Published on May 15, 2017
What is Etsy?
Etsy is a website like eBay where anyone can open an account and sell both physical and digital goods online.
It’s a global community with over 1.7 million active sellers and 28.6 million active buyers. With over $2 billion in gross sales in 2016 alone, it’s easy to see why so many crafters love to sell on Etsy.
Another advantage of selling on Etsy is that you don’t need to hire someone to create a website for you. A seller simply opens an account and starts uploading product shots and details to open a store.
Does Etsy Require a Business License to Open an Account?
Anyone can open an Etsy account, but to avoid violations and fines you’ll want to make sure you comply with state and local laws and regulations.
Even if you’re only selling items occasionally and consider it more of a hobby than a job, the state you live in may require a license.
Business License Considerations for Etsy Sellers
Sales and Use Tax
Even though you’re selling online, you still may have to charge your buyers sales tax. Depending on the state you’re selling from, sales and use tax can be complicated. Only six states do not charge state sales tax.
In addition to state sales tax, you also may need to collect local sales tax as well, depending on the county you live in.
Digital Vs. Physical Products
If you’re selling both digital and physical goods, it can get even more complicated. Some states require you to collect sales tax on physical goods only, while others tax both physical and digital products equally. Check with your local taxing authority and accountant to determine if you need to collect sales tax from your buyers.
DBA Trade Names
Most Etsy sellers come up with unique names for their shops to stand out and let buyers know the types of products they sell. If you sell products under a name other than your own, even if you don’t have an Employer Identification Number from the IRS, you may need to register a Doing Business As (DBA) with your state or locality, even if you’re not required to be licensed.
If you’re selling food on your Etsy store, you may need to be certified through your local Health Department to sell online. The US Food and Drug Administration has great resources to help you navigate the various requirements for US sellers. On the state level, Forrager can help you determine the specific cottage food laws for your state.
Do I Need a Business License if I’m Doing Etsy as a Hobby?
The short answer: it depends.
The long answer: the IRS requires every penny of income you receive to be reported on your federal tax return whether you do it for fun or for profit. Every state is different, and some may require licenses and others don’t. Check with your state and local taxing authorities to answer this question.
Etsy is a great way to make money from your passion for crafting. While the business side of things can seem a little complicated, don’t be discouraged. Just be sure to follow your local rules and regulations when it comes to licenses, permits, and taxes.
To Learn More
Still confused about licenses and permits for your Etsy store?