Do You Need A Business License to Sell on Etsy?
By Sam Nguyen
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Are you interested in selling handmade physical and digital products? If you are, then you must know Etsy - an enormous site focused on handmade or vintage items and craft supplies. If you have an intention to sell your products there, you may wonder if you need A Business License to Sell on Etsy?. Let’s find out an answer here on our article!
Why Selling on Etsy?
Etsy is an American eCommerce website that concentrates on handmade physical and digital goods. Opening a seller account is super easy for everyone, even the one without any prior retail experience or computer skills.
As a global community with 2.4 million active sellers and 44 million active buyers, Etsy generated a total of almost $1.1 billion in gross sales as of the third quarter of 2019. Therefore, Etsy is like a heaven for crafters to sell their items.
Besides, selling things on Etsy means that they will take care of creating a website for you. Your single job is to open an account and then upload product shots and details to build an Etsy store. A majority of Etsy sellers specialize in creating fashionable items for their customers, and even some have no idea of how to manage a business. However, in some states, you have to pay taxes on your Etsy sales, no matter you perceive it as a hobby or not.
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Do you need a business license to sell on Etsy?
Anyone can get access to Etsy to open an account. However, to stay away from violations and fines, you should guarantee that you are obeying state and local laws and regulations because they may be different among the regions. No matter how irregularly you sell your items and what you regard, a hobby or a job, a license may still be compulsory in your area. In other words, even if you do not take selling on Etsy seriously, the state, county, or municipality you are currently living in may demand a business license.
What are the most commonly needed business licenses for Etsy Sellers?
Basic business operation license
It is a permit that enables you to run your business under the geographical jurisdiction of the local government. The license conditions for running a business may be different in different states and cities; hence, to find out what permits are demanded in your region, you should contact your local Small Business Administration office. The licensing requirements are normally insignificant for eCommerce retailers, and even though the application fees differ by city and state, they range from $50 to $100.
Employer Identification Number
You will report taxes to the IRS via an Employer Identification Number. For Etsy sellers, it is very popular that their business is registered as a sole proprietorship. In this case, you do not have to procure an EIN because you will report taxes on your tax returns. But if you have created a partnership or LLC, an EIN will be required.
Home occupation permits
If you have run your business outside of your home, you must obtain a Home Occupation Permit. It will not be a big deal for the majority of online merchants. However, if you are currently manufacturing your products outside of your home like a great deal of Etsy merchants, you must have this permit. To understand the local requirements, you can examine with your city’s local SBA or city hall.
Once again, remember that the requirements for business licenses and permits are different in different states and cities, you should contact your local SBA to see an entire list of your local permit requirements. A majority of places have an office that supports small businesses to launch, and they will guide you with the paperwork and manage things well.
What are some legal requirements you may need to comply with?
The laws relating to tax and business licenses do not always adhere equally to digital and physical products. Some states demand the collection of sales tax on physical items only, whereas others apply for both physical and digital products. You should contact your local taxing authority and accountant to specify whether your purchasers may need to pay sales tax and whether you will have to collect it from them.
Product Type: Digital Vs. Physical Products
The laws relating to tax and business licenses do not always adhere equally to digital and physical products. Some states demand the collection of sales tax on physical items only, whereas others apply for both physical and digital products. You should contact your local taxing authority and accountant to specify whether your purchasers may need to pay sales tax and whether you will have to collect it from them.
Sales and Use Tax
A lot of states expect Etsy sellers to collect sales tax. Based on the region where you are operating your business, sales and use tax can be involved. Bear in mind that in June 2018, the Supreme Court ruled that a state can ask online sellers to collect sales tax, regardless of whether there is a physical presence of the online seller in that state or not. Online sellers must register for a license, collect, and remit sales taxes in any state that requires a sales tax.
Besides state sales tax, you might also have to collect local sales tax based on your local regulations. To figure out the tax for your state, you can go to your state and local government website.
Doing Business As (DBA)
To stand out from the crowd, a majority of sellers on Etsy come with unique names for their store. By doing this, they also make the customers recognize what kind of products they are offering. Note that you must register for a Doing Business As (DBA) with your state or locality if you sell products under a name that is not your own. It will be compulsory no matter you are obliged to be licensed.
Special licensing for selling foods
To sell food on your Etsy store, then you must be certified through your local Health Department. With useful resources, the U.S. Food and Drug Administration will support you in navigating the numerous requirements for U.S. sellers. Besides, you can also see a seller’s handbook on Etsy to gain better insight into selling food online.
Local business license requirements
If you sell things on Etsy just for fun, then will you have the same business license requirements for your store? Well, it may depend. The IRS demands that the revenues you get have to be reported on your federal tax return no matter what your purpose of being on Etsy is. The requirements vary by state. To find out a simple answer, you will have to contact your state and local taxing authorities.
Conclusion
To sum up, this article helps you to answer the question: Do You Need A Business License to Sell on Etsy?. Overall, whether you need a license may depend on where you live. If you are curious about the law, the best solution is to get in touch with your state and local taxing authorities. We hope that you operate your Etsy store successfully and follow the legislation.
If you have any questions, comments, or concerns, do not hesitate to leave a comment below or directly contact us. We are always ready to help you out in case you need anything. Furthermore, if you find our article useful, then you can share it with your social network’s community. We would appreciate it if you could do that.
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