I am trying to figure out if there is a specific law/statue or IRS regulation that allows Online Businesses to be exempt from having a Business License in every State that the service is offered in. For example, if the Online Service (who say has a Business License in California) offers an "online class" and the customer buying it online is in Florida - What is the name of the law that makes the online business not have to have a license outside of where they are established? Thank you in advance for your help!
IRS is Federal law and I don't believe any such exemption exists. Individual states set the requirements for doing business in the state. Recently, some states have passed laws saying that having affiliates who reside in their state make them within their jurisdiction. As far as I know, no state requires you to have a business license if you are not physically located there.
In most cases, business licenses are issued at a local government level (e.g., city or county). States generally require that a foreign entity qualify to do business in the state, usually in a manner that is very similar to organizing a domestic corporation or LLC in that state. The determination of what constitutes "doing business" for purposes of registering a foreign entity vary from state to state so it is difficult to generalize, but I know of no state that requires qualification based purely upon an internet presence. It generally requires at least some physical presence, such as a sales person visiting the state for a particular number of days. Note that the requirements for imposing taxes are NOT the same as the requirements for registering as a foreign entity. States imposing taxes based on the presence of affiliates in the state are doing so based on a constitutional concept of "nexus" and do not necessarily maintain that the corporations they are taxing are "doing business" within the meaning of that term under their corporate statutes.
So the biggest thing about whether or not one needs a Business License is the "physical presence"? I did a Just Answer question, and this is what I got in response: Does that mean that "Substantial Presense" and "Physical Presense" mean the same thing?
Different states use different terminology. It all boils down to basically the same thing, but there may be minor differences in interpretation. The question is whether you are really IN the state. It is a question of fact that must be applied to each particular business and each particular state, but it seems to me that if you offer classes through the internet and have no presence in a state except the electronic communication between your server and the student sitting at his or her own computer, most states would not consider that to be a substantial presence. If you need an answer based on your specific facts, you should talk to a lawyer who is familiar with multistate taxation and qualification issues. If you fail to qualify as a foreign entity where you should have, the most common consequence is that you will not be able to file a lawsuit in that state. Most states will allow you to file a lawsuit if you file the qualification retroactively and pay appropriate penalties and interest. In the past, there were a few states that would bar any lawsuits for claims that arose before the entity qualified, but some, if not all, of those states now allow you to cure the problem by filing after the fact (though usually BEFORE the lawsuit is actually filed).