The question, “What business license do I need to start my excavating business?” is a common one but not always easy to answer.
Here, we’ll break down the different types of permits and licenses you may need and share some resources to help get you started.
Let’s dig into which licenses to consider when starting an excavating business.
Related: Guide to Starting an Excavating Business
What Licenses Do You Need to Start an Excavating Business?
State Licensing
Each state has different requirements for licensing excavating businesses, as some states require a license for operators of excavation equipment, and others require a general contractor’s license. To be granted a license, a combination of work experience, passing a trade exam, and having a surety bond are often required. While this isn’t a license for the business, each person operating the equipment will need to have one. For example:
In Michigan, excavation specialists must be licensed by the Department of Licensing and Regulatory Affairs.
The Tennessee Department of Commerce & Insurance requires excavators to obtain a contractor’s license.
A contractor’s license is required by the California Department of Consumer Affairs for excavating work.
Local Licensing
A general or specialty contractor’s license is more common for an excavating business locally than for the state. Even states that regulate excavators may also need to obtain a local license before starting a job. A few examples include:
In Illinois, excavators and general contractors aren’t regulated by the state. However, the City of Decatur requires an Excavation Contractor License for any excavation work within city limits.
The City of Castle Pines in Colorado requires a contractor’s license before permitting any excavating work.
Contractors and tradesmen working in Florissant, Missouri, will need to obtain an Excavation Permit for all excavation work performed in the city right-of-way. In addition to the permit, a Certificate of Liability Insurance and bonding must also be on file with the City.
Commercial Driver’s License
In most cases, the truck being used to haul the excavating equipment will require a Commercial Driver’s License (CDL), a special driver’s license issued by your state’s Department of Motor Vehicles to operate a large or heavy vehicle.
If that is the case, any drivers operating the vehicle will be required to hold a CDL.
In addition to licensing requirements for the excavating work, there are other requirements for starting a business to be aware of.
Legal Structure
One of the first registrations to complete when starting an excavating business is selecting a legal structure. A legal structure refers to how a business is organized to operate. It should be at the top of your list because the other licenses your business will need will require the business’s legal name, which can’t be registered until the business entity is formed.
The four main types of legal structures include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC).
Related: What is the difference between a sole proprietorship, partnership, corporation, or LLC?
Business Name Registration
While not necessarily a business license, it’s worth noting that to use a name for a business, many states require the registration of that name. Making matters more complicated, the name registration process is different by state and the type of business entity.
For instance, sole proprietorships and partnerships generally need to register a business name (also referred to as a Doing Business As, DBA, fictitious name, or assumed name).
Learn: How to register a DBA
Corporations and LLCs register the business name when the entity is formed with the state.
General Business License or Permit
Depending on where the business is located, a general business license or permit may be required. This licensing is different and could be needed in addition to the excavating license. A few states require a business license; however, they are more commonly found at the city level.
Learn more: Business license requirements by state
Federal Employer Identification Number
The Federal Employer Identification Number (also referred to as a FEIN, Employer Identification Number, EIN, or Federal Tax ID Number) is a unique nine-digit number that identifies a business with the Internal Revenue Service (IRS).
For any business with employees or those that form a partnership, corporation, and, in many cases, an LLC, the company will need to get an EIN.
Sole proprietors and single-owner LLCs without employees can instead use the owner’s social security number.
The FEIN or owner’s social security number will be used to open a business bank account, apply for a business credit card, and hire employees.
Learn: How to get an EIN
Sales Tax Permit or Business Number
A state sales tax permit may be needed to sell services in some states, as an excavating business’s work is often considered a service. Most states don’t require the collection of sales tax on projects incorporated under a real estate construction contract, but improving drainage on a homeowner’s property could require the collection of sales tax, depending on the state.
This permit creates an account number with the state’s Department of Revenue (or similarly named state taxing agency) to collect and remit sales tax.
Learn: State-by-state information on sales tax permits
Certificate of Occupancy
In most communities, an excavating business will likely need to secure a Certificate of Occupancy (CO) before operating a business from a commercial building. This certificate is typically obtained from the city and/or the county.
Before the certificate is issued, the building must comply with local zoning restrictions, building codes, and other local requirements.
A home occupation permit may be required if the excavating business operates and stores equipment at the owner’s home, a home occupation permit may be required.
Before purchasing or leasing a location for your excavating business, check with the local zoning department to ensure the business can legally operate there.
While researching licenses and permits isn’t the most exciting thing when starting an excavating business, it is critical to spend the time upfront on getting it right the first time. Not getting the proper licensing can result in fines and even temporarily closing the business, so be sure to talk with city officials to ensure the correct licenses have been obtained.
