The digital space has made it easier than ever for craftspeople and makers to sell their products quickly and easily online.
However, using e-commerce sites such as Etsy, eBay, and Amazon doesn’t exempt you from standard business requirements, such as licenses and permits. While these requirements will vary from state to state—and may depend on the type of product you are selling—it’s important that you comply with them.
If you’re thinking about selling on Etsy, or have already made that jump, keep reading to learn more about what this means for your business.
What you need to know about Etsy
The beauty of Etsy is that anyone with an account can sell their products, both digital and physical. Since its inception in 2005, Etsy has developed into a massive marketplace, where 39.4 million consumers come to buy creative items. This makes it easy for new and experienced sellers alike to connect with a global market.
The other benefit to sellers is the infrastructure. You do not need to know HTML or CSS, nor do you have to hire someone to build a website. All you need to do is sign up, and Etsy will guide you step-by-step to setting up listings, payment options, and so on—all the things you would need for your online store.
Does Etsy require a business license to open an account?
Etsy is available to anyone who wants to open an account. But to avoid violations and fines, you’ll want to make sure you are following state and local laws and regulations. Even if you’re only selling items occasionally and consider your venture more of a hobby than a job, the state you live in may still require a license.
Business license considerations for Etsy sellers
Here are examples of the legal requirements you may need to comply with:
Sales and use tax
Even though you’re selling online, you still may have to charge your customers sales tax.
Depending on the state you’re selling from, sales and use tax can be complicated. There are only a handful of states that do not charge state sales tax.
Note: In June 2018, the U.S. Supreme Court decided that a state can require out-of-state sellers to collect and remit sales taxes, even if they have no physical presence. For more information on what this means for selling online, read U.S. Supreme Court Remote Seller Sales Tax.
Don’t forget to look into local sales tax as well. You may have additional taxes based on the county that you live in.
Product type: Digital vs physical products
If your Etsy store sells digital products, your taxes may be a bit more complex. In some states, you’re required to collect sales tax on just the physical goods, while other states will require you to collect that sales tax for both digital and physical products. Check with your local tax professional and accountant to find out whether you need to collect sales tax for your particular product.
DBA trade name: store name versus your name
If you came up with a unique name for your Etsy store—one that differs from your own—you may need to register a Doing Business As (DBA), either with your state or locally. You may need to do this in some states, regardless of whether or not you’re required to obtain a license.
Special Licensing for Selling Food You may be required to certify through your local health department when selling food online. This can be a complicated process and the US Food and Drug Administration< has a great library of resources to help navigate the requirements for U.S. sellers. Check out Forrager, as well, if you need guidance on specific cottage food laws for your state.
Do I need a business license if I'm selling as a hobby?
The IRS requires that your income be reported, in whole, on your federal tax return. It doesn’t matter if that money came in as the result of a hobby or side business. However, the requirements for business licenses differ from state to state, making it a little more confusing. The best course of action is to meet with a local tax professional who can walk you through your requirements as an online seller in your state. For more information on the distinctions between a hobby and business, read How to Turn Your Hobby into a Legitimate Business.
If you want to sell products, digital or physical, Etsy is a popular and convenient option. Just keep in mind that you may need to follow the same procedures as other traditional business owners, so get the legal details squared away first.