Etsy is one of the most straightforward ways to start selling goods online. It does not take any start-up cost or an inventory cost. There are millions of customers in the modern business world who are interested in buying handmade goods. But there is one universal question that most of us have. Many of us would not know whether we need any permits or licenses to sell on Etsy. So do you have to be licensed to sell on Etsy? Read the article to find out more. 

The simple answer to whether you have to be licensed to sell on Etsy is that it depends on the type of business, country, state, and municipality. The licenses and the permits that you require will vastly vary depending on those factors. However, the most critical licenses required to sell on Etsy are Business Operations License, Employee Identification Number, and Home Occupation Permit. If you follow the local rules and regulations, you will be able to become a successful Etsy seller. 

What is Etsy?

Etsy is an American e-commerce website that sells vintage and other handmade items along with various craft supplies.

The items on the website belong to many categories, including jewelry, bags, the decor of multiple natures, furniture, different types of toys, etc.

What is unique about Etsy is that all vintage items sold under the website need to be at least 20 years old. Etsy is a platform that connects its unique set of goods with millions of buyers who seek for items with a human touch.

When you enter the Etsy website, you will see thousands of handmade products curated by millions of sellers. It is a community that is global and has more than 1.7 million active sellers registered. The number of active buyers has surpassed 28.6 billion in recent years. 

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Who are Etsy sellers?

All the Etsy website items are usually listed and sold by millions of independent sellers. They typically create handmade goods or curates vintage or various craft supply goods.

Etsy does not have a warehouse for storing goods.

When you usually buy something from Etsy, you are helping out an independent seller who usually self-manages all orders. The seller maintains his/her inventory as well. 

Do you have to be licensed to sell on Etsy?

Let’s say you are selling on Etsy for fun or as a business.

Whether you just started selling on Etsy or have been a seller on the website for a while, there is one universal question that most of the sellers face. That is ‘do you need a business license to sell on Etsy?’. 

The simple answer to the question is that you will require a license depending on the country, region, state, and municipality you do the business.

To overcome any policy violations or fines, you can do extensive research on rules and regulations related to your country or state. This is mainly because local laws and regulations may vastly differ from country to country. 

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How can you decide if you need a business license to sell on Etsy? 

Below are some of the factors you need to consider in deciding whether you need a license to sell on Etsy. Whether you require a license or not may vary depending on the below factors. 

  1. Whether you sell on Etsy stores as a free time activity, fun or a business

Internal revenue service gives specific guidelines on deciding whether it is doing as a business or a hobby. However, if you are doing it for profits, then it is a business and not a leisure time activity. Online businesses need to get the required license to operate in the store. 

  1. Whether your business is profitable or not 

Let’s say you are continuously making profits through various business transactions. Then you are required to report your income to the Internal Revenue Service. On the other hand, Etsy will also communicate your gross income to the IRS. You also need to inform your income to the personal tax return. 

  1. Whether your business is a partnership or a well established company

If you start your business on Etsy as a partnership or a limited liability company, you are required to obtain an EIN for the business. 

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What are the business licenses required to sell on Etsy?

  • Business Operations License is an essential requirement that will allow your business to operate within the local government’s geographical jurisdiction. However, you will only require this if you are planning to register your business under the IRS. 
  • A Taxpayer ID is another license that focuses on how you will report your taxes to the Internal Revenue Service. This is also only required if you are planning to include the money you receive in the tax return. 

What are the legal considerations that are applicable for Etsy Sellers?

There are several legal considerations that Etsy sellers need to adhere to when engaging in business on the site. Below are the most important ones. 

  • Sales and use tax 

The majority of the states want the Etsy sellers to gather sales tax. The complexity of sales and use tax may vary depending on the country and state you live in.

It is important to note that in June 2018, the Supreme Court initiated a rule that a state can require a particular online seller to collect tax even if they do not make any physical presence in that specific state.

Simply, the online sellers will have to register for a license. Then they can collect and also remit the tax in all states. Apart from the state sales tax, the seller can also gather the local sales tax. However, this may vary based on your local regulations. 

  • Physical versus Digital Sales 

Various business licensing and tax laws and regulations are not always applicable to both physical and digital goods. Sales tax collection requires only physical products in individual nations.

Some states may want tax collection for both of these goods. The seller will have to cross-check with the local taxing authority whether they need to collect taxes from the buyers. 

  • Fictitious Business names 

The majority of the sellers on Etsy use unique names to gain a competitive advantage from their rivals. However, if you sell any product under a different name other than yours, you will have to register it in the Doing Business As (DBA) with the state. 

  • Food selling on Etsy 

If you are any food seller, then you will have to obtain a certification to sell food online from the local health department. The U.S. Food and Drug Administration is the ideal platform to get support for this matter. Moreover, Etsy provides a seller’s handbook specifically for online food sellers. 

Do you have to be licensed to sell on Etsy as a hobby?

The simplest answer to this question is, ‘it depends.’ 

The Internal Revenue Service (IRS) requires all income you receive to report to the federal tax return. This applies to all the sellers, whether you sell as a business or a hobby. However, every state is different from one another. It recommends that you check with your state and local taxing authorities on the same. 

Do you need a resale license to sell on Etsy?

Sellers will need to have a seller’s permit to refrain from paying sales tax and collect tax from the customers. The majority of the municipalities will require you to have a business license. But Etsy will not want you to have one. 

Do you have to report Etsy Income?

If you are a seller on Etsy, you need to pay income tax based on your income. That is the total earning from selling products minus your business expenses. Etsy usually uses form 1099-K to report your income to the IRS. 

Conclusion 

Etsy is a great platform that anyone can use to start selling online. There is absolutely no start-up cost nor an inventory cost. So do you have to be licensed to sell on Etsy? It is important to note that you will require various licenses and permits when you sell on Etsy. This may vary based on your country, state, type of business you are in, and even the municipality. Simply follow your local rules and regulations regarding permits, licenses, and taxes to avoid fines and penalties. 

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