Thinking about selling online? If that is the case, you may have wondered, do you need a business license to sell online at some point.
And, in fact, you do — together with a combination of other permits and licenses that are required under state and federal law.
It is crucial in establishing your business as legitimate and shows the government’s approval to operate in the area for which the license is valid.
What Is a Business License?
A business license is a permit issued by the government to a business that gives permission to do what is stated in the license.
There are several types:
- A business license, also called a business operating license or general business license. It allows working as a company in a certain area. The licensing requirements and fees to obtain it vary from location to location, and it needs to be renewed every few years. Almost every business — online or otherwise — needs this license.
- Seller’s permit, also called sales tax license. Authorizes a business to collect and remit sales tax on products that qualify to be taxed. The need for it for small businesses differs between the states: some require taxes to be collected for tangible items only, while others demand that service-based businesses (like accountants or therapists) collect the tax as well, which means obtaining a seller’s permit is necessary for them.
- Resale/wholesale certificate. Allows a business to buy wholesale products for resale and items to use in manufacturing other products for resale without paying the tax twice. Sales tax for those purchases is collected later when the item is bought by the final customer.
- Doing business as (DBA), also referred to as a fictitious name statement, trade name, or assumed name. Allows the business to operate under a different name than your own or your business partner’s full legal name. Whether you need to register a DBA or not depends on a combination of the business's legal entity, the local requirements, and your own preference.
- Federal business license. Necessary for businesses that operate in regulated industries.
- Professional and industry licenses. In some states, certain professions, like accountants, real estate professionals, etc., need these types of licenses. They are also sometimes called occupational licenses.
- Home occupation permit. May be necessary if you are operating your online business from home, especially if you are hiring employees or shipping from home.
Getting a business license is different from incorporating or registering a business as a sole proprietor. Most new businesses need to both register with the state or local government and get a license.
Do You Need a Business License To Sell Online?
Most small businesses need a combination of licenses and permits from both federal and state government agencies.
The specifics and fees differ slightly between different locations, business activities, and government rules. Some states require one to have a license from the very first sale, while others allow one to operate without one until their sales surpass a certain threshold.
What Type of Business License Do Online Sellers Need?
Depending on your local laws, industry, and the products you sell, you may need these licenses and permits:
- A business license.
- Seller’s permit/sales tax license.
- Resale/wholesale certificate.
- Federal license or permit if your business is in a highly regulated industry. These include agriculture, aviation, alcoholic beverages, firearms, ammunition, explosives, transportation and logistics, and others.
- Home occupation permit for a home-based business.
Do You Need a Business Licenece to Sell on Amazon?
If you sell through Amazon, Etsy, or other marketplaces, you might not need a sales tax license until your sales reach a certain threshold. But if you are physically present in a state you sell to, you are required to register in that state regardless of the amount of sales.
How To Get a Business License for Online Selling
In order to get a business license, a small business generally needs the following:
- Business owner’s legal names and their contacts.
- Business name and contact information.
- Employer identification number (EIN).
- Required permits.
You’ll need to register with several local, state, and federal regulatory agencies.
- Register for an EIN. It's the equivalent of a social security number for your business, and it is a free service offered by Internal Revenue Service (IRS).
- Acquire federal business licenses and permits if necessary.
- Get local and state licenses.
The fees for federal and state licenses and permits range from a few dozen to several hundred dollars.
The whole process can take from a few days up to 90 days for some types of licenses.
Other Legal Requirements for Online Sellers
If you sell through your own online store, there is a number of things to pay attention to in addition to getting a business license and permits.
Here are some legal considerations you need to make in order to be compliant with rules and policies and protect your business in case there is a dispute in court:
- Make sure to comply with GDPR, CCPA, and other relevant data privacy and security regulations.
- If you do not use this-party companies like PayPal for payments, you have to ensure the protection of the personal data, credit card data, and identity of your customers on your side.
- Include up-to-date Terms of Service on your online store.
- Invest in trademark, patent, and copyright as soon as it becomes economically viable.
- Keep records of all online transactions, including when and how customers were notified of your online terms of service.
Depending on your product and your business structure, you will need a combination of business licenses and permits in order to sell online. You’ll need a seller’s permit at the minimum, and you may also need an industry-related and home occupation permit in addition to that.
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