You’re thinking about your first Etsy store. Or you’re already there and making some sales. Or you’ve been selling for some time but it’s close to the end of the year and now you’re wondering about finances. And then it dawns on you: all this income, all these transactions… do I need a business license to be doing this?
Relax. The quick answer is no, no you do not.
The term itself can even be quite confusing as it’s vague to the point of being irrelevant. Much like the term “press credentials” which do not exist, there is no one “business license”. You might be reading a lot online about how everyone needs this or that, so let us be as clear as possible:
Licensing is for specific types of services or sales and usually pertain to things that are either controlled by law or offer some sort of practice that falls into categories where safety is an issue.
For example, you need a local license to legally sell alcohol or to operate a dispensary. You also need one to offer services as an electrician, plumber, for masonry, etc. Medical clinics and treatment specialists obviously need to be properly licensed, as do commercial vehicle drivers, and these types of businesses might also require federal licensing. All of these things have to be supervised to some extent because of the overall health and welfare of people in general.
What we are talking about in terms of how it could pertain to you is how you sell your items on the Etsy platform. No one’s life is potentially on the line in transactions such as these and as the Etsy platform collects appropriate sales tax on the things you sell, by all means sell your creations or collections to your heart’s content. The money you make doing this is of course taxable, but most people in the US earn money through jobs that do not require them to carry licenses. Reportable income is reportable income when it comes time to file, regardless of its source. For many purposes, using your own social security number as a taxation reference is more than enough, just like you do with any other sources of personal income.
Planning to Expand? Then You Need a License
Where licensing CAN come into play is if you are intending to expand what you sell beyond just a platform on Etsy. For example, let’s say you are planning to do some craft shows or conventions in your state. Venues such as this will usually require you to have some sort of tax ID on file with that state to show you will be collecting sales tax when you sell to the public. This is a free certification and you only need look up your state’s website to find links to how to apply for a sales certificate. You can either use your own social security number or file for an FEIN, or Federal Employer Identification Number, if you already have established an LLC for your business (this author has done both methods). This will get you into trade shows and conventions and yes, sometimes representatives from the state will show up at these events and check everyone’s paperwork.
Please do not worry about this, it’s simple, it’s easy. It’s a few clicks away and it costs nothing.
But there are some things you need to be aware of if you are going this route. What IS of strong importance is to note how often your particular state wants you to file the sales taxes you collect, even if it’s just to report that you made no sales that quarter/year/whatever time period they require. Failure to do so might cause them to estimate how much they figure someone like you might have made and ask for the taxes on that money regardless. This amount can be completely random.
For instance, I have personally sold crafts in a different state from the one I live in, got the proper sales tax licensing for that state on time, and about three months later was presented with a bill from them fifteen times larger than what was actually collected. Seems their tax board had taken the highest earner at the convention of over 200 vendors and decided that everyone there made at least that much. It took me two years to clear it all up. So check what the state you sell in requires of you. Again, to do this on Etsy, you do not have to go through anything like this, but if you are looking to expand into shows or even your own physical store one day, the rules do change.
Another time this comes into play is if, like mentioned above, you form an LLC to handle your business transactions. There are multiple pros and cons to this which lay outside the scope of this one article, but suffice to say that if you do form an LLC the rules for formation and record keeping vary from state to state and if is of vital importance that you learn these rules before you file to incorporate. The simplest of Google searches will get you all the info you need to do this properly, you do not have to hire lawyers and you probably do not need to hire outside management companies to do it for you. Some states may require you to hire a management company to be your legal representation if you form your LLC outside of the state your company will have its legal address in (Delaware comes to mind as one).
Selling your wares on Etsy should be a fun and rewarding thing for you to do, regardless of its place in your life. A fun hobby turned into a good business is usually what people want out of this and why not? And why should it be any more complicated that it already is? Happily enough, it doesn’t have to be. So enjoy selling and meeting customers online, and if the day comes where you wish to do this in person at a show, just ask the organizers what you need to present to them and look it all up and file for your permit to collect sales tax in person. It really has never been easier to do and will cost you nothing but ten minutes of your time, if even that. Happy selling!