With over 5 million sellers, Etsy is one of the popular online platforms for people to sell their hand-made or specialty products. Therefore, if you are looking to become a seller on Etsy, you are on the right track.
However, as you start a business, a lot of legal issues await you to resolve. By and large, you need to question yourself – Do you need a business license to sell on Etsy? This concern is very common for many Etsy beginners.
In this article, we will show you whether or not you need a business license and if the answer is ‘Yes’, then what types of licenses are required.
Do you need a business license to sell on Etsy?
Etsy’s seller policies do not require you to have a business license to sell on their platform. However, municipal, county, state, or federal agencies that regulate businesses may need a license or permission from you.
Furthermore, the fact that you need to provide a business license to federal agencies depends on your Etsy store activities. You don’t need a license if you’re doing it as a hobby.
If you own a business, you will certainly require a business license in order to operate lawfully.
What if your Etsy store is a hobby?
You don’t need a business license if you’re operating your Etsy store as a hobby and aren’t making any money. Specifically, hobbyists, crafters, and other casual Etsy users do not need a business license.
You don’t need a business license when your Etsy activity is a hobby
Some people, for instance, open an Etsy store just to express their creativity and share their art and crafts with the world. Thus, they don’t care about turning their store into a viable business, so no licenses are needed.
What if you have a business?
The IRS outlines 9 factors that can assist you in determining if you have a business, including:
- Whether you conduct your activity like a professional business and maintain comprehensive and correct books and records.
- Whether or not you have personal motivations for continuing the activity.
- Whether the amount of time and effort that you devote to the activity indicates that you want to generate money from it.
- If you rely on the activity’s money for a living.
- If your losses are the result of events beyond your control (or are normal in the startup phase of your type of business).
- Whether you or your advisers have the necessary knowledge to run the firm successfully.
- Whether you have previously been successful in producing a profit from comparable activities.
- Whether or not the activity generates a profit over a period of time, and how much profit it generates.
- If you may anticipate making a profit from the appreciation of the assets employed in the activity in the future.
Once you decide that you are having a business, you need to apply for a business license.
Applying for a business license to sell on Etsy
A business operation license is a permit that allows you to run your business within the geographical jurisdiction of the local government.
The permit will cost eCommerce merchants between $50 and $100. The cost, however, will vary depending on where you live as various places have different rates.
If you are running an Etsy business, you need to file a business license application.
You must fill out a business license application and pay a fee to obtain a business license. After that, you’ll have to pay a charge to renew your company license every year.
Business Name Registration
First, you need to carefully decide on a business name, ensuring that your selected name is unique and not used by others.
To do so, look for your name in the Secretary of State’s database and the USPTO’s trademark database. Do not use a name that has already been registered.
Select an Etsy business name which has not been registered before.
Normally, your Etsy nickname is highly likely to differ from your business name. Hence, you will need to register it with your local government by filing a fictitious name or DBA (Doing Business As).
This regulation lets consumers know which entities are behind your company name.
Business Structure
After that, you will have to explain your business status on the business license application, whether it is a sole proprietorship, corporation, limited liability company (LLC), or other business entity.
Other legal requirements of selling products and crafts on Etsy
You may need to comply with other legal requirements in addition to owning a business license.
Employer Identification Number
An Employer Identification Number (EIN) or Federal Tax ID is a nine-digit number provided by the Internal Revenue Service (IRS) to businesses operating in the U.S. for identification purposes.
This ID allows the IRS to view your business as a separate entity from yourself when filing your federal tax return. Moreover, it can be used to create a business bank account, obtain lines of credit, submit business taxes, or dial the number.
Only an LLC or a Partnership needs to have an EIN.
However, only those who register their business as an LLC or a Partnership need to have an EIN. Otherwise, you will use your social security number instead of EIN when you register your Etsy business as a sole proprietorship.
As a result, you will only report taxes on your personal tax return.
Sales Tax
You may be taxed based on your sales when selling on Etsy.
Even if your transactions are only online, you may be required to collect sales tax. You should keep in mind that sales tax regulations for physical goods vs digital products vary by territory.
Some places, for example, treat physical and digital things differently. As a result, only physical goods will be subject to sales taxes. On the other hand, states that consider both sorts of items equally will tax them all.
Home Occupation Permits
In fact, the majority of Etsy sellers work from home, so there are specific requirements for home-based businesses. Once again, check with your local SBA to see what licensing requirements exist and procure a home occupation permit for your home-based business.
License to sell food
On Etsy, selling food or other edible items is typically accepted. However, there are a number of government laws that limit who is permitted to manufacture, package, and sell food.
For example, it is important to obtain a certificate from the Health Department in order to sell food online on Etsy.
Selling food on Etsy is allowed as long as you meet the government’s requirements.
Therefore, it is not always about the question “Do you need a business license to sell on Etsy?”. Sometimes, it is more likely to be “Do you need a license to sell some products on Etsy?”
HOA Approval
Your homeowner’s organization may also have restrictions regarding home-based businesses. So, if you’re going to run a business out of your house, check out the HOA (Homeowner’s Association) rules.
Check your territory requirements
You should keep in mind that all the regulations vary by the territory of your residence. Each location has its own set of rules.
Therefore, we recommend that you ask your local SBA (Small Business Administration) for a thorough list of your local permission requirements.
In conclusion
Now, the question ‘‘Do you need a business license to sell on Etsy?’’ has been answered. It is a ‘Yes’ when you run your Etsy store as a business and make a profit. And it is a ‘No‘ when your Etsy activity is a hobby.
In our opinion, you can decide whether you have a business or a hobby based on the IRS guidelines. However, its guidelines are somewhat vague and difficult for you to determine. Therefore, we suggest you should consult a small business attorney to help you out.