Selling goods online has never been more popular. As ecommerce grows, many are wondering if you need a business license to sell online. Not only does getting a business license—and several other required permits—give your business credibility, but it’s also required to operate legally and establish your company.
We’ll go through the answer to this question as well as many other considerations to take into account as you’re establishing your online business.
What Is a Business License?
Simply put, a business license gives you permission to run your business. The specific business license you’ll need varies state by state, but their purpose is common: They show you have government approval to operate your business in the area in which you’ve been approved.
Do You Need a Business License to Sell Online?
The short answer to whether a business license is a requirement for online selling: yes.
A business license is a requirement for online selling, and it’s a crucial part of establishing your business as legitimate and legal. But getting an online business license is not as simple as just applying for a document. There are several other considerations to take into account.
Do You Need a Business License to Sell Online If You’re an Existing Brick-and-Mortar Store?
No, you don’t need an additional online business license. The important thing here is that you have a business license period, which enables you to sell your goods and also registers you to pay the taxes for which you’re responsible. If you’re a physical retailer looking to add an online component to your existing store, you don’t need any further paperwork.
Requirements for Online Selling: 6 Common Types of Business Licenses and Permits
Although there is a document called a “business license,” there are also several requirements for selling online that you’ll need to go through in order to begin your ecommerce business. Some of them will not apply directly to you, but it’s essential to know about all of them so you can make certain you have the right operating paperwork before you start selling online.
Business License (General License)
A business license, sometimes called a “general license” or “business operating license” gives you permission to operate as a company in a certain area—generally your city, county, or state.
Almost every business—both online and otherwise—will need a business license to operate. The requirements for obtaining a business license will vary among areas, as will the fees to obtain one (usually, these are relatively low). Business licenses will need to be renewed every few years.
If your company sells products that qualify to be taxed, most states require you to obtain a seller’s permit—whether your 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, it 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 that 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. Additionally, if you physically operate in multiple states—even including housing inventory—you may be required to obtain multiple seller’s permits for each state.
One additional thing to note: In some states, such as California and Idaho, there are what’s called “temporary seller’s permits,” which enable you to sell online temporarily if that’s all you need.
Sales Tax License
An important part of being able to sell products online is charging customers sales tax. It’s a requirement, not an option—meaning, you’ll incur fees if you don’t.
As such, you’ll need a sales tax license. As you might expect, this differs from state to state as sales tax differs from state to state as well. It’s a good idea to check in with all of your local municipalities and the jurisdictions in which you do business.
Your state might also require some additional sales tax permitting, so, again, make sure you check in with the regulations in your area.
Employer Identification Number (EIN)
An EIN is crucial for every business. The employer identification number is something like a social security number for your business: It identifies you as a business and enables you to stay compliant with taxes and other regulations. If you’re going to incorporate as a business entity other than a sole proprietorship, it’s essential.
Another thing an EIN enables you to do is get a business bank account. This might seem secondary, but you’ll need your earnings to go into a separate business account, since it’s crucial to separate your business and personal assets.
To get an EIN, you’ll go through the IRS website.
“Doing Business As” (DBA) License
Most businesses register their business name when they register their business with their state. However, not all business entities are required to register—namely, sole proprietorships and general partnerships. In this case, the name of your business defaults to your legal name.
However, 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—then you’ll want to look into a DBA license. This will give you permission to operate under a trade name. If you’re using a different name, you’ll also likely need your DBA license to execute certain contracts, such as opening a business bank account.
This will only apply to some businesses, but, again, you’ll want to check in with your state to figure out what regulations they have around DBA licenses. If you’ve previously used another name and you’d like to change it, it’s especially important that you look into it.
Home Occupation Permit
If you’re operating out of your home, which is common for many online sellers, you may need a home occupation permit. This is a fairly common license, especially for businesses that are shipping from home. If you’re hiring employees, you will likely need a home occupation permit as well. Again, different cities, counties, and states will have different rules around whether or not a home occupation permit is required.
This permit can help you avoid breaking regulations if your business does things like hang a commercial sign, or have a lot of foot traffic from shipping companies or from seeing customers.
Determining Which Business Licenses You Need to Sell Online
You won’t be surprised to hear this: Your local jurisdiction will determine what kind of licenses you need to sell online. Some may require some licenses and permits that are not on this list and that may be proprietary to your area. You’ll want to check federally as well as on the state, county, and town level.
The licenses you need also may depend on the types of products that you’re selling. For instance, if you were selling fireworks, you’d likely need a different license than if you were selling jewelry.
No matter what, it’s absolutely crucial that you figure out what applies to you and your specific business. It’s always a good idea to consult with your business attorney during this process to ensure you’re obtaining all of the necessary business licences for selling online.
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. They may be different—some may allow you to apply online and some may require you to mail in forms or show up in person.
Remember that many business licenses expire after a certain amount of time. You might even want to put a note in your calendar for their dates of expiry so you don’t let your licenses lapse.
When Should You Apply for a Business License?
As with other pieces of the process, when you should apply for a business license to sell online will vary depending on where you’re selling. In some instances, you may need to apply before you begin selling. In other areas, you may need to grow to a certain size before you’re required to obtain licenses and permits.
Again, consulting your legal resources and local business resources will help you determine your exact timeline.
How Much Does a Business License Cost?
Luckily, you don’t have to worry about shelling out thousands of dollars for a business license. A basic business license will either have a nominal fee, or cost a couple hundred dollars. Some permits might not cost anything at all.
Don’t forget that you’ll also incur some fees when you want to renew your licenses—some will be less when you renew.
The biggest expense around a business license is not getting one at all. You could get hit with big fees if you’re found operating without the proper licensure or an expired license.
What Do You Need to Apply for a Business License?
It’s important to look into the specific requirements for your local jurisdiction to figure out what exactly you need to apply for a license to sell online. However, there are some documents that you can pull in advance to make the process easier.
Make sure you have information about your business entity type, any required inspections or permits that are specific to the products you’re selling, the name you’ll be operating under, and, in some cases, an EIN.
The Bottom Line
If you’re getting into ecommerce, it’s important that you look into the relevant business licenses and permits required to sell online. Operating without the correct licenses not only makes your business look amateur, but you could also run into big fines if you’re operating without the correct documents. Luckily, applying for the right licenses isn’t tough and shouldn’t cost you a great deal. You’ll be off to the races soon enough.
Christine Aebischer is an editor at JustBusiness and Fundera.
Previously, Christine was an editor at the financial planning startup LearnVest and its parent company, Northwestern Mutual. There she wrote and edited on topics such as debt, budgeting, insurance, taxes, investing, and retirement. She has written for print and online on topics ranging from personal finance to luxury real estate.