It's not only the state that you have to deal with, ANY income has to be reported on your federal tax return. I set up as a business from the beginning, since that was my intention. There are benefits to having a business: You get to buy wholesale, you can expense out certain expenses as part of your business such as classes on running your LA, as well as the cost of hotels and travel to shows, esp when you are taking classes at the shows. Talk to your accountant, and if you don't have one, GET ONE!!
(Certified Bookkeeper in other business...)