You’ve decided to start your journey toward financial freedom by launching an online business on Etsy.
The question is: Do you need a business license to sell on Etsy?
If you asked yourself this question, don’t worry. You’re not alone. Many Etsy sellers also asked the same question before opening their stores.
You’ve come to the right place.
I created this guide to answer this question and provide more helpful information to make it easier for you to open your Etsy shop.
Table of Contents
Do You Need a Business License To Sell on Etsy?
The short answer is: no, you don’t need a business license to sell on Etsy.
You can check Etsy’s guide on how to open an Etsy shop for more information. Etsy created the guide to answer the common questions beginners have about opening an Etsy shop.
One question on Etsy’s guide is: do I need a business license to sell on Etsy?
Etsy does not require you to get a business license to open an Etsy shop. Nonetheless, Etsy strongly recommends you consult a small business professional if you have any concerns.
Etsy won’t ask for proof of business registration for your Etsy shop. However, the platform won’t offer liability protection if your local or state authorities knock on your door and ask why you’re operating an unlicensed business.
Simply put, Etsy doesn’t require you to get a license to sell on the platform. Local and state requirements are another matter entirely.
As such, it’s crucial to research local and state legal requirements to sell on Etsy. Doing the proper research before opening an Etsy shop can save you many headaches in the long run.
Why Do I Need a Business License?
Here are two reasons you might need a business license.
Local and state governments require business licenses to monitor businesses in their jurisdiction.
You may need to follow specific local or state regulations depending on your type of business and location. Business license requirements can include credentials and proof of business insurance.
By requiring business licenses, local and state governments know about your small business and can verify whether or not you’re following regulations.
Your local or state government may require a seller’s permit or business tax certificate in place of a business license.
The purpose of a seller’s permit or tax certificate is so the relevant authorities can collect sales tax from you. Depending on your local or state government, you may need to pay income tax or state sales tax when operating a for-profit business.
Factors To Consider When Getting A Business License
As an Etsy seller, consider these factors when getting your business license.
Home-Based Etsy Business
Some Etsy sellers might argue they’re exempt from business license requirements because they only sell from home and don’t have a business location.
All that matters to your authorities is that you have a business and sell products. You may not need to license to operate (depending on your location), but you should still expect to pay sales taxes.
Hobby-Based Etsy Business
Do you need a business license if you’re selling on Etsy as a side hustle or hobby? Yes, that is the case.
No matter why you’re on Etsy, you’ll have to declare earnings from Etsy on your federal tax return. Where you set up your business will determine what regulations apply. To learn more, consult with your local tax office.
Which Businesses Need A License?
When applying for a business license, your government may ask you about the type of business you’re running.
Here are the most common types of businesses on Etsy.
If you run your business solo, then it’s a sole proprietorship.
Sole proprietorships are the most common type of Etsy store.
Being a sole proprietor allows you to run your Etsy store without filing the paperwork necessary to establish a business organization. It’s the simplest business structure and the easiest to operate.
Note that your personal assets, properties, and income won’t be safe in times of legal disputes surrounding your business because there’s no distinction between your personal and business life.
Limited Liability Company (LLC)
Operating a limited liability company or LLC allows you to legally separate your personal assets from your business.
An LLC lowers the amount of personal risk you face when conducting business. Separating your personal and business assets can be a huge relief in case of a legal dispute.
Your business is a partnership if you sell online and operate your Etsy store with others. Note that a partnership doesn’t legally have to consist of only two people.
Running an Etsy store as a partnership means splitting business profits and tax responsibilities with your partners. Each of you will have to pay taxes from your profit share.
Legal Considerations to Run an Etsy Store
Here are some legal considerations when running an Etsy business.
Basic Business Operation License
A business operation license is a document proving you can legally conduct business within the boundaries of a specific area. It’s essential to check state and local laws before setting up your Etsy shop.
Talk to the small Business administration personnel in your location to learn more about the licenses you need to operate legally.
Employee Identification Number
Another name for the Employer Identification Number (EIN) is Federal Tax Identification Number.
Your employer identification number (or EIN) allows you to file taxes with the Internal Revenue Service (IRS) or a similar regulatory body in your area.
Most online sellers on Etsy set up their businesses as sole proprietors.
You don’t need an EIN if you’re a sole proprietor because you only report taxes on your tax returns. You only need an EIN if you operate a partnership or an LLC.
Home Occupation Permit
Getting a home occupation permit is necessary to run a business out of your home.
Note that authorities consider a home occupation a business or commercial activity on any property zoned for residential use—even if the said property isn’t technically your home.
Most city regulations allow the operation of a home-based business from a residential address. The authorities will consider your business illegal unless you have a permit from your local government.
Selling Food on Etsy
You can sell food online on Etsy.
You must comply with several laws and local regulations regarding food preparation, packaging, and sale.
Here are some things you need to know before you sell food on Etsy.
- You need to understand the principles of food hygiene.
- You must register your store as a food business with local authorities if you plan to sell food regularly.
- You must be knowledgeable about food allergies. Share allergen information with your buyers to show your commitment to maintaining high food safety standards. You should also follow Etsy’s rules regarding what information must appear on labels.
- Your food packaging should not pose a health risk to buyers. It should also reflect your business’s environmental commitment. Customers can tell if your store is environmentally conscious just by your packaging.
The Etsy seller handbook can help you learn the ropes of online food selling.
Physical Products vs. Digital Products
Tax and business license laws that apply to physical products don’t always apply to digital products. Some governments only impose taxes on physical products, while others impose taxes on physical and digital products.
I suggest you contact your local tax authority for more information.
State and local governments collect Etsy sales taxes based on your total sales. You must declare your sales if you live in a state where Etsy collects and remits your taxes.
On the other hand, you must report and pay your own taxes if you operate out of a location where you’re required to collect taxes yourself.
Researching the specific tax laws in your area is essential because sales tax regulations can vary from place to place.
Doing Business As (DBA)
Etsy sellers who want to do business under a unique name must file a DBA. If you sell online using a name other than your own, the DBA registration will reveal your actual name.
For instance, if Laura Kay wants to run her Etsy business under Laura’s Exquisite Jewelry rather than Laura Kay’s Jewelry, she would need a DBA.
You can only conduct business using your name unless you file a DBA.
Reasons for Using a Unique Business Name
- You don’t want to use your given name as your registered business name.
There won’t be a distinction between your personal and business names in public records unless you file a DBA.
- You want a memorable name that conveys the nature of your business.
If your name is Mike Smith and you have a pottery business, the name of your business is Mike Smith. After filing a DBA, you can use a name like M.S. Ceramics for your business.
- You need to file a DBA to open a business bank account.
It’s common for banks to request proof that you have filed a DBA.
- You need to file an additional DBA to run another branch of your business.
If you make ladies’ handbags but also want to make men’s wallets, you can separate the two categories by filing another DBA. You can have different DBAs under the same owner.
- You want a name that’s easy to remember.
Your given name might be hard to recall, spell, or pronounce. It could also be unfriendly to search engines.
The Bottom Line
Hopefully, my article has made it easier for you to understand the different licensing requirements for opening an Etsy shop.
Acquiring a business license isn’t enjoyable, but it ensures a secure and legal way to conduct business.
Spend time learning the specifics of setting up a business in your location. Once you know what you need, don’t hesitate to start your Etsy selling journey.