Do You Need a Business License to Sell Online?
Written by admin on November 25, 2021
Yes, you do.
During the infancy of selling online, eCommerce business transactions flew freely under the radar. Times have changed and technology has caught up to online business.
And that’s not a bad thing. A business owner with the proper business licensing stands ready to increase profits. Your reputation is solid because you operate legally with each eCommerce business license that is needed by government agencies.
The growth of online selling is off the charts. Online businesses have been growing 5 times as fast as retail businesses.
Here’s what you need to do to join the ranks of online sellers.
Types of Business Licenses Needed to Sell Online
The type of appropriate business license you need can vary – by type of business and by your state, county, and local business licenses regulations.
For example, if you want to sell from your home, your local authorities may require a home occupation permit. And in some zoning classifications, certain types of home-based businesses may not be permitted. Do you need a small business license?
Here are some definitions you need to know:
Doing Business as Name (DBA)
If you want to set up your online business with a certain name, you need to acquire a DBA name. You’d do that through the office of your Secretary of State. The process and fees vary by state, and some states don’t require any registration or fees for DBAs.
Your first step is to see if the name you want to use is available. Once you get a DBA you may be required to publish the information in a local newspaper.
Professional and Industry Licenses
These are also sometimes called occupational licenses.
In some states, the occupational license is for specific fields of work, such as accountants and real estate agents. Such sellers may need a specific state license for their fields of work.
Sellers who handle alcohol or tobacco sales online may also need a specific industry license.
Sales Tax License
You’ll need this license to sell merchandise online. It can also be called a Seller’s Permit or Sales Tax Permit. It provides you with a sales tax identification number.
Professional services rendered online – such as income tax preparation – are also considered online sales and require sales tax permits.
The Sales Tax License or Seller’s Permit registers your business to collect and remit the tax from the sale. You collect state tax from the purchaser or customer, and remit to the internal revenue service.
What if you sell from your state to another state? Each state has specific requirements for ecommerce businesses regarding transactions from state to state. It may be as simple as registering your seller’s permit in that state.
For example, Alaska, Delaware, Montana, New Hampshire and Oregon don’t collect state tax. Other states set a standard before they collect tax, such as taxable if sales are greater than $100,000 or if more than 200 transactions occur.
So, before you grow your e commerce business, check the requirements for sales to another state. You don’t want to make a mistake collecting sales tax or paying sales tax., or you’ll pay tax penalties. You get this permit from your state revenue department.
Resellers Certificate or Reseller’s Permits
These seller’s permits are needed as ecommerce business licenses for those who buy merchandise and resell it. It can also be called a resale certificate or a separate reseller’s permit.
Federal Employer Identification Number (EIN)
You need an EIN to open a business bank account. The EIN is your federal employee identification number. If you’re a sole proprietor, you can use your social security number as your EIN.
You can obtain your EIN from the IRS online. You’ll need one if you hire employees (for employer withholding tax).
Home Occupation Permit
It’s important to check your local zoning regulations before you state operating a business from your home. The greater the density of a residential area, the less likely home-based businesses are allowed. Many zoning laws restrict businesses operating in residential areas.
You may still get approval from a local zoning board for a home business license. You’d likely have to prove that your business or online store haas “no impact” on neighbors to get a zoning permit.
Statewide General Business Licenses
A general business license or business operation license are appropriate licenses needed to operate a business in a state. They are considered a standard business license.
Specific state business licenses are required for certain types of business entities. The general business license is not typically one of the licenses and permits needed for brick and mortar store retail or retail online stores.
Federal Business License
You’ll need federal business licenses if you sell to any entity that is under government supervision. You would charge federal tax.
Maintaining Your Online Business License
These vary by state. Most are annually but some are biennially.
Whichever your state requires, you should check annually to make sure the requirements haven’t changed. It is harder to renew an expired license than it is to maintain one.
How Much Does a Business License Cost?
The range of a business license is from $50 to $550.
A better question is – how much will it cost if you’re caught doing business without a business license? Your professional reputation is at stake.
How do I Get a Business License to Sell Online?
1. Check the Rules in Your State!
Check with your department of revenue and also county and local laws.
2. Acquire All the Paperwork
Business license requirements
Licenses and Permits
State Sales Tax License
Legal Structure – most choose the limited liability corporation to protect personal assets, also with sole proprietorship
3. Register Your Doing Business As (DBA) Name
4. Register Your Employer Identification Number (EIN)
5. Register with Your State Revenue Office
Are business licenses affected if I’m an out of state resident?
The requirements vary. Some states may only require that you fill out a form providing your EIN.
Do I need a license for providing services online?
This varies state to state. Most states do require licenses and permits.
Do I need a business license to sell on Amazon?
No. But you must register as a seller on Amazon. Amazon will collect tax on sales.
Do I need a business license to dropship?
If you’re a reseller, you’ll need an EIN and either a sale tax ID or a reseller certificate. That’s because the wholesaler doesn’t charge you tax, but you charge tax on the products you sell.