Do I need a business license to sell online?

Are you thinking about taking your hobby to the masses as a marketplace seller — to make a few dollars selling on Amazon, eBay, or Etsy? If so, you’re probably wondering if you need a business license to do it.

The short answer to that is: It depends. Etsy, Amazon, and other marketplace retailers don’t require sellers to hold a business license. And if you plan to remain an “on-the-side” seller, simply making some extra money here and there, certain states don’t mandate licenses either. But if you want your hobby to turn profits, and if you want to grow a business, then you’ll probably need to secure a business license — especially if your merchandise is federally regulated, such as alcohol, tobacco, or firearms.

Now, even if you intend, from the start, for your business to operate as an online marketplace seller, you may not have to rush out and grab a business license right away in some states. The beauty of not needing a license is that you can take the time to build your business, see if it can turn a profit, and determine if you’re on the right track. But check with your state and local tax authorities. Some states and local municipalities require a business license for even the most menial of sales — like garage sales — but others are more accommodating. The answer always lies with your state and local tax authorities.

Separate personal and professional

If your local governments don’t require a business license right away, you’ll want to look into securing one once you begin to turn a profit. You can register as a sole proprietor instead of a distinct business, but that will leave your business profits and taxes connected to your personal finances and tax filings.

And then there are the sales tax tangles. If you’ve got ample earnings, you’re probably selling to customers across the United States, in which case you’re likely obligated to comply with sales tax collection and remittance rules in each state if your sales are over a certain threshold. The more sales tax you’re on the hook for, the more likely the IRS will notice you.

Do I need a business license for every state?

If you decide to apply for a business license, you only need a license for your state and maybe your local municipalities, depending on their requirements. However, you will need to acquire a sales tax ID in each state that imposes sales tax to be able to collect and remit those taxes.

Will the marketplace help secure a business license?

Some sellers have wondered if the marketplace they’re selling through can issue business licenses. Unfortunately, they cannot. Only your state and local governments can do that, and you must apply on your own.

Where do I start if I want to get a business license?

Check with your state and local governments. Every state bears different regulations, requirements, and processes. Some offer easy-to-follow “one-stop shops” online to complete the process; others make you work a little bit harder.

You can also take advantage of organizations such as the U.S. Small Business Administration, Small Business Advice, or Business Licenses. Their sites present state and industry-specific business license information and can also guide you step by step to determine what licenses you may need.

To take a deeper dive into getting a new business license, read Business licenses: How many do you need, and how do you get them?

Cover photo by Canva