Do you need a business license to sell on Etsy?
If you read Etsy's Beginner's Guide on Selling, you'll see that there is no requirement to have a business license to sell products on the platform. But, just because Etsy says you don't need a license doesn't mean you are off the hook.
If you want to start your own Etsy shop and are curious about the legal requirements, you're at the right place. Keep reading to learn which business licenses you might need for your Etsy store and other pertinent details unique to selling on this platform.
Do I Need a License to Sell on Etsy?
In 2021, a staggering 7.5 million sellers sold products on Etsy to 90 million shoppers. If you're starting an Etsy store, you'll need to ensure you have the right licenses. It will multiply your chances of success.
Business licensing and permits are a tricky subject as a lot is dependent on the following:
What You're Selling
You might require a license or permit based on the product you're selling. It's a whole different game when you're selling food items vs. handmade photo frames. Few states also require you to have a license if you sell a physical product vs. a digital product (some require it for both).
Where You're Based
Certain states, counties and localities have stricter regulations regarding who can sell online. For example, California requires you to register and have a seller's permit to sell on Etsy even before you make the first sale.
How Much You Sell
In some states, you're required to get a seller's permit once you hit a certain sales threshold. For instance, Oklahoma requires sellers to obtain a seller's permit when their sales go above $10,000 per year.
Selling as a Hobby vs. a Business
The licenses you'll need are also subject to whether you're running your store as a hobby or as a business. Read the IRS Guide on distinguishing between a business and hobby to help you assess where your Etsy shop lies.
Remember, while selling as a hobby might sound simpler as it exempts you from getting licenses, it doesn't protect your business from any liabilities, and you also won't be able to claim any business-related deductions come tax season.
You can quickly research and identify the required licenses for your business via Incfile's Business License Research Services.
Does Etsy Report to the IRS?
Yes, they do. Etsy is legally required to report your gross income to the IRS and local tax authorities via Form 1099-K if you hit above $600 in annual sales.
Even if you don't receive a 1099-K, you need to report all Etsy sales income on your tax return. If you are running a sole proprietorship, you can report this income on your individual tax return.
What Licenses Do I Need to Sell on Etsy?
As stated above, multiple factors affect which business license you'll need. Some most common licenses and permits are
Basic Business Operation License
This license gives you permission to operate. To understand the local requirements, check with your city's SBA or Secretary of State website, describe your business and they'll guide you on which license to get.
For the majority of ecommerce businesses, the permit costs between $50-$100.
Home Occupation Permit
Just because you are home-based doesn't mean you're exempt from licenses and permits. In certain localities, the Home Owners Association (HOA) may require you to get a home occupation permit for your home-based business to be legal. This permit also might be required if you are manufacturing your product outside of your home and then selling it online.
A seller's permit, aka "seller's license" or "sales tax ID," is a state permit required when you are selling products where a sales tax is applicable. Again, the requirements, fees and processes vary by state, so check with your state's Department of Revenue to ensure you are abiding by the law.
Employer Identification Number (EIN)
An EIN is required if your business is registered as an LLC or partnership for reporting taxes to the IRS.
If you're operating as a sole proprietorship, which the majority of Etsy owners are, you don't need an EIN.
Any Other Legal Requirements?
Many Etsy owners have a catchy business name for their stores, and why not? A strong business name helps connect with customers, creates a buzz for your brand and gives an identity to your shop.
In order to operate a store under a unique, more brand-appropriate name, file for a "Doing Business As" or DBA certificate.
Also, you aren't permitted to sell anything that is copyrighted or trademarked in your store. It's best to sell items that are completely original and steer away from any sort of external "inspiration."
Licenses: Safest Way to Protect Your Business
Numbers show that Etsy will continue to remain the top market for sellers and buyers. Even if you're selling on Etsy as a hobby, your revenue amount or the state or jurisdiction you operate from might demand you have certain licenses.
If you're serious about your Etsy shop and wish to run it as a legitimate, for-profit business, get the right licenses because you don't want the IRS or local bodies chasing you or piling up fines on your store. Having the correct licenses and permits is one of the safest ways to go about protecting your store.
As every state and business bear different requirements — trying to research which licenses and permits are applicable can be confusing. Incfile's Business License Research Package simplifies all the chaos and uncertainty. Simply tell us details about your business and we'll get back with which business licenses are required and how to go about getting them.