Most states require you to get a sole proprietor license. You will need that to open a business bank account. Paypal is NOT a bank. I have a verified business account with them but I don't recall what forms I sent them for that..as it was years ago.
I was a sole proprietor back in 1995 but in 1999 I incorporated.
I think if you are only running with a paypal account technically it is not a business. Of course I would love to hear from an accountant on this myself.