Do You Need a Business License to Sell Online?

Many new sellers listing on sites like Amazon, eBay, Etsy or their own website assume they don’t need a business license. The ease and anonymity that these platforms offer lead many to assume, “If it’s online, I probably don’t need a license.” However, this often isn’t true.

Selling online is still operating a business, and thus often comes with business licensing requirements. License requirements are based on a business’s location and goods/services, more than whether brick-and-mortar or ecommerce. How a business actually reaches its customers is a secondary concern with regard to licensing, if it’s relevant at all.

Ecommerce licensing requirements can be one of the most confusing aspects of starting an online business and selling online. Here’s an easy-to-understand breakdown of what online business license requirements you may be subject to.

Do you need a business license to sell online?

Most online sellers are supposed to have a business license. You likely need one regardless of where you sell online. Selling online is generally a business activity, and therefore generally subject to business licensing requirements.

Specifically, there are two primary licenses/permits that online businesses commonly need:

• General local business license: A basic business license that allows businesses to operate within a city, town or county. Check with your local municipal clerk and county clerk.
• Sales tax permit (seller’s permit): A filing that lets your business collect sales tax on purchases, and then remit the collected tax to the state. This is issued at the state level. It’s a standard requirement for businesses that sell taxable goods or services.

Other licenses could be needed in select situations, but these are the most common two. Remember, licensing requirements are based on where your business operates more than where your customers live.

Why online businesses are still subject to local rules

Because business license requirements are based on where your business is located, online businesses are subject to local rules.

And yes, even online businesses have a physical location somewhere. The location could be an office, physical storefront, or just your home. Small home businesses still have to follow local rules and regulations.

There are a couple of specific points to keep in mind when checking online business license requirements:

• Local licenses: Many online businesses are still subject to local zoning regulations, regardless of whether customers actually visit a location.
• Sales tax permit: States normally require online retailers to collect and remit sales tax if selling physical goods. Requirements for digital-only services vary more, depending on your state.

Additionally, be aware that there’s no one “online business license.” Local and state governments normally don’t have specific online-only licenses.

Do you need a business license to sell on Amazon?

Amazon Marketplace expects sellers to comply with any and all applicable laws, including license requirements where sellers are based. Amazon itself doesn’t automatically issue or verify local business licenses.

Opening a seller account is a separate process from obtaining business licenses. You may need a local business license, a sales tax permit, and an employer identification number (EIN). These can be obtained prior to setting up a seller account.

Do you need a business license to sell on eBay?

Similarly, eBay seller account approval doesn’t replace business licensing requirements. Selling on eBay is still selling, just with a different online marketplace acting as the platform.

Therefore, commercial sellers on eBay likewise must comply with any local or state licensing requirements. These can include a local business license, a sales tax permit, and an (EIN).

Whether you qualify as a commercial seller depends on how much you sell. There’s a difference between casual personal selling and operating an ecommerce retail business. The difference primarily comes down to volume and intent, the more you sell on eBay, the more likely you should get a business license.

For example, you don’t need a business license if listing just a couple of Christmas presents that never got returned. If you’re regularly thrifting and flipping, however, check local requirements.

Do you need a business license to sell on Etsy?

Etsy follows the same pattern. Getting approved on Etsy isn’t the same as obtaining business licenses, and you might still need a local business license, sales tax permit, and/or (EIN).

Volume and intent also comes into play with Etsy. A business licensee may not be necessary if only selling an occasional item on the platform. As soon as your volume increases or profits become more important, though, it’s not “just a hobby.” You very well could have a business at this point.

What kind of license does an online business usually need?

If you’re selling rockets that deliver wine to astronauts on the International Space Station, plan on getting numerous licenses. Thankfully, most online businesses are much simpler. These are the most common licenses online businesses usually need.

General business license

A general business license is issued by your city, town or county. It’s a simple license to file for, and basically acts as a registration fee that allows you to operate within the jurisdiction. Expect to spend just a few dollars, and to renew the license annually in most jurisdictions.

To find out whether you need a general business license, check with your city/town clerk and county clerk, They’ll be aware of the local requirements.

Sales tax permit (seller’s permit)

A sales tax permit, sales tax license and seller’s permit are all the same type of state business license. This is a filing that allows your business to collect sales tax from customers, and then report and remit the collected tax to the state. There’s often no charge for a sales tax permit, and many states don’t require these to be renewed.

Check with your state’s tax division for specific requirements. Expect to need this if you sell physical goods online. You might not need it if only selling digital goods/services (varies by state).

Home occupation permit

Some local governments require home-based businesses to get a home occupation permit. This type of permit can place restrictions on signage, traffic or storage, so that the business activity doesn’t disrupt the residential community.

Check with your city/town clerk and county clerk to see if you need a home occupation permit. Some municipalities require them, while others don’t.

What happens if you sell online without a business license?

Many online sellers are tempted to forgo business licenses, hoping to fly under the radar. Not being properly licensed can have unexpected, and sometimes severe, consequences, though:

• Fines: Local authorities can impose fines if you’re in violation of municipal or county licensing requirements. Any fines can be significantly more than the nominal fee for a general business license or home occupation permit.
• Late fees: You could still be assessed registration fees that you should’ve paid, adding onto any fines that are assessed.
• Tax penalties: You could owe past sales tax that wasn’t collected or remitted. The state could also add on penalties, fees and interest for incorrect handling of sales tax.
• Bank accounts: Sometimes not being properly registered can cause issues getting a business checking account or savings account.
• Lease: Sometimes landlords will only lease to properly licensed businesses, which could be an issue if you need an office or warehouse space.

Keep in mind that your exposure to these risks increases as your business grows. Getting properly licensed early on reduces stress, and removes these potentially costly consequences.

Setting up your online business properly

Getting licensees is one important aspect of properly setting up your online business. Proper formation doesn’t guarantee licensee approval, eliminate local compliance requirements, or ensure online marketplace success. It does free you to focus on actually running your business, though.

If you’re a new entrepreneur, there are a few specific steps to take when setting up your business:

• Business structure: Decide whether to operate as a sole proprietor (sole prop) or a limited liability company (LLC). An LLC provides legal protections, income tax flexibility, and some other benefits. You can learn more about creating an LLC on your own, or use Tailor Brands to go through the steps in a streamlined process.
• Business name: If you sell under a name that isn’t your formal business name (or personal name if a sole prop), you may need to register the name. This is commonly called a doing business as, DBA or assumed name. There may be a small fee.
• EIN: An employer identification number is a unique identifier that the IRS (and state) use for your business. LLCs need one, and sole props can get one.
• Separate finances: Every business owner should keep their personal and business finances separate. This makes bookkeeping easier, and provides more clarity if you’re ever audited. You can open a separate business bank account.

Again, these steps won’t guarantee approval or success. Taking care of them will enable you to focus more on actually running your business, though.

Conclusion

You’re likely running a business if you sell online, whether through a platform or your own website. That means you’re also likely subject to local and/or state business license requirements. Get any licenses you need, and then turn your attention toward operating and growing the business.

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