Do You Need a Business License to Sell Online?
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You need a business license to run an online business. The license will let you sell goods legally and register your e-commerce business as a taxpaying entity. What that business license is called and how much it costs will vary, though. Visit your city and state government websites for more details.
Your business may also require additional licenses as it grows, including in other states. For instance, if you sell goods that carry sales tax, you may need seller’s permits or vendor’s licenses in the states where your customers are located.
Here’s what you need to know about licenses for your online business.
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What is an e-commerce business license?
A business license shows that you have government approval to operate your business in a specific area. There’s no single license just for e-commerce businesses; the license you’ll need will vary by state.
A business license is sometimes called a “general license,” “business operating license” or “business privilege license.” Almost every business — both online and off — will need a business license to operate. The requirements for obtaining a business license vary by state and city, and fees can stretch to several hundred dollars per year.
General business licenses are not required in Texas, though you may need specific industry licenses.
Do brick-and-mortar stores need an additional business license to sell online?
No, you don’t need an additional online business license to expand a brick-and-mortar operation into e-commerce. Your business license enables you to sell your goods and also registers you to pay the taxes for which you’re responsible, but it doesn’t distinguish between online and in-person sales.
Other types of licenses for online selling
Beyond a business license, there are other requirements for selling online. Some of them will not apply directly to your online business — at least not right now — but it’s essential to know about all of them so you can make sure you have the right operating paperwork before you start selling online.
Seller’s permit or vendor’s license
If your company sells products that qualify to be taxed, most states require you to obtain a seller’s permit or vendor’s license — whether your online store has a physical location or is online-only. You’ll need to collect sales tax, which is what a seller’s permit allows you to do.
At the same time, a seller’s permit may enable you to purchase certain products from suppliers without paying sales tax. This happens through what’s called a “resale certificate,” which shows that the products you’re buying will be sold through your store, either wholesale or retail.
Again, this requirement varies state by state, so you’ll want to check in with your local jurisdiction to figure out whether or not you need a seller’s permit or vendor’s license. Additionally, if you operate in several states — including keeping inventory in different states — you may be required to obtain seller’s permits for each state.
Some states offer “temporary seller’s permits,” which allow you to make sales for a certain period of time without registering for a full seller’s permit.
Sales tax license
An important part of selling products online is charging customers sales tax. Collecting sales tax and remitting it to the correct state government is required, and you can be fined if you don’t comply.
As such, you’ll need a sales tax license. In some states, including California and Ohio, your seller’s permit may satisfy this requirement. In Texas, you’ll need a sales and use tax permit even though you don’t need a general business license.
Many e-commerce website builders offer tools that can help you collect sales tax from your customers and pay the necessary state governments.
If you make sales on a marketplace like Amazon or Etsy, you may not need a seller’s permit or sales tax license, since those platforms collect and remit sales tax on behalf of their sellers. Consult your state’s requirements for more information.
» MORE: How to start an Etsy shop
Employer identification number
An employer identification number (EIN) is something like a Social Security number for your business: It’s a number that the IRS uses to identify your business. If you’re going to incorporate as a business entity other than a sole proprietorship, an EIN is essential.
Another thing an EIN enables you to do is open a business bank account. NerdWallet recommends that every business owner set up a business checking account to help keep their business and personal finances separate.
You can get an EIN in a few minutes on the IRS website.
“Doing business as” registration
Most business owners give their business a name when they register it with their state. However, not all business entities are required to register in every state. If you’re a sole proprietor, for instance, the name of your business defaults to your legal name.
If you don’t want to operate your business under your own name — or if you want to operate under a business name other than the one you registered with your state — you’ll want to look into filing a DBA. This will give you permission to operate under a trade name.
Home occupation permit
If you’re operating a home-based business, which is common for many online sellers, you may need a home occupation permit. This permit can help you avoid breaking city or state rules if your business does things like hang a commercial sign, get a lot of foot traffic or hire employees.
Home-based business permits are usually issued by cities rather than states.
» MORE: How to start an online boutique
Determining which business licenses you need to sell online
Your city and state will determine what kinds of licenses you need to sell online. Some may require licenses and permits not mentioned here.
The licenses you need also may depend on the types of products you’re selling. For instance, if you’re selling fireworks, you’d likely need a different license than if you’re selling jewelry. And if your business operates in an industry regulated by the federal government — like firearms, alcohol, commercial fishing or agriculture — you may need federal licenses, too.
A business attorney can help you navigate your state and city regulations to ensure that you’re properly licensed. Your local Small Business Development Center may be able to help, too.
How to apply for an online business license
After you’ve figured out which online business licenses and permits you need, you’ll follow the directions for each specific license. Some states and cities may allow you to apply online, while others may require you to mail in forms or show up in person.
Either way, you’re likely to need:
The names of your business’s owners or registered agents.
Your business structure.
Your EIN, if you have one.
Your DBA, if you have one.
Information about your business’s revenue in a given state.
Remember that many business licenses expire after a certain amount of time. You may want to log their expiration dates in your calendar so you don’t let your licenses lapse.
A version of this article originally appeared on JustBusiness, a subsidiary of NerdWallet.
