Does an online business need a state license where its customers are, even with no office there?
Generally yes, where the state has enacted the CSBS model act: having no office there does not remove the license requirement if you do money transmission with customers located there. The model act binds a business only as and where a state enacts it, so confirm each state's enacted text.
What the rule says: the model act bars a person from engaging in the business of money transmission, or advertising, soliciting or holding itself out as providing it, unless licensed under the act (Section 5.01(a)). Money transmission is defined by the customer's location: selling or issuing payment instruments or stored value to a person located in the state, or receiving money for transmission from a person located in the state. The term also includes payroll processing services. Physical location in the state is the test only for in-person transactions. For electronic or phone transactions, the provider may decide whether the customer is "in this state" using the customer's residential address, a business's principal place of business or other physical address, and account records such as an address tied to the account. The definition does not turn on the provider's own presence. It excludes providing solely online or telecommunications services or network access.
What we would look at:
- Map customers by state using those location indicators.
- Check whether each state enacted the model act in full or in part. CSBS reports thirty-one states have, with uneven adoption and interpretation.
- Test whether you only provide network access, or whether you sell or issue payment instruments or stored value, receive money for transmission, or provide payroll processing services.
- Test the exemptions: acting as an authorized delegate of a licensee within a written contract's scope, or being exempt under Section 3.01 and staying within that exemption (Section 5.01(b)).
For states that have not enacted the model act, check that state's own law.
Sources
- CSBS Money Transmission Modernization Act (model law): https://www.csbs.org/sites/default/files/2023-08/CSBS%20Money%20Transmission%20Modernization%20Act.pdf
- https://www.csbs.org/csbs-money-transmission-modernization-act-mtma: https://www.csbs.org/csbs-money-transmission-modernization-act-mtma
This answer is general information, not legal advice. Forteris is not a law firm.
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