Selling online offers an excellent opportunity to make money and broaden your customer base. But this leads us to an essential query: Do You Need a Business License to Sell Online?
Whether you’re offering handcrafted items, digital goods, or various services, you may be required to obtain permits and licenses from federal, state, and local governing bodies.
In this Do I Need a Business License to Sell Online article, we’ll delve into the different business licenses needed for online sales. We’ll also guide you step-by-step through the licensing procedure, ensuring that your ecommerce business operates both smoothly and legally.
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What Business License Do I Need to Sell Online
There is no single license for ecommerce businesses; the license you need will vary by state and city. Keep in mind that nearly all businesses, whether operating online or offline, require a business license.
Factors Influencing Business Licenses for Online Sellers
As ecommerce evolves, there are several factors that may determine the type of business license you may need to sell online. Some of the common factors include:
- The location of your business or its physical presence, such as a warehouse or office
- The type of products or services you are selling online
- The sales tax regulations in the state where you are selling or delivering your products or services
Be aware that as an online seller, you will need to comply with certain legal requirements, such as obtaining business licenses and permits from the relevant local, state, and federal authorities.
Types of Business Licenses for Online Selling
If you’re considering getting a license for your online business, below are some that you might need:
- Seller’s permit or vendor’s license: This license allows you to collect and remit sales tax to the state. You may need this license if your products or services are taxable. You may also need multiple seller’s permits if you are selling to customers in different states
- Professional or occupational license: This license is required for certain professions or occupations that are regulated by the state, such as lawyers, doctors, accountants, etc. You may need this type of license if you are offering professional services online
- Home occupation permit: This permit is required by some local governments if you are operating your online business from your home. You may need this permit if your home-based business affects the zoning, noise, traffic, or safety of your neighborhood
Let’s explore some of the ways in which your business may require these types of licenses and permits.
- If your business is based in California selling handmade crafts, you might need a California business license and a seller’s permit if you are collecting sales tax
- If you’re a business selling regulated products, like alcohol, you’ll need additional local permits and even a federal license. In fact, selling alcohol online or offline is a regulated activity that requires a federal business license from the Alcohol and Tobacco Tax and Trade Bureau (TTB) of the US Department of the Treasury
- If you’re a business based in Texas but selling primarily to New York customers, you will need a vendor’s permit for New York
To guarantee compliance with all these legal obligations, it’s a good idea to consult a business attorney or check with the appropriate federal, state, and local licensing authorities.
Alternatively, many online businesses choose to use third-party services to manage the licensing process for them.
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How to Get a Business License
Before starting a business online, you must first secure a business license. The process and requirements to acquire such a license differ across cities and states, and the associated costs can amount from $15 to a few thousand dollars per year.
Below are the common steps to obtaining an online business license.
Step 1: Form Your Business
One of the first decisions you’ll make is choosing a business structure. The most common structures include sole proprietorship, general partnership, limited liability company (LLC), and corporation.
For online businesses, many choose the LLC structure. Online sellers might run into issues like problems with their products or disagreements with customers. Having an LLC helps keep their personal assets, like their house or car, safe from these business-related liabilities. Plus, with an LLC, they can pick a tax setup that’s best for them, saving them money in the long term.
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Step 2: Obtain an EIN
Your Employer Identification Number (EIN) is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to businesses. It’s essentially a social security number for your business.
An EIN is required for reporting taxes and helps the IRS identify and track business transactions. If your online business wants to establish credit, an EIN might be required by lenders or credit companies.
Note: If your business is a sole proprietorship and you don’t have employees, you can use your Social Security Number (SSN) in place of an EIN.
Step 3: Apply for Licenses and Permits
As an online seller or business owner, you need to apply for licenses and permits from the local, state, and federal levels.
Here are some general steps on how to apply for and obtain a business license for online selling:
- Local licenses: If you’re operating your online business from home, some states might require a home occupation permit or remote license in addition to your local business license. You may check the local requirements and process on your city or county’s official website or by contacting your local government office. For example, In Vancouver, Washington, home-based businesses might need to apply for a home occupation permit from the Community Development Department. Meanwhile, in Colorado Springs, Colorado, they must apply for a home occupation permit from the Development Review Enterprise
- State licenses: If you’re selling tangible goods, most states will require you to collect sales tax and apply for a seller’s permit ( also known as a sales tax license) at your state’s Department of Revenue. If you’re in a profession that requires occupational licensing, such as accounting, healthcare, cosmetology, legal services, or daycare centers, you may need to apply via the appropriate state board or commission
- Federal licenses: If you’re selling products that are regulated by a federal agency (e.g., alcohol, firearms, wildlife products), you’ll need a federal license. You can visit the appropriate agency’s website or contact them for licensing information. The application process will vary depending on the agency and the types of products and services that you provide
Note: It’s always a good idea to directly consult with local, state, and federal offices and websites to make sure you’re getting the latest and most accurate information for your online business requirements.
Step 4: Renewal of Licenses and Permits
Licenses for businesses that operate online or remotely usually last as long as those for brick-and-mortar businesses. The exact duration depends on the type of license and the issuing authority, either annually, biennially, or longer.
For example, if you run a business from your home, you might need a home occupation permit, which often needs an annual renewal. Note that the duration can change based on the city or county where you conduct business.
Furthermore, you might need a seller’s permit especially if selling to customers in multiple states, which usually needs to be renewed every year.
You should always check the state and local regulations for both your home and business location before applying for or renewing a home occupation permit or a remote license. You can also consult with a tax professional or an attorney to ensure compliance with all applicable laws.
However, most online sellers and home-based businesses often opt to use third-party service providers to handle the business licensing process on their behalf.
If you’re interested in finding out more about this process, see our article on How to Get a Business License.
Do I Need a Business License to Sell Online FAQ
Can you sell on Shopify without a business license?
Yes. You can often sell on Shopify without a business license. However, if you earn over $20,000 monthly, store regulated items at home, or need a specific license for your business type, it’s recommended to obtain one to avoid potential legal issues.
Do I need a business license to sell online in the US?
To run an online business, you usually need a business license from your home city or state. In some states, a seller’s or sales tax permit might also be necessary. It’s best to check your state and local government websites for information on general business licenses. Read our guide on Do I Need a Business License to Sell Online.
Do I need a business account to sell online?
No. Many online platforms allow individuals to sell items without a formal business account. But if you plan to operate on a larger scale or as a registered business, a business account can offer benefits like transaction tracking, tax documentation, and professional appearance.
What are the legal requirements for an online business?
Online businesses may need to take a few key legal steps. Businesses may need a seller’s permit for online sales or require a federal, state, or local business license. For more information on the common steps of business licensing, go to our How to Get a Business License page.
For all related articles, have a look at our How to Get a Business License page.