place is the local business license. After multiple calls to the local licensing "authority" in Hilo, I don't have to have a business license unless I have a storefront. On another day, I do. I think it depends on the phase of the moon and the person on the other end of the phone...

Federal, on the other hand is pretty clear.

The biggest issue will be income tax withholding. If you have a regular "day job" you can probably get away for a little while by just making quarterly withholding payments relative to your earning rate. If you don't, you will pay a penalty on your income taxes at the end of the year if you haven't paid enough "withholding". If you can get a decent return on your money, you can actually just make a bulk payment in December, and as long as the total paid during the calendar year is close to your obligation when you file your tax return, you are golden.

One thing most people never think about is FICA. If you have a "day job" this is typically taken care of, but if you are like most people in Hawaii, you aren't making enough money to max out the FICA withholding, so you will need to declare yourself independent and pay both halves of the FICA tax until you get to the maximum for a given year. FICA is a "contribution" tax that is normally paid half by the employed and half by the employer. When you are self-employed, you need to pay both halves (something north of 12.5% if I recall correctly).

The best thing I can suggest you do is to contact a local tax attorney to get a definitive answer, especially about the local business license and General Excise Tax. Personally, I really don't trust the folks at the local offices, because I have recieved such wide variations in their answers.

If you can't get a good answer, I'd think a good option would be to open a separate savings account and transfer the amount of money you think you will need to fulfill your obligations at tax time. This isn't the best method, but at least has the money in a separate account that you wouldn't normally touch.