Under the rules, you can only be a contractor if you use your own tools, supplies, etc. If you use their tools, etc. you are considered an employee of their company. This is something that some employers try to get around but it is stated very clearly in the regs. I was CFO of a manufacturing company where we had piecework done. Before I went to work for them, they treated them as contractors but after informing them of the regs, we changed them to employees of the company since they used all our tools, supplies, etc.
Probably, the reason they are requiring a business license is that it covers them in case of liability, etc. and they can be protected under the tax laws.
Edited to add: The only exception to these rules is for Sales/Commissions type work. That's a whole other set of rules!!
Last edited by Nanamoms; 01-17-2012 at 12:34 PM.