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Home » Blog » Online Marketplaces

Do You Need a Business License to Sell On Etsy?

Hazel Nguyen by Hazel Nguyen
Jan 2025
do you need a business license to sell on etsy

Requiring little to no initial investment, Etsy has well established its reputation as one of the top online marketplaces. Setting up is easy even without previous retail experience, the platform is a great starting point for sellers to join the online selling market.

Nevertheless, do you need a business license to sell on Etsy? While Etsy does provide beginners with guidelines on what to know before starting an Etsy shop, it includes no information about business licenses.

If that question has been preying on your mind, let’s read on to find out:

  • Do you need a business license to sell on Etsy?
  • Requirements to sell on Etsy
  • What kinds of business licenses to sell on Etsy?
  • How to apply for a business license?
  • Etsy legal considerations

Let’s get right into it!

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Do You Need a Business License to Sell on Etsy?

Although Etsy mentions nothing about a business license as a requirement in its sell-on Etsy guide for beginners, whether you need a license or not depends. The fact that your Etsy store is purely a hobby frees you up from acquiring an Etsy business license. However, it’ll be a legal requirement if you are selling on Etsy as a business.

Below, we provide you with IRS’s (Internal Revenue Service) detailed guidelines to work out the puzzle!

1. Do you sell on Etsy as a business?

IRS lists down 9 factors to help you determine whether your Etsy store is a hobby or business. Here’s the list for your reference:

  • You do it in a businesslike manner, maintain, complete, and accurate books and records;
  • It is part of your personal motive;
  • Making it profitable is your goal, and you invest a considerable amount of time and effort for that purpose;
  • You make a livelihood out of the income from it;
  • Your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business);
  • Either you or your advisors acquire essential knowledge to carry on the activity as a successful business;
  • You succeeded in making a profit in similar activities in the past;
  • The activity makes a profit in some years and how much profit it makes;
  • You can expect to make a future profit from the appreciation of the assets used in the activity;

In a nutshell, you need a business license to sell on Etsy if you deliberately make profits from the platform.

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2. Do you sell on Etsy as a hobby?

If your Etsy store is, in the IRS’s sense, not a business, there is no need for a business license for Etsy. However, there are some disadvantages associated with having no business licenses.

business license to sell on etsy

You’ll be unable to claim any possible loss from the income you generate when selling on Etsy. For example, you can retrieve the 10% fee deduction from making a sale on the platform. Upon accumulating, this might be a considerable loss to your overall profit.

It’s important to keep in mind whether it’s a hobby or business, you are subjected to paying tax for your commercial activity.

On a second note, a business license might also protect you against any arising legal dispute.


Requirements to Sell on Etsy

Before discovering how to acquire the license to sell, let’s take a look at the prerequisites to sell on Etsy.

Etsy has been marketing itself as an ideal destination to land a business of vintage, handmade, and craft supplies. Therefore, to some extent, its seller policy is part of its strategy to preserve such a reputation. Regarding this matter, the platform makes a clear statement on its recent policy update that comes into effect this December.

As a qualified Etsy seller, you can only sell handmade, vintage, or craft supplies.

requirements to sell on etsy

Just starting out? You might also want to check out:

  • How to Get 40 Free Etsy Listing: A Guide for Sellers
  • How to Make An Etsy Shop Banner to Attract Customers in 2025
    • For handmade items, you must be involved in either the designing or making process. You also have to disclose the information of your production partners and everyone joining the making of your handmade goods.
    • If it is vintage that you are selling, it must be at least 20 years old. 
    • In terms of craft supplies, you only need to be transparent about how your craft supplies were made and where your materials come from.

    The platform holds authenticity and intellectual property rights in high regard and strictly inhibits the act of reselling. Therefore, you need to make sure that your about-to-sell products don’t infringe upon any of Etsy’s intellectual property policies.

    Nevertheless, you can’t still list your products even when they meet all of the above marketplace criteria in certain cases. This refers to situations where your goods fall under the categories of prohibited items and services. For further reference, you can go to the Etsy Seller Policy page to take a look at the full terms and requirements for Etsy seller registration.

    Once validate your products and start selling, you must comply with Seller Service Level Standards. In other words, you must deliver great customer service and maintain trust with your customers. Etsy may reach out to you if your shop fails to meet Etsy’s Seller Service Level Standards.


    What Kinds of Business Licenses to Sell on Etsy?

    If you create an Etsy account to sell, acquiring a business license is a must. A business license allows you to focus better on growing your business without worrying about legal-related matters. It’s easier to scale up and sell more, and the business is safer in cases of filthy acts from your competitors.

    Depending on where you live, what you sell, and who you sell to, you’ll need to sign up for different kinds of business licenses. Here is the list of commonly-required business licenses for Etsy merchants.

    • Business operation license. You need a business operation license to legally run your business within the local government’s geographical jurisdiction. The application requirements differ from one state to another, so it’d be better to contact your Small Business Administration office for details. In general, the application process for eCommerce merchants is minimal and only costs around $50 to $100 (varies by city and state).
    • Employer identification number (EIN). This is for business tax reports to the IRS when your business has registered as a partnership, incorporation, or LLC (Limited Liability Company). If you start a small business on Etsy and register as the sole proprietor, an EIN is not necessary. In this case, your tax reports count on your personal tax returns.

    business license for etsy

    • Home occupation permits. You may be required to obtain a home occupation permit if you are running the business out of your home. This license matters in cases where you make your products out of your home (a common thing for many Etsy sellers). It’s best to seek references and local regulations from your city’s local SBA or city hall.

    To avoid a knock on the door from the IRS, it is important that you check off the list of your local permit requirements. As the local law on this matter varies by city and state, you should contact the local SBA for advice and guidance. Most places have an office where you can receive help with the paperwork and registration procedures.


    How to Apply For a Business License to Sell?

    Overall you need to complete an application and pay a license fee. Below we cover the details of each step to apply for a business license.

    Start with a business name

    You need to come up with a name that well represents your business and sets you apart from your competitors. Check out our article on 100+ shop name ideas for Etsy if you haven’t found one.

    A brand name can come from parts of your name or refer to the product that you are selling on Etsy. Nevertheless, it should be concise, easy to read and comply with Etsy shop name rules. Once determine what name to give your business, you need to back it up with legal grounds.

    • Business name and trademark check. Do double-check beforehand to ensure no one else has registered for your brand name. You can search the Secretary of State and USPTO’s trademark database prior to your business name registration.
    • Business name registration. If the business name is available, you need to secure its status. Depending on your business structure, you’ll be registering with either your local government or the Secretary of State.

    Decide the business structure

    To complete the application, you need to indicate your business status. It can be a sole proprietorship, partnership, limited liability company (LLC), or other business entity.

    • Sole proprietorship. You are the only business owner and you record Etsy incomes and losses on your personal tax returns. If your Etsy business runs small, this is an ideal option.
    • Corporation or Limited Liability Company (LLC). You separate your business assets from your personal assets. It means lawsuits, debts, and tax matters of your company do not affect your personal assets. This business structure has a greater advantage for someone desiring to scale and call for investments in the future.

    business structure helps define the license you need

    Double-check with your local government

    Once done registration, you need to double-check with your local government for any federal licenses and permits your business might need. You should also contact the Small Business Administration (SBA) to determine any other regulations you need to follow to operate your business legally.


    Legal Considerations for Etsy Sellers

    1. Sales and use tax

    This is also known as the seller’s permit or a “sales tax ID”. The license is a state permit allowing you to sell your goods to people in that state. Nevertheless, you only need to acquire this license in certain states when you make $100,000 a year or have at least 200 transactions.

    In many cases, Etsy may handle the sales tax obligations for you and count the amount in the platform’s deduction fee. You can check the Etsy seller handbook for further details.

    2. Physical vs digital product sales

    The second thing on the checklist is the tax requirements for physical and digital products. This is yet another thing that varies by city and state. In certain states, selling digital products is tax-free. Meanwhile, in other states, you can still be taxed for selling digital products on Etsy.

    So before establishing an Etsy business account, make sure you know well how you can be taxed to eventually make profits.

    3. Fictitious business names

    As mentioned above, do consider trademarking your business name. As a sole proprietor, you register it by filing a fictitious name or DBA (doing business as) with your local state government. In case you represent a business entity, you register the name when filing the formation paperwork with the Secretary of State.

    4. Selling food on Etsy

    You can sell food on Etsy, but several states will have specific requirements and regulations on making, packaging, shipping time, and selling food. You need to contact the local law advisors to make sure that meet all the requirements before becoming an Etsy seller.


    Etsy Business License – FAQs

    • Can you sell on Etsy without a business license?

      You can sell on Etsy without a business license. However, a business license is required in certain cases as put forward by the IRS. You also have to comply with your state’s laws and regulations to operate a business which sometimes involves the need for a business license.

    • Does an Etsy store count as a business?

      Your Etsy store counts as a hobby when you run it without expecting a profit. If you are investing your time and effort into operation and growing it, your Etsy shop then counts as a business.

    • Do you have to have a tax ID to sell on Etsy?

      A tax ID is not a requirement to sell on Etsy when you register your business as a sole proprietorship. In this case, you will report taxes on your personal tax returns. However, if your business is a corporate entity or an LLC, you’ll need an EIN (Employer identification number).


    Conclusion – Etsy Business License

    Knowing clearly what it takes to establish a business leaves you with a peaceful state of mind to run your business successfully, not only on Etsy but also on other best-selling platforms. Spend the time researching what’s required in your state to operate as a business, then set yourself up. Your business will be safer, easier to scale, and more profitable.

    With a business license, you can easily leverage your sales strategy and scale across different marketplaces. LitCommerce is an app that helps you scale and manage multi-channel effortlessly. Learn more about us by contacting or joining our dynamic eCommerce community!

    Hazel Nguyen

    Hazel Nguyen

    Hazel Nguyen is a Content Writer for LitCommerce. She has 3 years of experience working in eCommerce and creating high-quality content relating to Etsy. Hazel Nguyen is also appreciated for her deep knowledge of selling on Etsy when sharing with other entrepreneurs in the eCommerce field.

    Table of Contents

    1. Do You Need a Business License to Sell on Etsy?
      1. 1. Do you sell on Etsy as a business?
      2. 2. Do you sell on Etsy as a hobby?
    2. Requirements to Sell on Etsy
    3. What Kinds of Business Licenses to Sell on Etsy?
    4. How to Apply For a Business License to Sell?
      1. Start with a business name
      2. Decide the business structure
      3. Double-check with your local government
    5. Legal Considerations for Etsy Sellers
      1. 1. Sales and use tax
      2. 2. Physical vs digital product sales
      3. 3. Fictitious business names
      4. 4. Selling food on Etsy
    6. Etsy Business License – FAQs
    7. Conclusion – Etsy Business License

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