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Yes, in general, a business license is simply permission from the government to operate your business. Where the answer gets slightly more complicated is knowing which type of license you need.
- You only build your business one step at a time, no matter how mundane the step may seem. You’re laying the foundation on which your entire business is built.
- A business license may seem trivial, but it is a critical step towards establishing a legitimate business.
- “The way to get started is to quit talking and start doing.” Walt Disney, founder of Disney
- “Ideas are a commodity. Execution of them is not.” Michael Dell, Dell Chairman and CEO
Do You Need a Business License for Selling Online?
Yes, you need a business license to operate a business online. However, the timing of when you need to secure one and the exact type of license you need all depends on where you’re located and what type of business you operate.
A business license does not apply only to e-commerce businesses or physical stores. It applies to all-obtaining the license means you are a legitimate business. If you’re already operating as a physical store and you decide you want to sell online, your business license applies to both your physical and online location.
Why Do You Need a Business License for an Online Store?
The bottom line is, a business license is needed for an online store just like it is for a physical store. It’s the permission given to you to run your business.
What’s the Difference between a Business License and Seller’s Permit?
A business license is a general license to operate a business within your city or state. This is required even if you run an online business that sells across the country or globe, or if you have a physical location.
A seller’s permit is required if you sell a product that is taxed and it allows your business to collect and remit the state tax. The rules regarding obtaining a seller’s permit vary by state, so it’s important to find out the specific requirements for your area. There may be minimum sales or transaction thresholds you have to meet before you need to apply for the seller’s permit.
Benefits of Getting An Online Business License
By getting your business license, it establishes your business’ legitimacy and professionalism. It offers credibility to your business, which is not always associated with an online business.
From a financial standpoint, you could face citations and penalties if you don’t have the correct licenses and permits in place for your business. Plus, the fees associated with obtaining your licenses and permits for selling online may be tax deductible, but you’ll need to work with a tax professional to confirm if these are business-related deductions.
Do You Always Need a Business License to Sell Online?
Like so many other business categories, there are exceptions to obtaining a business license for selling online. For starters, if you’re selling through another platform, such as Etsy or Amazon, then you are typically not required to hold a business license.
Another exception is if you already own a physical store location. Your existing business license covers your operations whether you sell in-person or online.
Lastly, the rules vary from state to state on how much in revenue your business must generate or transactions you must conduct before you need a business license. This gives your business time to launch-but again, you’ll need to confirm with your specific location what this threshold is.
When Should You Apply for a Business License?
While you should include researching necessary licenses and permits in the early planning stages of your business development, you may not have to apply right away. Seller’s sites such as Etsy and Amazon do not require you to have a business license to sell, but your local or state laws may have different requirements. It’s important to confirm the time frame as soon as possible. You may find working with a business attorney who is knowledgeable about the various licensing requirements is helpful for answering your questions.
You may not have to apply until your online business reaches certain sales or transaction thresholds, but the best policy is to know this information up front so you’re aware of when you need to apply.
Where Do You Get a Business License?
Fortunately, you can find most of the information you need for obtaining a license by researching online. You can start with your state’s Secretary of State office or Department of Revenue. Remember, you may have to get multiple licenses, including ones for local and state municipalities and federal licenses.
The Small Business Administration (SBA) is a useful resource too and there may be a local SBA office near you that can walk you through more specific requirements.
What Do You Need to Apply for a Business License?
Most business licenses require basic information to start the registration process. While the information needed is specific to the permit or license you’re applying for, most likely you’ll have to show:
- Your business type (Sole Proprietorship, LLC, or other)
- Any required inspection information
- Any permits required for your industry
- The business name you’re operating under
- Your EIN or SSN
How Much Does a Business License Cost?
The fees associated with obtaining a business license vary, but fees are usually nominal. Some licenses may not even cost anything to obtain. Keep in mind you may have to pay registration fees each year for renewal, so be sure to add this into your annual budget for your business expenses. Your business license expenses may be tax deductible as well, but the best approach is to work with a tax professional who can guide you.
How Long Will it Take to Get Your Business License?
The length of time it takes to receive your business license depends on the license and the state you’re applying for. Some states only take a few days, while others may take months. Others, such as getting the EIN from the IRS, only take a few minutes. Because the timeline varies so much, it’s recommended you research this step as quickly as possible when you’re forming your business.
How Do You Maintain the Business License for Your Online Store?
Again, like all the other aspects of obtaining a license, the maintenance required for each license depends on what it is and where you operate. Some local, county, and state agencies require yearly renewal, while others may only require renewal every five years.
If you’re unsure what the renewal process entails, you can consult a business lawyer who is familiar with the fine print among the common licenses.
Requirements for Online Selling: 7 Common Business Licenses and Permits
Let’s look at the seven most common business licenses and permits.
These are the licenses required by local and state governments to operate your business legally. You may need a business license to operate at a local, county, or state level, which means you’ll need to confirm what is required for your online business. Most states do not have a business license specific to an online business, but rather a general business license.
Sales Tax License
This permit gives you permission to collect tax on a retail transaction. This is required by most states and may also be referred to as a seller’s permit. Once you apply and are approved, you’ll receive a state sales tax ID number. You may need to apply for a sales tax license in every state you sell to, so it’s important to research the sales thresholds for each state and which ones require the seller’s permit.
Some states, such as Alaska, Delaware, Montana, New Hampshire, and Oregon do not have a sales tax, so those are examples of states where you wouldn’t have to apply for a sales tax license. You should assume unless it’s one of those states, then you’ll need a sales tax license for online sales in each state and Washington D.C.
You should also note numerous states offer temporary seller’s permits. This covers you as a seller for up to 90 days.
Also known as a reseller’s permit, a resale certificate is a specialized permit that allows you to avoid paying sales tax on certain qualifying business purchases. This is typically available for businesses that are selling at wholesale or retail.
Employer Identification Number (EIN)
An Employer Identification Number, or EIN, is the number the IRS assigns to your business so you can pay your taxes as a business and operate under other regulations. This is required if you’re a business entity (other than a sole proprietorship). Not only this, you will need an EIN to open a business bank account, which is essential for separating your business income and expenses from your personal. You can apply online and the EIN is generated within minutes, once the information has been received.
“Doing Business As” (DBA) License
This is known as your business’ trade name and you would apply for this if your business will operate under a different name than what you register with.
Home Occupation Permit
Depending on the location of where you operate your online business, you may be required to obtain a home occupation permit. This is simply a permit granting permission to operate your business out of your home. It’s especially important if you hire additional workers or see customers at your home. This is a popular permit, especially for businesses who rely on shipping products out of their homes.
Professional and Occupational Licenses
A professional or occupational license is given to individuals meeting professional requirements. Common examples of this include electricians, plumbers, real estate, attorneys, health professionals, and others.
How to Determine Which Business Licenses You Need to Sell Online
It can be confusing to determine which exact business licenses you need so you can legally sell online. The first step is to start locally and confirm which local, county, state, and perhaps federal licenses you need. Another option is to work with a business attorney, who can advise you on the correct licensing and permit requirements for your specific business.
How to Apply for an Online Business License
Applying for an online business license may feel tedious, but if you have the correct information and documentation before you get started then it can help smooth the process.
There are numerous online resources to guide you through the business license process. Some states, such as this guide from the state of Georgia, offer a complete walkthrough of everything you need to establish your business. You can also find more information by reading our guide about business licenses.
To apply for a license you’ll need:
- Describe your legal structure, such as if you’re a limited liability company or sole proprietorship.
- Detailed information regarding your business’ activities.
- Any related inspections and permits, such as a health inspection or permit to serve food and beverages.
- A sales tax license, if you are selling a product where you must collect a sales tax.
Obtaining the correct licenses may seem like an afterthought, but a business owner is responsible for ensuring the correct documentation is in place. The last thing you want to experience is a penalty or citation. However, simply setting aside time during your business development process and starting at a local level for your research, can get you started on the right track.
Where to Receive Business Mentoring and Advice
Starting a new business can be a daunting task but tapping into available resources can not only help you while starting out, but also while you grow. There are a number of resources available for business owners, which you may find useful as you’re going through the process of identifying all the various licenses and permits needed.
- SBA learning center, which includes both online and in-person support
- Business Hubs
- Trade/Professional Associations and Business Groups
- Support Networks
- Local or national chapters of the Chamber of Commerce