I’ve heard it said that it is “hard to open a business in New York.” I wanted to find out if that is true or if it is just something people say. I wanted to find out because 1) I want to sell handmade furniture and want to know what I have to do to be on the right side of the law; but also 2) if it really is hard to open a business, I would think that that would mean fewer people would open a business, and that might contribute to high unemployment, both because fewer people would be self-employed (and therefore competing with other people for jobs) and because fewer businesses would open, meaning fewer jobs would be available for workers to get.
So I thought I’d see what the process was like.
I used my contemplated furniture business as a guide. I figured I would be the owner and do most the building myself. I also thought it would be great to maybe give one of my high school aged cousins $10 an hour to help me, especially since I would need someone to help me move and deliver completed pieces of furniture.
My questions were:
- What obligations do I have if I am going to legally sell my creations to another person?
- What obligations do I have if I am going to pay someone $10/hr to help me?
I figured that the best way to start was to google “How to open a business in New York State.”
The first links that show up are three ads and a webpage from companies who charge you to guide you through the system. But having only enough money to buy the raw materials for four or five pieces of furniture right now, I can’t afford to pay a company money just so that I can start selling stuff. I’d have to figure out my obligations myself.
The first government link I checked was from “New York State Development” at esd.ny.gov. I was immediately confused, because the first links on the site are to “News from the ESD” about grant programs and special tax programs.
After scrolling down to the bottom of the tabs listed under “Resources” I found a tab to “Helpful Links” and clicked it. This led to a new page with a list of links about NYS procurement law, and a directory of small business programs. One link said “Citizen Connect,” so I clicked that. It brought me to a questionnaire page where I was asked to fill in my contact information and check numerous boxes related to areas of law I was interested in, in order to receive “Regular Updates from the Governor.” I hardly believed the Governor would be sending me updates, and I only wanted to know how to open my business, so I went back to the previous page.
I scrolled down and found links to “Reports from the ESD,” “Guidelines and Forms for IDAs,” “Program Quick Sheets” listing 13 links which apply only to big industries (e.g. forms for applying for an international license), and links to “Applications to RFPs.” Not knowing what any of that means, I scrolled down and found a button that said “What Can New York State Do For Your Business?” So I clicked that.
This opened a new window with links to economic development programs. At the bottom of the new page was a link that said “Resource Center,” so I clicked that. This opened a new window which said “I am a…” and listed “Small Business,” “Large Business,” “MWBE” (an acronym for “Women and Minority Owned Business”), “International Business” and “Local Municipality.” Being one human being who only lives in the US and is not a woman or minority, I felt that “Small Business” was the best link to try. This brought me to a new page with new links. I thought the most relevant was “Permits and Licenses.” This opened a new window showing the “New York State Online Permit Assistance and License” website. At the bottom of the page was a link to a “Starting a Business Brochure PDF” which opened in a new window (now I had five windows open).
On the one hand I felt relieved because the brochure seemed to be geared toward someone like me, who wants to know what I have to do to have a business. On the other hand the print on this two-page brochure was tiny and a quick scan told me that it was full of lots of technical stuff. Here is the link, in case you want to open your own business and want to skip the first 6 websites I tried:
http://www.opal.ny.gov/gorr/pas/pas2.nsf/StartingaBusinessBrochure2012.pdf?Open
Right away I knew that the process was going to be lengthy. Here is the “Introduction”
“Introduction:
This pamphlet contains general information for
starting a business. Use this brochure as a reference
guide for general business requirements but not as
legal or financial advice. Filing fees and tax
information were current on the date of publication,
but you should verify them prior to finalizing your
business plans. We suggest you discuss your
business plans with an attorney and/or accountant.”
I felt annoyed because if I shouldn’t use the brochure as legal or financial advice, what good was it? The publication was four months old, so I guessed it was up to date. But the last sentence says that the government suggests I discuss my business plans with an attorney or accountant. 1) This shows that the government understands that normal people will be incapable of understanding their legal requirements on their own, which is frustrating. 2) Just like with the companies offering to “guide me” through the process of opening a business for a fee, I couldn’t afford to pay an attorney or an accountant until AFTER I start selling furniture.
The brochure told me to contact the following state agency to find out if I need a permit for my business:
“NYS Office for Technology
Business Permit Assistance
Empire State Plaza
P.O. Box 2062
Albany, New York 12220
518-474-8275”
It told me to be aware of local laws not included in the state brochure:
“A person contemplating starting a business should
be aware of local laws. It is important to contact the
village, town, or city and county clerk where the
business plans to locate. Examples of local
considerations are zoning, parking, sign regulations,
and certain occupational licenses such as
auctioneers, electricians, and plumbers. It is
advisable to contact your local government first.”
Then the brochure got into the meat and potatoes. First I would have to choose a structure for my business. I could choose from “Sole Proprietorship,” “Partnership,” “Limited Liability Company,” or “Corporation.” I thought Sole Proprietorship would be most like what I had in mind. It then lists the forms I need to fill out:
“Form: Certificate of Conducting Business as a Sole
Proprietor. Purchase this form from a legal
stationery store in New York, through Blumberg
Forms at 800-529-6278, or through their website at
http://www.blumberglegalforms.com.
Complete and notarize the form, then file it with the
county clerk in each county where the business is
located. You usually need three copies: the original
for the county clerk, one for the bank to open an
account, and one for the business.
Fee: $25 plus $4-$5 for each certified copy. (The
filing fee in the five counties within New York City is
$100; certified copies are $10.”
Then there is information on the tax forms you need to fill out:
“New York: The NYS Department of Taxation and
Finance’s Publication 20, “New York State Tax
Guide for New Businesses,” provides basic
information about New York’s tax laws and
regulations. This publication outlines the procedures
to follow and forms to file with the NYS Department
of Taxation and Finance to fulfill tax obligations.
Sales and Use Taxes: If your business will sell
tangible personal property or provide specific
services in New York, the business is required to
collect and remit NYS sales and local tax to the NYS
Department of Taxation and Finance, usually on a
quarterly basis. Publication 750, “A Guide to Sales
Tax in New York State,” has information on your tax
obligations and how to obtain a “Certificate of
Authority”. The NYS Department of Taxation and
Finance recommends filing for authority at least 20
days before providing taxable sales or services.
Apply online for a Certificate of Authority to Collect
Sales Tax at: http://www.opal.ny.gov
NYS Department of Taxation & Finance
Sales Tax Registration
W. Averill Harriman Campus, Albany, NY 12227
Information/Forms: 518-485-2889
Federal: For federal tax requirements, contact the
Internal Revenue Service for a copy of “The Small
Business Resource Guide.” This guide contains
general information on federal tax obligations such
as estimated taxes and self-employment tax, as well
as various publications for starting a business.
Refer to the “Federal (Employer) Identification
Number” section for contact information.”
There is also a requirement to get a federal registration number:
“An Employer Identification Number (EIN), also
known as a federal tax identification number,
identifies a business entity. Generally, all
businesses need a federal tax identification number.
An EIN is a nine-digit number that the Internal
Revenue Service assigns to a business. The IRS
uses the number to identify taxpayers that are
required to file various business tax returns such as
those for alcohol, tobacco, or firearms. Employers,
sole proprietorships, partnerships, limited liability
companies, and corporations (including “S”
corporations and not-for-profit organizations) as well
as other business entities use EINs.
Form: SS-4 Application for Employer Identification
Number
Contact Information:
Internal Revenue Service
800-829-4933
Last is a list of “employer responsibilities,” which I needed to read so I would know what I have to do if I am going to pay a cousin or a friend for a few hours each week:
“The Federal government requires all employers to
have their employees fill out Form I-9 and Form W-4.
Federal employment taxes required are: Federal
Income Tax Withholding, Social Security and
Medicare Taxes (FICA), and Federal Unemployment
Tax (FUTA). The IRS’ Publication 15, “Circular E,
Employer’s Tax Guide,” explains Federal tax
responsibilities as an employer.
Form I-9, Employment Eligibility Verification, obtain
this form from the U.S. Citizenship and Immigration
Services at 1-800-870-3676 or http://www.uscis.gov.
Form W-4, Employee’s Withholding Allowance
Certificate, obtain this form from the InternalRevenue Service. Call FORMS/PUBLICATIONS:
800-829-3676 or INFORMATION: 800-829-1040 or
visit: http://www.irs.gov.
New York State requires all employers to provide:
Unemployment, Workers’ Compensation, and
Disability Benefits insurances as well as comply with
wage reporting and withholding tax requirements.
The NYS Department of Taxation and Finance’s
Publication NYS-50, “Employer’s Guide to
Unemployment Insurance, Wage Reporting, and
Withholding Tax,” explains NYS tax responsibilities
as an employer.
Unemployment Insurance: An employer who
begins hiring employees to work in New York is
required to notify the NYS Department of Labor
promptly to determine their appropriate tax status.
The conditions for liability differ among not-forprofits, government, household/domestic,
agricultural, and all other employees.
Contact Information:
NYS Department of Labor
Unemployment Insurance Division
518-457-4179 or 1-888-899-8810
To apply online: http://www.opal.ny.gov
Workers’ Compensation Insurance: Provides
protection to the employer from liability in the event
of an on-the-job injury resulting in employee
disability or death and to provide monetary relief and
medical benefits to the injured worker. This
insurance is available through the NYS Insurance
Fund at 888-875-5790, through their website at
http://www.nysif.com, or through a private insurance
carrier. NOTE: Workers’ Compensation is also
available to sole proprietors or partners who have no
employees.
Disability Benefits Insurance: Provides for the
payment of cash benefits to employees who become
disabled because of injuries or sickness that have
no connection to their employment, and for
disabilities arising from pregnancies. Employers and
employees may pay for this insurance jointly or
solely by the employer. This insurance is available
through the NYS Insurance Fund at 888-875-5790,
through their website at http://www.nysif.com, or through a private insurance carrier.”
I distilled this information down and abstracted the following after approximately one hour of internet research. I would need to:
- Contact the NYS Office of Technology to obtain a NYS permit.
- Contact my local government to get information on local regulations related to zoning, parking, sign regulations and certain occupational licenses.
- Contact “Bloomberg Legal Forms” for a “Certificate of Conducting Business as a sole proprietor”. This requires visiting a Notary Republic and filing the form with the County Clerk. Cost: $25 for the permit + $10 for two copies plus ~$5? for the Notary Republic = $40, assuming there is no fee at the County Clerk’s Office.
- Read NYS Tax and Finance Publication 20 for “General Information” on tax requirements.
- Read NYS Tax and Finance Publication 750 for a “Guide to Sales Tax in NYS”
- Obtain a “Certificate of Authority” to sell tangible goods (which I assume includes furniture at least 20 days prior to the first sale from “www.opal.gov.”
- Read “The Small Business Resource Guide” to determine my estimated taxes and the amount of my “Self Employment Tax” from IRS.
- Obtain an “Employer Identification Number” from the IRS via form 22-4: “Application for EIN.”
- Read IRS Publication 15, “Circular E, Employer’s Guide” to figure out my payroll taxes.
- Contact the US Citizenship and Immigration Service for a Form 1-9.
- Contact the IRS for a W-4 employee tax withholding form.
- Contact NYS Tax and Finance for Publication NYS-50 “Employers Guide to Unemployment Insurance, Wage Reporting, and Withholding Tax.”
- Contact the NYS Department of Labor, Unemployment Division, to notify them that I intend to hire my cousin.
- Contact the New York State Insurance Fund to determine whether I need to procure a Workers’ Compensation Policy, a Disability Insurance Policy, or both.
This process requires that I contact 9 different government agencies, and fill out 7 certificates in order to be recognized as a business. It further requires me to read 5 different publications which will tell me further requirements related to 10 specifically mentioned taxes and insurance policies I will need to procure. At the same time the government website tells me that this list of obligations is subject to change and should not be used as legal advice, and that it does not include additional local-government requirements.
My first foray into opening my own business has made me reconsider whether I have the time and money resources even to start working for myself. Compared to applying for a job, this is much more difficult and confusing. Right now I am thinking two things:
- I ought to rethink hiring my friend or cousin a few hours each week, because there are many additional insurance policies, taxes, and forms I need to fill out. It will cost me a lot more than $10 an hour to hire someone. So I probably won’t hire anyone, which means there will be one less easy job available for a friend of mine.
- I’m rethinking whether I ought to just do everything under the table, since that seems the only realistic option for me. But I am worried about the penalties if I get caught, especially if I go ahead and pay someone under the table. For instance I know that if the Workers’ Compensation Board catches me, the penalty is $2,000 for every ten days that I “employed” someone without notifying the Board. Numerous people I know have lost their businesses because of that penalty.
My first impression is that it is very difficult to open a business in New York unless you already have the money to pay an attorney and an accountant to help you. I would think that this process would put the breaks on anyone who has an idea for a business and wants to start working soon. I assume that this leads to fewer self-employed people and fewer jobs than would exist if it were easy to open a business. Thus I can’t help but conclude that the very process of opening a business in New York State actually contributes to higher unemployment by deleting job opportunities for self-employment and the creation of jobs.
My next step will be to contact the 9 referenced government entities to get the forms and publications. I will write about whether these agencies and boards and offices were helpful, and whether the publications and guidance they provide tell me that I need to fill out more forms. As I contact each office I will ask “Is there some place I can call where someone from the government can give me a list of all my obligations and forms? A kind of one-stop shop, so that I can know that I am meeting all the requirements and haven’t missed any?”
I’ll let you know how that turns out.
