7 FAQs for Licensing Your Construction Firm in New States

Managing Your Business // Payroll, 5 Minute Read
7 FAQs State Licensing
20 December 2019

7 FAQs for Licensing Your Construction Firm in New States

Guest Contributor: John Beck, Harbor Compliance

Ordinarily, a contractor wouldn’t want to take on a project without a thorough understanding of the site’s conditions. Yet that’s similar to what a lot of contractors face when attempting to start projects in new jurisdictions. States provide more than 740 company licenses and 760 individual licenses for contractors, with many county and local jurisdictions providing licenses of their own. Not only does this make for a lot of licenses to sort through, but the specifications run deep. California’s most recent licensing guide for contractors, for example, clocks in at over 1,200 pages.

With so much information out there to digest, it can be hard to know where to start when contemplating a project in a new state. What potential licenses will I need? Is your firm in a position to meet the requirements? Is it even feasible to get a license in time?

By understanding the major distinctions between states, contractors can develop an idea of what to expect when considering expansion into new territories. The following questions are a good starting point for evaluating the licensing terrain for a new jurisdiction.

State Contractor Licensing: The Ultimate Guide

Find all the information you need to get your contractor’s license in any state. Download for free.

1. Do You Need a State-Level License?

Thirty-one states plus D.C. issue general contractor licenses. Maryland, Massachusetts, Pennsylvania and New Jersey don’t require general contractor licenses, but they do require licenses for residential construction or renovation work.

Many states provide multiple classes of contractor licenses based on project size or nature of the work. Arizona, for example, provides 10 different types of general contractor licenses. Residential  and commercial contractors are often licensed separately. In Alabama and South Carolina, licensing occurs through separate boards.

In addition to general contractor licenses, states  require licenses for many specialty trades. Nearly every state requires licenses for asbestos removal, electrical, plumbing, and HVAC/mechanical trades. Thirty states require licenses for roofing, 26 require elevator contractor licenses, 24 require masonry licenses and 23 require painting contractor licenses. Fire protection, lead abatement, demolition, sign and solar work also commonly required state-level licenses.

Is this for most states or just in Arizona? If it’s for all states, we can add a transition here to make this clear, but, as it’s written, it seems like this is only for Arizona.

Is this for every state or should there be some other qualifier — many states, most states, every state, etc.?

2. Must You Foreign Qualify?

Twenty states require contractors to register with the secretary of state — a process known as foreign qualification — to obtain a contractor license. The remainder don’t require it as part of the contractor licensing process, although there are other reasons why your business may need to foreign qualify. For further details, check out this 50-state guide to foreign qualification.

Where foreign qualification is required, it usually precedes licensure, but this isn’t always the case.

3. What are the Financial Requirements?

States generally require financial information such as reviewed or audited financials as part of license applications. Some set a specific threshold for net worth, working capital, cash deposits or credit score. Surety bonds are often required, sometimes as a percentage of contract value.

Nevada is unusual in that the board sets a bond requirement from $1,000 to $500,000 based on the information in the application — including license type, financial responsibility, experience and character of the applicant. Tennessee sets a specific monetary limit for each license based on the applicant’s finances to ensure working capital or net worth of at least 10 percent.

Before beginning any licensing paperwork, check the financial requirements for the state to make sure you qualify.

4. What Insurance Will You Need?

Most states require a certificate of insurance with specific liability limits for construction work. Evidence of workers’ compensation coverage is also generally required with license applications. Many states also require specific language to be included on insurance policies, and a few — including Connecticut, Iowa and Nebraska — require the licensing board to be listed as the certificate holder.

5. When Are Renewals Due?

Contractor licenses generally must be renewed annually or biennially. After the first year, Louisiana allows contractors to choose a renewal cycle of one to three years. Deadlines may be based on the anniversary of the contractor’s initial license date or on a set calendar date for all license holders. Many states require updated financial statements with renewals.

To learn more, remember to attend “Prevailing Wage and Labor Compliance” at the 2020 Foundation Software User Conference in Cleveland, Ohio.

6. What Are the Fees?

License fees vary from $35 for a contractor business entity license in Idaho to $1,050 for a dual engineering contractor license in Arizona.

Additionally, multiple fees may be required to obtain a license. Nevada, for example, charges $300 with the application and $600 on approval, while California charges a $300 application fee and a $200 license fee when the exam is passed.

Fees may also be prorated depending on where the application falls in the renewal cycle. Applications submitted during year one of Florida’s biennial renewal cycle, for example, require a fee of $309; during year two, the fee drops to $209.

7. What Else Should You Watch for?

As if there wasn’t enough to keep track of, there are other licensing nuances from state to state that can lead to missteps.

For example, Hawaii requires separate applications for the firm and the qualifying agent. In Michigan, firms must have a representative apply for the individual license, then apply for the firm license. Minnesota requires firms to have an active department of revenue sales or use tax account before applying. South Dakota doesn’t require a state contractor license, but it does require firms to obtain an excise tax license.

Knowing those details up front and being prepared can save contractors time and headaches.

Get the Big Picture.

Although it’s a lot of information to sort through, there are resources to help. This guide to state contractor licenses provides a high-level, nationwide overview of the most critical aspects of state contractor licensing, giving you clarity with the steps involved for obtaining a license in each state and letting you plan with precision. Whether you’re looking at expanding into new states, checking renewal deadlines or just trying to get a better sense of the contractor licensing terrain, the guide provides quick answers.

And for an even deeper dive into licensing for general and specialty contractors nationwide, visit this online guide to construction licensing. You’ll find detailed information and links to application forms for the more than 1,500 contractor licenses provided by states as well as key county and municipal jurisdictions.

You Can Get Help With Licensing.

Looking at the detailed specs and endless nuances, it’s not surprising that licensing is a major source of frustration for many contractors. Sometimes contractors simply hit a wall in a particular state, unable to move forward with the process and uncertain what to do next.

Harbor Compliance provides fully managed licensing services with expert specialists who complete your applications, file them for you and manage renewals. We also provide advanced compliance software that lets you oversee licenses, renewals, corporate filings and registered agent appointments — all from a single interface. Choose the best combination of service and software to suit your needs. Get in touch or give us a call at (888) 995-5895 to learn more or arrange a demo.

Disclaimer: Neither Harbor Compliance nor Foundation Software is an accounting or law firm, and neither provides tax, financial or legal advice.

John Beck

AUTHOR INFO

John Beck, M.B.A., is the Director of Market Strategy at Harbor Compliance, a leading provider of compliance solutions. John brings 15 years of corporate legal industry experience to his role, including business development and executive leadership positions.  He has provided coaching and consulting services to companies ranging from global Fortune 500 enterprises to small businesses. John is focused on marketing, partnership development and business development strategy. He is available to answer your questions or brainstorm ideas at 717-431-9134 or jbeck@harborcompliance.com.


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