Do You Need A Business License To Sell Online?

A business license is a government-issued permit that allows a business to operate legally. Licenses can be issued by city, county, state and federal governments and by multiple agencies within each level of government. Business licenses serve multiple functions such as keeping businesses compliant with industry-specific regulations.

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The license requirements depend on your location and the nature of the products or services being sold. These requirements are the same, regardless of if you sell online or not. The difference for online businesses is they may need multiples of the same license if they are selling online to customers in different locations.

General Business License

A general business license is a one-size-fits-all license that applies to all businesses in a particular area. A state usually issues this license, but a county or city can as well. For example, Illinois does not issue general business licenses, but Chicago does. For online entrepreneurs, a general business license may be needed by the state or local government where your business is registered or your business’s physical presence, like a warehouse, is located.

Sales Tax License

When selling goods or specific services, sales tax may need to be collected and remitted to the state. If this is a requirement for your business, a sales tax license (also known as a seller’s permit or resale certificate) may be needed. This license allows you to collect sales tax and remit payments. Usually, the tax is remitted to the state. However, some cities or counties may impose an additional sales tax. There is currently no federal sales tax.

Keep in mind that you are required to collect sales tax in the state where the product or service is delivered. So if you live in New York and sell a hand-knit sweater to someone in Indiana, the sales tax is due to the state of Indiana.

Determining in which jurisdiction to get a sales tax license can take time for online retailers. In certain jurisdictions, if your business has a significant presence known as nexus, you may be required to collect and remit sales tax, even if you operate exclusively online.

Forty-five states (and D.C) require online sellers to collect sales tax; however, in most states, this is only required if your taxable sales are over a certain total, such as $100,000 per year or if you reach a certain number of transactions, such as 200 per year.

Home-Based Permit

In some jurisdictions, running your business from home requires a home occupation permit. This is even required when the business is an online business. This license enables the operation of business activities that may normally not be allowed within residential zones. Home-based permits are subject to specific regulations and limitations.

Professional/Occupational License

Certain professionals, such as lawyers, doctors, architects and accountants, may have to obtain a professional or occupational license from their state governing bodies. These are industry-specific, allowing them to operate legally and provide specific services. Requirements vary based on profession and jurisdiction for licensing approval. The application process can often involve standardized tests and hefty fees.

Specialized Licenses

Certain products and services require specific operating licenses, such as selling alcohol, tobacco, firearms, pharmaceuticals and food products. While the regulations surrounding such licenses vary based on the industry, they often involve fees and inspections. Both the federal and local governments often regulate these licenses.

Whether you sell online or have a brick-and-mortar location, the requirements for obtaining a business license depend on your business’s location and the nature of the products or services being sold. Here are a few factors that help determine whether a business license is necessary when selling online. Make sure to check out our state-specific guides for additional help.

Your Location

The location of your business can influence the need for a business license. Various states, counties and cities have distinct licensing regulations that must be considered. The requirement for a license may depend on whether your business has a physical presence or operates solely online. Selling internationally introduces additional complexities as you must adhere to the licensing requirements of each country.

Your Product

The product you sell can impact your need for a business license when conducting online sales. There may be additional licensing requirements for certain products or services including:

• Alcohol
• Firearms
• Pharmaceuticals
• Food
• Gaming/gambling
• Professional services (such as legal or medical advice)

These requirements are in place to ensure safety, compliance and consumer protection. Understanding the specific regulations and licensing obligations that apply to your product category when selling online is crucial.

Applying for a business license varies based on the agency and the type of license. Here are some general steps to help you understand the application process.

Determine the License Requirements

Research and identify the specific license required for your business. Check with the local government, city or county offices or the appropriate licensing agency to understand the specific requirements and regulations that apply to your industry and location.

Gather Required Information and Documentation

Prepare the necessary information and documentation needed for the application. This may include your business name, contact information, business structure (e.g., sole proprietorship, partnership, limited liability company (LLC)), tax identification number, proof of address, identification documents and any supporting documents specific to your industry (e.g., certifications, permits).

Complete the Application

Obtain the official application form from the appropriate licensing authority or download it from their website. Fill out the application accurately and provide all required information. Double-check that you’ve completed all sections and attached any necessary supporting documents.

Submit the Application and Pay Fees

Submit your completed application form, along with any required fees. Some licensing authorities may accept applications online, while others may require submission in person or through mail. Ensure that you pay any application fees and follow the prescribed submission process.

Follow Up and Await Approval

After submitting the application, keep track of the status and any communication from the licensing authority. They may request additional information or schedule an inspection. Once your application is reviewed and approved, you will receive your business license.

Remember that the necessary licenses and permits depend on your location, business activity, and applicable laws and regulations. Acquiring appropriate permits legitimizes your company, giving it legal standing to operate and sell products or services. It also helps you adhere to legal requirements for sales tax by helping you avoid penalties, fines or legal consequences arising from noncompliance with sales tax regulations.