Do you need a business license to sell on Etsy?
Simply stated, Etsy does not require sellers to have a business license and encourages you to contact a qualified professional if you have concerns.
You may not be aware that, in accordance with legislation, you do. This blog post will cover the legal issues of selling on Etsy and what to do if you require a business license. Continue reading for more!
Etsy is a popular platform for selling goods because it’s quick and easy to use.
Etsy’s 3.3 million active vendors may begin selling with little to no start-up costs, inventory, or prior retail expertise. Furthermore, the site includes a ready-to-use consumer base to get started trading straight away. It is a great place if you follow the best SEO practices, and learn about how shipping works.
The most pressing issue you may have when beginning your store is what to name it. However, there’s a far more essential inquiry you should be asking: Do I need a business license to sell online?
Table of Contents
- Do you need a business license to sell on Etsy?
- Business license considerations for Etsy sellers
- How to decide if you need a business license to sell on Etsy:
- What business licenses do I need to sell on Etsy?
- Is it safe to sell on Etsy without a business license?
- How to Apply for a Business License to Sell on Etsy?
- Other legal considerations of selling products and crafts on Etsy
- In Conclusion
Do you need a business license to sell on Etsy?
Etsy is a digital and physical marketplace for artists, artisans, and small businesses. Anyone with an account may sell digital and tangible goods, from wall art you can print at home to handcrafted jewelry and vintage items.
However, being a business on Etsy is just that: it’s starting a company. And, as with any other business, there are legal issues to consider. You may need to obtain several company licenses and permissions in order for your items to be sold on Etsy.
What does Etsy say?
If you’re unfamiliar with local, state, or federal company regulations, you might seek advice from Etsy.
However, you’ll quickly discover that the site doesn’t provide much assistance. In the Help Center search bar on Etsy, type in “business license,” and you’ll get just one result: The Beginner’s Guide to Selling on Etsy.
The Etsy business license guide consists of two short paragraphs on the topic. Simply put, Etsy does not need sellers to have a formal business license and encourages you to talk with a professional if you have concerns.
However, here’s where things get complicated: It doesn’t matter whether or not Etsy requires a business license; you do need one and should obtain it.
Business license considerations for Etsy sellers
So, do you need a business license to sell online? Unfortunately, there isn’t a straightforward response. It can depend on:
- Where you live. Some jurisdictions have stronger rules than others. Even if your sales are only temporary, California wants you to register and obtain a permit before selling online.
- What you’re selling. If you intend to operate a business, it’s important to acquire the appropriate license. If you’re selling digital printable planners rather than handmade leather wallets, for example, you’ll almost certainly need different licenses and permits.
- How much do you sell? In some states, you don’t need a business license unless your sales rise above a certain level. In Oklahoma, for example, only a seller’s permit is required if taxable sales reach $10,000.
How to decide if you need a business license to sell on Etsy:
- Are you operating your Etsy store as a business or a hobby? While the IRS provides vague instructions on how to determine whether your company is a hobby or for-profit, here’s a short summary: If you’re doing it to make money, not for fun, it’s a business, not a hobby. To lawfully function, businesses will be required to acquire the appropriate corporate licenses.
- Are you making a profit on Etsy? If you’re making a profit on your Etsy business, you must submit your profits to the IRS. Etsy will report your gross revenue to the IRS, but you must also disclose your earnings personally.
- Is your company a partnership or LLC? If you’ve created your Etsy store as a partnership or LLC, you’ll need to acquire business licenses and an EIN for your firm.
What business licenses do I need to sell on Etsy?
If you’re running an Etsy store and making a profit, you’ll have to adhere to the same rules as any other internet vendor.
You must acquire the necessary licenses whether you’re selling on Etsy instead of your own website or not. We’ve compiled a short list of the most frequently required licenses for Etsy retailers below to help you get started:
The 3 most commonly-needed business licenses for Etsy sellers:
- A basic business operation license. This is a license that allows you to operate your company within the city’s geographic jurisdiction. The rules for running a business in each state and city are different, so contact your local Small Business Administration office to discover what licenses are necessary for your area. For online retailers, the licensing restrictions are typically modest, and the application fees range from $50 to $100 (although this varies by city and state).
- An Employer Identification Number (EIN). An Employer Identification Number is a nine-digit number that you’ll use to report taxes. You don’t need an EIN if you’ve registered your firm as a sole proprietorship, which is how a lot of Etsy sellers go. If you’ve established a partnership or LLC, you’ll need an EIN.
- Home Occupation Permits. If you operate a business from your house, you may need to acquire a Home Occupation Permit. This isn’t an issue for most internet retailers, but if you’re producing your items at home (like many Etsy merchants do), you’ll probably need this permit. Check with your city’s local SBA or city hall to see what’s required locally.
Because the requirements for business licenses and permits differ significantly by state and city, we strongly advise you to contact your local SBA to obtain a complete list of your local permit needs.
Is it safe to sell on Etsy without a business license?
If you’re selling on Etsy as a commercial enterprise, you can’t do it. While many major vendors continue to sell on Etsy without the relevant business or tax licenses, they are putting themselves at risk of being identified by the IRS and liable to local or state fines.
We recommend that if you want to develop your Etsy store into a real business, you get the necessary licenses. We don’t know of many individuals who have interacted with the IRS and emerged unscathed.
You don’t need a business license if you’re just selling on Etsy and aren’t making money. In other words, casual sellers on Etsy (which account for the majority of their merchants) do not need a company license.
If you want to operate your Etsy store as a legitimate, money-making company, you must report your revenue and acquire business licenses. If you’re just getting started with your firm and aren’t sure whether it’s viable yet, the five-year exemption allows you to put off making that decision.
Etsy does not require vendors to hold a business license in order to sell on its platform. However, the inquiry does not stop there. A merchant of items on Etsy may need a company license or permit from the municipal, county, state, or federal authorities that regulate businesses.
Your Etsy store is either a business or a pastime, and you’ll need to acquire a license for each. If you have a company, you’ll need a company license. You won’t if you’re doing it as a hobby.
So, first and foremost, you must determine if your Etsy activity is a business or a pastime.
Do You Have a Business?
The IRS considers nine factors to determine whether your activity is a hobby or a business. They consider how much time and effort you put into the activity. They also inquire if you run a business like one and rely on income for your livelihood.
The IRS considers you to be a business if you made money in at least three of the past five years. You can also form a company if you want to run a profitable operation.
The advantage of starting a firm is that you may deduct business costs from your Etsy earnings. The disadvantage, on the other hand, is that you must obtain a company license.
Do You Have a Hobby?
If your Etsy activity is a pastime, you may not deduct anything more than the money you make from the hobby. So, for example, if you spend $200 to create an item and sell it for $150, you can’t claim a loss of $50.
So if you are merely engaging in a hobby, you do not need a business license.
However, keep in mind that you must pay taxes on any earnings, even if it’s categorized as “unearned income.” As a result, any money generated from your Etsy store is taxable.
How to Apply for a Business License to Sell on Etsy?
In some countries, such as the United States and Canada, a home-based or internet company must be licensed. To acquire a business license, you must fill out an application for a commercial license and pay a fee. You will also have to pay an annual renewal charge for your business license.
To begin, though, you must decide on a company name and an organizational structure.
#1: Business Name
Choose a name for your business. Because it is your brand, pick a company name with care. You might utilize part of your name or describe your product in your business name.
When choosing a name, think of something unforgettable and easy to spell and pronounce. You’ll want your name to stand out among the competition, especially if you’re selling online.
Business Name and Trademark Search
When you’ve chosen a name, check to see whether it’s already been taken. To do so, use your state secretary of state and USPTO trademarks database to look for prior name registration. If the name is already registered, don’t use it.
Business Name Registration
If the name is available, you should acquire it for your company.
You register it as a fictitious name or DBA (doing business as) with your local government if you are a single proprietor.
When submitting the formation documents with the Secretary of State, you must file the name.
#2: Business Structure
On a business license application, you declare your company’s status. Sole proprietorship, corporation, limited liability company (LLC), and other business organizations are the options.
You run a one-person Etsy shop as a sole proprietor. As a result, you would report any Etsy income (as well as any losses up to your Etsy income amount) on your individual tax return.
The advantage of a single proprietorship is that there is less paperwork to complete. As a result, it’s probable that the owner of an Etsy store with one working member is a solo entrepreneur.
Corporation or Limited Liability Company (LLC)
The following are some of the benefits that a corporate entity, such as a corporation or limited liability company (LLC), provides to an Etsy vendor:
- Liability protection. A corporation or LLC isolates your commercial activities from your personal finances. As a result, any company lawsuits or obligations do not harm your own money. In this scenario, a client might sue you for a faulty product or personal harm caused by your item. In that situation, the consumer would have to go after the company’s assets only. Etsy sellers generally face little risk of lawsuits. If you sell goods that may have faults or cause personal injury, you should incorporate a business entity.
- Tax advantages. There are benefits to forming an S corporation or a limited liability company, such as tax advantages. An S corporation is a special IRS identification that allows corporate profits and losses to be passed through to your personal income tax return. An LLC also provides the same tax treatment. You can deduct all Etsy business expenses, even if they exceed your earnings, as a formal company.
- Other advantages. A corporation or LLC may also provide a number of advantages. For example, you will project a more professional image and obtain business lines of credit or loans for your firm. If your Etsy store grows, you may possibly attract investors and staff. It’s a good idea to consult with a local business attorney about the best commercial structure for your sort of Etsy business.
#3: Other Licenses and Permits
In addition to a business license, firms must also possess various licenses and permits to conduct business.
Employment Identification Number (EIN)
You’ll need a tax identification number (EIN) if you have a company. You obtain an Employment Identification Number (EIN) from the IRS to distinguish your business from yourself. To establish a business bank account, apply for lines of credit, or file corporate taxes, use the nine-digit number.
If you are a sole proprietor, you must use your social security number. You don’t need an EIN unless there’s a good reason for it, but there are certain situations where obtaining one is beneficial. For example, to combat the risk of identity theft.
A seller’s license, also known as a “sales and use” license or a “sales tax ID,” is a government-issued permit that allows you to sell your items in that state. It is the equivalent of an occupational license in other countries.
In South Dakota v. Wayfair, the Supreme Court clarified the legal situation for internet sales tax. The justices ruled that internet retailers, even if they don’t have a physical presence in a state, must collect and remit sales taxes in those states where it is required.
In many countries, you just need a license for your business if your online sales exceed a certain amount or a set number of sales transactions. Sellers who sell more than $100,000 per year or have over 200 transactions each year are examples of those who would require such licenses.
However, Etsy may take care of the sales tax requirement. “Etsy will collect the sales tax amount from the buyer and pay this to the relevant tax authority in some jurisdictions,” according to Etsy’s Fees and Payment Policy. To determine whether Etsy collects sales tax in the states you offer in, go to their Where Etsy Collects and Remits State Sales Tax help page.
Make certain that Etsy is collecting and remitting state sales tax for you.
Other legal considerations of selling products and crafts on Etsy
You may also need to follow additional legal guidelines in some situations. You must not distribute copyrighted goods on Etsy, which is illegal and against Etsy policy. The only exception is if you have the creator’s or copyright owner’s permission.
Some sellers believe that crediting the original inventor is the best way to avoid copyright infringement on Etsy. However, this isn’t correct. It’s preferable to stay true to your own unique ideas and innovations.
A business license is required if an Etsy seller’s work is considered a company. If it’s a pastime, no license is necessary. However, determining whether you have a business or a hobby might be difficult. As a result, you could want to seek advice from a small business attorney.