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do you need a business license for an online business facts

Do You Need a Business License for an Online Business

Selling goods online has grown in popularity over the last decade and much more since the pandemic.

With the constant growth in e-commerce, it's no surprise if you're wondering, "Do you need a business license for an online business?"

It's a given that having a business license along with other required permits gives your business more credibility, but at the same time, it allows you to operate legally.

Let's figure the answer to this question and several other considerations you need to consider when you're starting your online business.

What Is a Business License?

In simple words, a business license permits you to run your business.

The exact business license you’ll require will differ from one state to another.

However, its purpose stays the same: to show you’ve got the government’s approval to operate your business in the area you have been approved for legally.

Do You Need a Business License for an Online Business?

If you’re looking for a short answer to whether you need a business license to sell online, then it’s a yes.

Not only is it a requirement but a crucial part if you want to establish your business as legal and legitimate.

That said, obtaining a business license isn’t as simple as just going down to the local office and filling up a form.

Factors Affecting Licensing

The license you need will depend on the location you will be operating from, the kind of products you’re looking to sell, and your business needs.

Different states will have different laws, so it is important to know which one applies to your business.

After all, you do not want to go through all that effort and hard work to just end up getting fined because you did not do the correct thing.

In addition to state, there is a possibility that there are different laws and requirements to obtain your license for different cities.

Business licenses are issued either at a federal, state, or local government level.

You will need a federal license if the products you are selling are regulated heavily by the FDA.

These products can include medicines, animal products, explosives, alcoholic beverages, and the likes.

States need licensing for certain occupations and the sale of certain products.

For this, you will need to look for your state’s website to be sure about the license you need to apply for.

Almost every business will need to apply for a license; this also includes county and city licenses.

There’s a possibility that you may need to get more than one license too.

Is a Business License Necessary to Sell Online if You Already Have an Existing Brick and Mortar Store?

If you already have an existing brick-and-mortar store, then the good news is you don’t need to apply for an additional business to sell online.

The crucial thing here is that you should have a legitimate business license to enable you to sell your products and register you to pay your taxes.

Requirements for Selling Online: Six Common Types of Business Permits and Licenses

Even though we are constantly referring to it as a “business license”, there are many requirements to sell online that you will need to go through to start your online business.

Of course, a bunch of them may not even apply directly to you.

Still, it is essential to know them all so that you are sure you’ve applied for the correct operating paperwork before you begin selling online.

Business License (General License)

A business license also referred to as a “business operating license” or “general license”, permits you to operate as a company in a specified location.

This location is typically your state, county, or city.

Regardless of whether it is online or otherwise, almost every business needs a proper business license to operate.

The requirement to obtain this particular license varies depending on the area, along with the fees for it, which is typically low.

Keep in mind that you will need to renew your business license every few years.

Seller’s Permit

If you are selling products that qualify to be taxed, then a majority of the states will need you to apply for a seller’s permit, whether your company is only online-based and/or has a physical location.

You will need to collect sales tax, and that’s exactly what a seller’s permit will allow you to do.

At the same time, this permit may enable you to buy specific products from suppliers without paying a sales tax.

This happens through something called a “resale certificate”.

It shows that you will sell the products you’re purchasing through your business, either retail or wholesale.

Bear in mind that this requirement can vary from one state to another, so it’s advisable to check with your local jurisdiction to know if you do need this permit.

In addition, you may need to obtain multiple seller’s permits for every state if you are operating from multiple states, including housing inventory.

In states like Idaho and California, you can apply for something called a “temporary seller’s permits”.

It will allow you to sell your products online temporarily if that is what you’re looking for.

Sales Tax License

A crucial part of selling your products online is charging your customers a sales tax.

It is mandatory and not an option, which means you will incur those fees if you don’t do it.

For this, you will need to apply for a sales tax license.

There’s no surprise that this will differ from state to state, and even the sales tax differs from state to state.

It’s wise to check in with all of your local jurisdictions and municipalities wherein you will be doing your business.

Your state may also need some additional sales tax permits, which means that you will need to check about this too.

Employer Identification Number

The Employer Identification Number or EIN is imperative for every business.

It is a kind of social security number that identifies you as a legitimate business.

It also enables you to stay compliant with all the necessary regulations and taxes.

It is essential, especially if you will incorporate it as a business entity rather than a sole proprietorship.

Another thing that this number will enable you is to get a business bank account.

It may seem secondary, but it is important since the earnings from your business need to go into a separate business account to keep it separate from your personal assets.

To get your EIN, you would need to visit the IRS website.

“Doing Business As” License

Typically, most businesses will register their business name when they are registering it with their state.

That said, not every business entity is required to register; these include general partnerships and sole proprietorships.

In cases like this, the business name will default to your legal name.

That said, if you aren’t looking to operate your business with your name or if you’re looking to operate it under a business name other than the one you’ve registered with the state, you will need to consider getting a DBA license.

This license permits you to operate under a trade name.

If you are using another name, you may likely need your DBA license to execute specific contracts like opening a business bank account.

While this may apply to only specific businesses, it’s advisable to check with your state to know exactly what the regulations are around this license.

Home Occupation Permit

It’s quite likely as an online seller that you are operating from your own house.

If that’s the case with you, you will need to apply for a home occupation permit.

This license is quite common, especially for businesses that ship their products from home.

This license is also essential if you are hiring employees for your business.

Like always, different states, counties, and cities come with different rules around whether a home occupation permit is necessary or not.

Ideally, we recommend getting this permit.

It can help avoid breaking regulations if you do certain things like hanging a commercial sign or having a lot of foot traffic from seeing customers or shipping companies.

do you need a business license for an online business

How To Determine Which Business License You Need To Sell Online?

This may not come to you as a surprise, but your local jurisdiction will determine the kind of license you will need to open your online business.

Some businesses may need specific permits and licenses that we may have not even mentioned in the list above as they may be proprietary to your area.

We recommend checking which license you need federally and on the county, town, and state levels.

Furthermore, the kind of license you need to apply for may also depend on the kind of products you will be selling.

For example, if you are selling jewelry, you will need a different license from selling fireworks.

Regardless of everything, we cannot keep stressing how important it is that you know exactly which license or permit applies to you and your online business.

If you have any doubt in your mind, it is ideal that you consult with your business attorney during this process.

It will ensure that you are applying for the right permits or licenses necessary for you to sell your products online.

How and When To Apply for an Online Business License?

After correctly figuring out the type of business permits or licenses you need, you have to follow all the steps to get each specific license.

These can differ as some may require you to mail in forms, apply online, or show up in person.

Keep in mind that a majority of the business licenses do come with an expiration date after a certain amount of time.

We recommend keeping a note in your calendar of the expiry date so that you do not let your licenses lapse.

When it comes to when you should be applying for the business license to sell online, this can vary with the location from where you are selling.

In certain states, it may be necessary for you to apply for the license even before you begin selling.

In other states, you may have the option to grow your business to a specific size before applying for your permits and licenses.

As we said before, consult your local business resources and legal resources to help you understand your exact timeline.

What Is the Cost of a Business License?

Every state, county, and city has its own cost for a business license.

The cost will also differ depending on what you are selling.

Typically, you can expect to shell out anywhere between $50 and $400 or even more.

There will be separate costs for fingerprinting as well as other kinds of processing.

When it comes time to renew your license, some states may ask for the same amount, whereas others may ask for a lower amount.

Whatever the case may be, make sure you renew your license on time.

If you don’t, you will end up losing a part of your revenue to settle the penalty.

What Do You Need When Applying for a Business License To Sell Online?

You must be looking into all the specific requirements for your local jurisdiction to know the things you exactly need to apply for a license to sell online.

However, you need to have a couple of documents on you beforehand to make the process a little smoother.

Ensure that you have all the information about your business entity type, any inspections necessary, permits specific to the products you are selling, the name that you are operating under, and in some cases, you may need the EIN too.

Opening a Successful Online Business: In Conclusion

We hope you got your answer to "Do you need a business license for an online business or not?"

We cannot stress enough that this completely depends upon where you are selling from.

Hence, make sure you are doing ample research and speaking to the right people so that you obtain a business license with minimal stress.

About the Author Ramesh Dontha

I am an entrepreneur, writer, and blogger. I build businesses and love to share my experiences of my successes and failures. My mottos is: Live with purpose, Be Passionate about that purpose, Persevere through ups and downs and keep exploring Possibilities.

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