Do You Need a Business License to Sell on Etsy?

No, Etsy does not require a business license to start an Etsy shop.

There’s no two ways about it: Etsy has become one of the premier online craft markets in the world. If you’re launching your own handmade items and crafts business, Etsy is the place to be.

One of the reasons Etsy is so popular is because the platform makes it super simple to get started. You don’t need a business license to sell on Etsy, nor worry about most other business formalities, like collecting sales tax. However, in some cases, you might need to consider those things anyway. Here's what to know about business license requirements when you sell on Etsy.

Do you need a business license to run your Etsy shop?

No, but your government might require you to get a business license for your online business, even if you only sell products on Etsy and nowhere else. Whether or not you need a business license as an Etsy seller depends on a few different things:

• Your location: Business licenses are generally issued by state and local governments, and the local laws vary around the country.
• Your products: If you sell things that are regulated by the federal government, like some live plants or animal parts, you may need a federal business license.
• Your sales volume: If you reach a certain sales amount in some areas, you may need to get a business license.

Remember, Etsy only sets the rules for who can sell on its platform. It’s the different levels of government that you live under that set the rules for who needs a license to legally operate a business. Figuring out whether you need a business license in general—whether selling on Etsy or anywhere else—is a bit more complicated.

Determining if you need a business license for Etsy

It’s important to know that business licensing is a separate thing from registering your business, collecting sales tax, and paying taxes. Registering your business name doesn’t always mean that you have a business license, for example, and having a business license doesn’t necessarily mean you need to collect sales tax.

Once you realize these are separate processes, it’s a bit easier to understand whether you need a business license or not for your Etsy business. Along these same lines, there’s not any single business license—instead, your business may need one or more separate business licenses, depending on which level of government you’re talking about.

Business vs. hobby

The IRS also distinguishes between a legal business vs. a hobby when it comes to whether—and how—you’re taxed on any income you make from your Etsy store. (Remember, though, the IRS can’t tell you whether you need a business license or not—that’s up to other government agencies to decide.)

Even if your state and local government don’t consider you a business, the IRS may still require you to pay taxes as if you were.

That’s especially important to know, given that Etsy may automatically report your income to the IRS if you meet certain sales thresholds each year. For many Etsy sellers, this happens if you reach $20,000 in sales and over 200 transactions. But in some states, like Massachusetts and Vermont, you only need to make $600 in sales before this reporting is triggered—whether the state requires you to have a business license or not.

When that happens, Etsy will issue both you and the IRS a Form 1099-K, which reports your sales income. If you aren’t running a formal Etsy business and you’re only selling to recoup some of your craft supply costs, chances are you’ll simply include this extra income on your personal tax return at the end of the year. (Note that you may need to pay estimated quarterly taxes in some cases, notably if you expect to owe more than $1,000 in taxes at the end of the year. It’s a good idea to talk to an accountant in this case.)

Federal regulations

Businesses that sell certain products regulated by federal agencies will need a federal business license. In some cases, this could include products like crafts made from animal parts or live plants. Most of these regulated goods, like nuclear waste, alcohol, or firearms, aren’t even allowed on Etsy anyway. But it’s worth checking the list of regulated products to be sure.

Local regulations

The biggest thing that determines whether you need a business license or not—whether you’re selling on Etsy, at your local farmer’s market, or craft fairs—is your state and local government. When people refer to “business license,” they’re generally talking about a state-specific license. But you may need a county, city, or tribal business permit as well, depending on the rules for the different governmental umbrellas you fall under.

In addition to a business license, each of these different levels of government might require additional business permits as well. Common examples are cottage food laws that require a permit for selling homemade food, a sales tax permit for a registered business, or a home occupation permit required by many counties or cities.

Sorting out these requirements will require a bit of digging on your part. You’ll need to contact the business or revenue departments of your state and local governments to get the final word for your exact business type, business structure, and location.

Steps to obtain a business license

If your state or local governments don’t require you to get a business operation license based on your Etsy sales volume, you don’t necessarily need to. But if you do, here’s a quick rundown of how the process will work:

• Choose a business structure: A sole proprietorship—the default business type—may or may not need a business license. But if you choose to operate as a limited liability company (LLC), corporation, or other business structure, you generally will need a business license.
• Get an employer identification number (EIN): The IRS offers a quick online tool to get an EIN for your business so that you don’t have to use your own Social Security number. You can use this EIN on government forms or to get a business bank account. An EIN is available for any business structure, even if you're operating as a sole proprietorship or limited liability company.
• Register your business: Registering your business gets it added to your state and local government’s books so you can work with them, such as by paying state taxes or maintaining local business licenses. It’s a good idea to hire an attorney to do a trade name search for your business name or any others you use, like your Etsy store name.
• Apply for a business license: Often done at the same time when you register your business, applying for a business license from your local or state government is as simple as paying a small fee and providing business details such as your business name and contact information.
• Acquire additional permits and licenses: Check with the relevant agencies to see whether you need any additional business permits to sell on Etsy, such as for selling food or operating a home-based business. Your state and local business departments can help you locate any other relevant permits, along with a good small business attorney.

Legal best practices for your Etsy shop

Sorting out the legal requirements to run your Etsy shop on the right side of the law can be confusing, especially given how much things can vary around the country for different Etsy sellers. It doesn’t have to become an additional full-time job, however; there are things you can do to help:

Research government regulations

It’s important to know what agencies regulate businesses in your area, such as the Secretary of State and the Department of Revenue in Washington state. You can contact these agencies to see what your Etsy business needs to do to comply with the law. They can help you determine your sales tax policies.

Your business may also need to follow the rules in other states or countries, too, such as the EU’s Value-Added Tax (VAT), which Etsy may be able to help with in certain cases. Staying active with Etsy business owner communities can also help clue you into what laws you need to think about, but it’s not a substitute for legal advice.

Tax obligations

“Small business taxes” is a broad topic, and your Etsy business may owe one or more types:

• Income tax
• State sales taxes
• Value-added taxes (VAT)
• Quarterly estimated taxes
• Business and occupation (B&O) taxes

As we’ve seen, Etsy may be able to help small business owners with some types of business activities and taxes when selling online, such as VAT, in addition to state-specific sales taxes. But you’ll need to calculate and pay income tax on your own, ideally with the help of an accountant. 

Record keeping

Keeping accurate records of how much you spend and how much you earn through sales transactions is important for several reasons. You can use it to make profitable business decisions about what to make and sell on Etsy, as well as what information to report on your taxes at the end of the year. Speaking of taxes, it’s important to hang onto this information in a safe place in case you’re ever audited later by the IRS.

Consult your attorney

The actual licensing part is just a small piece of a complex puzzle when it comes to sorting out the requirements to become an Etsy seller. It’s a wise idea to chat with a small business attorney for several reasons, and we can help you find one. An attorney can help you:

• Make sure your business name is available for use
• Determine whether you need to collect sales tax or not
• Save hours of time researching and interpreting the law
• Get peace of mind that you’re meeting legal requirements
• Stay compliant with ongoing requirements and new changes
• Learn about the best way to structure and run your online business
• Get advice on liability protection and ways to protect your personal finances from your business activities
• Help you interpret government regulations and answer the question, do you need a business license to sell on Etsy?

FAQs

How do I determine if my Etsy shop is a business or a hobby?

Whether your Etsy shop is a business or a hobby depends on the guidelines set out by specific government agencies you’d be interacting with as a legitimate business. For example, the IRS has one set of rules for what counts as a business vs. a hobby for taxation purposes, but your state government may set other criteria.

What is an EIN, and do I need one for my Etsy shop?

An employer identification number is like a Social Security number for your business. It lets you identify your business on tax forms, open business bank accounts, apply for business funding, and so on. Etsy does not require you to have one, but it’s a good idea anyway.

What are the consequences of not obtaining the necessary business licenses and permits?

Online sellers might receive a fine or even be shut down, depending on what type of government agency you ran afoul with, which federal laws you broke, whether you're selling food without a license, etc.

Do you need a business license to sell on Etsy?

No, Etsy does not require a business license to get started selling online with an Etsy account. Other government agencies may require that you have a business license to sell on Etsy; however, it depends on where you live.