In today’s competitive environment, an increasing number of contractors are seeking business opportunities across state borders. If you’re considering this strategy, start planning as early as possible and give yourself plenty of lead time to comply with out-of-state licensing requirements.
Do your homework
Licensing requirements vary from state to state — and even from city to city — so be sure to research the requirements in the jurisdictions where you seek work. In many (but not all) states, general contractors (GCs) must obtain a license at the state level. In some states, a license is required at the municipal level.
What about subcontractors? Most states require a license for certain specialties, such as electrical, plumbing and HVAC. For other trades, many states waive licensing requirements for subcontractors that work under the supervision of a licensed GC. In some states, subcontractors must be licensed regardless of whether they work under GC supervision. And, for some states, a license is required only if a job’s value exceeds a specified threshold ($50,000, for example).
Applying for a license can be time consuming, so the earlier you begin the process the sooner you’ll be able to take advantage of out-of-state opportunities. Some state licensing boards only consider applications at their quarterly meetings, so be sure to take that into account in determining how much lead time you’ll need.
Applications typically request several documents, including:
- CPA-prepared financial statements,
- General liability and workers’ compensation insurance certificates (naming the state’s licensing board as an additional insured),
- Equipment and asset lists,
- Supplier references,
- Summaries of any litigation or disciplinary proceedings involving your company, and
- Banking information.
Plus, you’ll likely need to qualify your company to do business in the state and apply for tax identification numbers. Many states require you or another company representative to participate in training courses and sit for one or more trade or business examinations (although examination requirements may be waived under a reciprocity agreement with your home state). You might find helpful information at contractors-license.org.
Keep in mind that some states require contractors to be licensed before submitting a bid, either for all jobs or for jobs above a certain dollar amount. The dollar thresholds may vary depending on whether a project is public or private, so be sure you know a state’s requirements before you bid on a job in that state.
A steep price
The penalties for doing business without a license can be severe. In addition to monetary fines, you’ll likely lose the job you’re currently bidding or working on, as well as the right to work on other jobs in the state, for a specified period of time or even permanently.