Been in the service business for 15 years and never had anyone ask me if I am licensed. I'm sure it varies by state. Also I don't give a rats @$$ if you are licensed or not if they don't want to pay you yo aint gettin no money!
If you are licensed you have far less problem with folks refusing to pay because they know that you have recourse if they dont cough up the cash. Small claims court, contractors liens, etc can make life miserable for non payers. However, most guys who operate without a license generally dont want to fool around with the court systems because the penalty for working without a license can be harsh, and that is not even mentioning what the IRS can do if they are alerted by local authorities.
I keep my firewood sales off the books because there really isnt enough profit for me to have to share with Uncle Sam, but the second I hand over a business card and offer a estimate on any tree work its on the books.Folks often offer to pay cash if I dont write it up to avoid the sales tax, but I wont play ball that way unless I know them real well.
Many years ago I built a deck for some folks, and agreed to do it for cash. Once the job was all done the guy let me know he worked for the local IRS office, and let me know in no uncertain terms he didnt have a problem reporting me for working off the books. Instead of the hassle and audit, he got his deck for free and never again have I worked for cash. I learned many years later the guy made a habit of getting work done on his house for free in this fashion after a contractor decided to make things warm for him and reported him. Sure, the contractor ended up being in hot water himself, but he took that IRS agent right along with him.
Nope, you advertise, you better be licensed and pay your taxes. Just aint worth the risk. The only exception I make is in firewood sales, if asked i show em my license and just tell folks I pay the sales tax on the load myself.