In order to do this from your home you must have a licence and you must have a sepperate kitchen from your own and I guess its diffrent in every state but here in colorado you must have like 3-4 diffrent sinks commercial appliances not to mension diffrent plumbing and well it must be inspected from the health department for sanitary reasons. Anyway I haven't got the money to do all this so I will look for someone that has a licenced kitchen I could maybe rent! 
Yes, each state is different. In Virginia, you don't need a separate kitchen or a license if you earn less than 100K (no danger of that!!). But from what I've heard, there are always some other hoops to go through. Its all for the safety of the consumer, which is a good thing. Check with your local (county or city) government offices - you will probably need to register your business name, get inspected and approved by the department of agriculture (or health department in some states), and register for a local sales tax ID. If you're like me, you'll probably get sent to a million different offices trying to figure out what the requirements are. As a matter of principle, I think it's important to be legal and support the system. On the other hand, I'm still deciding whether to make this a business or not, because there really is a lot of hassle involved! But part of me really wants to do it, just so I can say, I DID IT!
Good luck!!
Well, I live here in Georgia and I live outside of the city limits. I called and asked what I have to do and they told me that if I don't bake more then so many cakes a week then I don't need to do anything. It only when I go beyond a certain amount of cakes do I need to do anything. With me just starting off here in my little town of people there is no worry about getting more then the amount of cakes they require. So for now I am safe. But check your local tax commissions office and ask they will know if not they will let you know who you do need to talk to.
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