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Do You Need a Business License to Sell on Etsy?

Are you a talented crafter or artist considering selling your creations on Etsy.

You might be wondering, “Do you need a business license to sell on Etsy?”. The answer can vary depending on a few factors, but don’t worry – we’re here to help you navigate the process.

We’ll break down the ins and outs of making money on Etsy and whether you need a business license to do so.

Does an Etsy Shop Count as a Business?

Yes, an Etsy shop does count as a business.

According to Etsy’s policies, any individual or entity that sells on the platform is considered a business, even without a physical presence.

If you plan to sell on Etsy, you’ll need to follow some steps to establish and operate an online business.

One of the key steps to small business administration is obtaining the proper license and permits. You’ll need to get a business license or permit to legally sell on Etsy.

It’s important to note that even if you don’t consider your Etsy shop a full-time business, the IRS may still consider it as one.

As an Etsy seller, you are responsible for reporting your income on your federal tax return.

Is Etsy Sole Proprietorship or LLC?

Etsy is not a business structure. Rather, it’s a platform for individuals to sell handmade goods, vintage items, and crafted supplies.

When you sell on Etsy, you can either operate as a sole proprietor or form a legal business entity such as an LLC.

The decision depends on various factors, such as the amount of revenue you generate, legal liabilities, business models, and long-term goals.

Sole Proprietorship

As a sole proprietor, you’ll be responsible for all business activities.

This means that you have all the freedom in the world to generate and manage your income. There is no legal separation between you and your small business.

However, the downside is that your assets could be at risk in case of any legal issues, such as lawsuits, business insurance issues, or debt collection.

Limited Liability Company (LLC)

Forming an LLC provides a degree of protection for personal assets while maintaining the benefits of operating as a sole proprietor.

But, it comes with certain costs like registration fees, recurring annual fees, legal advice, and sales taxes.

So, if you are just starting and have limited resources, operating as a sole proprietor may be a better option.

Do You Need a Business License to Sell on Etsy?

Yes, you generally need a business license to sell on Etsy because this platform is considered a marketplace where people sell goods and services.

Many local governments require anyone conducting business within their jurisdiction to have a license or seller’s permit.

The legal requirement to obtain a business license for selling on Etsy depends on where you live and what you sell. In the United States, most states require you to have a business license.

US States & Business Licensing Requirements

In California, if you sell more than two items that are subject to sales tax obligations within 12 months, you are considered to be conducting a business.

So, you must obtain a seller’s permit from the California Department of Tax and Fee Administration.

In New York, you should get a General Vendor License to sell goods or services on Etsy.

According to the Illinois Department of Revenue, if you make sales of tangible personal property or taxable services, you are required to register for a Retailer’s Occupation TAX (ROT) account.

Texas doesn’t require a state-level business license, but certain cities within Texas may require a city-level home occupation permit.

These requirements can vary by state and can change over time, so it’s best to check with your state or local government for the most up-to-date information.

Do You Need a Business License to Sell on Etsy in Pennsylvania?

Yes, anyone conducting business in the state of Pennsylvania, including online businesses, must have a business license.

The state requires businesses to obtain a license as a way to regulate business expenses, ensure tax compliance, and protect customers.

By obtaining a business license, you can ensure that you are operating legally as an online seller and gain credibility with customers who value transparency and accountability.

Additional Licenses & Permits You May Need

Even if you don’t need a business license, you may still need to register for other licenses or permits. This depends on the types of products you sell or the state you operate in.

For example, you may need to register with the FDA or state health department if you sell cosmetics.

If you plan to sell homemade food products, you may need to obtain a food handler’s permit in addition to a business license.

And, if you’re thinking of selling a digital product like software or music downloads, you should bear in mind the sales tax permit associated with the additional license.

A sales tax permit is also required for businesses selling taxable products and services, as it functions as a way for the state to track and collect sales tax obligations.

The IRS may use this information to verify the accuracy of personal tax returns filed by your small business.

How to Apply for a Business Licence

After determining that you do need a business license to sell on Etsy, the next step is to apply for one. Here are the business license requirements broken down for you.

1. Determine the Type of License You Need

Each state has different requirements for business licenses, so it’s important to check what type of license you need for selling on Etsy.

In some cases, you may need a basic business operation license, while in others, you may need a specific one based on the type of business you plan to conduct.

2. Check the Licensing Authority

Once you’ve set out the type of license you need, check with your local or state licensing authority to obtain the necessary forms and information.

3. Complete the Application

Generally, you’ll need to provide basic information about your home business, including its name, address, and contact information.

You may also be required to provide information about your products, your profitable business structure, personal tax returns, and your tax ID number.

4. Provide Additional Documents

Depending on the type of license you need, you may be required to provide additional business owner documentation. This typically includes proof of insurance or permits for specific products or services.

5. Pay the Fees

There is usually a fee associated with obtaining a business license. The fee amount will vary depending on the state and type of license. But, make sure to factor in this expense when considering the overall cost of selling on Etsy.

6. Wait for Approval

The approval process for a business license can take anywhere from a few days to several weeks, depending on the state and type of license you need.

So be patient and follow up with the licensing authority if you haven’t heard back within a month.

7. Display your License

Once you receive your business license, display it on your Etsy shop page, as required by your state or local regulations.

What is Required to Sell on Etsy?

If you want to sell on Etsy, there are several requirements that you need to meet. 

  • Etsy Account: You’ll need to create an Etsy business account. You can create an account using your email address, Facebook account, or Google account.
  • Location: You’ll need to specify your location, helping the Etsy platform determine which tax laws apply to your sales. Make sure to provide your current, accurate location.
  • Name: You’ll need to come up with a name for your Etsy shop. Choose a name that represents your brand and is easy to remember.
  • Listing: You’ll need to create a listing for each item you want to sell on Etsy. This includes uploading photos, writing descriptions, and setting prices.
  • Payment Method: You’ll need to set up a payment method for your shop. You can choose from several options, including credit & debit cards, Etsy gift cards, a business bank account, or Paypal.
  • Billing Method: You’ll need to set up a billing method for your shop. This includes providing your payment information and agreeing to Etsy’s seller terms and conditions.

What Do You Need Before Opening an Etsy Shop?

Before opening an Etsy shop, you need to have something to sell. Etsy is a platform for selling unique, vintage, and handmade items made of craft supplies.

Therefore, you need to have a product or service that falls under one of these categories.

Your products must meet the site’s guidelines and politics. This means you should create original items or sell vintage products at least 20 years old.

You must also comply with Etsy’s intellectual property policy, which prohibits the sale of counterfeit goods or items that infringe on another person’s intellectual property rights.

Once you have something to sell that meets these legal requirements, you can proceed to open your Etsy shop.

How Many Etsy Shops Are You Allowed to Have?

Etsy allows sellers to have only one shop per account, but you can have multiple accounts with different email addresses to open more than one shop.

However, each shop requires its own set of listings, Etsy payments, and additional Etsy fees.

It’s important to know that having multiple shops can be time-consuming, and it is recommended to focus on one shop to build a strong brand and customer base.

But if you plan on having multiple shops, you should ensure that the physical products and goods sold are different and not competing.

Etsy also reserves the right to close any shop that violates its policies or terms, so you should ensure that you follow guidelines and rules when operating your Etsy shop.

How Much of a Cut Does Etsy Take?

When selling on Etsy, you should keep in mind that the platform takes a percentage of your sales as a commission fee.

The fee amount varies depending on the type of transaction you make, such as listing an item, making a sale, or advertising on the site through Etsy Ads.

The main commission fee of your Etsy store is called the “Transaction Fee”. This fee is 5% of the item price and shipping costs.

For example, if you sold an item for $20 with $5 shipping, the transaction fee would be $1.25 (5% of $25).

Etsy also charges a payment processing fee for each transaction. These Etsy taxes vary depending on your location and the currency used in the transaction. In the US, the payment processing fee is 3% of the item price plus $0.25 per transaction.

If you use Etsy’s payment processing system, the payment processing fee will be automatically deducted from your sales.

However, if you use a third-party payment processor, you’ll need to account for this fee separately.

Etsy also offers optional paid services for sellers, such as promoted listings through Etsy Plus and Etsy Ads.

Promoted listings allow your items to appear at the top of search results for a fee, while Etsy Ads allow you to advertise your items on external websites for a paid cost.

Final Thoughts

While the requirements for selling on Etsy vary from state to state, it is essential to ensure that you comply with all applicable laws and regulations.

Obtaining business permits may be necessary, and it is crucial to note your state’s specific requirements.

It’s important to remember that selling on Etsy involves more than just creating a shop and listing products.

It requires a solid understanding of the platform, effective marketing strategies, and a commitment to providing a great retail experience for your potential customers.

By following the guidelines and recommendations outlined by Etsy and your local law authorities, you can set yourself up for success and establish a thriving home business.

And, if you need a nudge in the right direction, check out Gig Worker for more tips on how to reach your full potential in your for-profit business.

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