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When online selling began, business transactions easily flew under the radar. But today, as eCommerce and business transactions have increased across the board, technology has caught up. Everything is trackable now. But that’s not all bad. A legit business owner with the proper business license stands to profit a lot. An eCommerce business license protects your reputation and improves your trust factor. Online selling has seen enormous growth, partly due to the pandemic. The growth rate is about five times faster than retail establishments. Here’s what online sellers need to know about obtaining a business license.

Types of Business Licenses for Online Sellers

Business licenses vary and the type you need depends on your location and type of business. Your state, county, and locality may have specific regulations about local business licenses. Some regions require a permit if you want to sell out of your home. If you live in some zoning classifications, you may not be allowed to operate a home-based business. Here are a few terms to become familiar with:

DBA: Doing Business as Name

You’ll need a DBA name if you choose to set up an online business using a specific name. Visit your local Secretary of State to set it up. Various states assess and process fees differently, some states don’t have any fees or registration for a DBA. First, you’ll need to see if the name you want to operate under is available. Then, you may need to publish a public announcement in your local newspaper(s).

Professional and Industry License

Another name often used for this type of business license is an occupational license. Some states may require a license for specific fields of work like real estate agents and accountants. Sellers may also need a specific state license for their field. If you handle tobacco products or alcohol, you may need a license for your specific industry.

Sales Tax License

To sell merchandise online, you’ll need a sales tax license. In some areas, it’s also called a Sales Tax Permit or a Seller’s Permit. It will provide you with a sales tax ID number. Professional services rendered online such as income tax preparation is classified as online sales. Sales tax permits are required. The permit registers your business and allows you to collect taxes from sales.

Please note that if you sell state to state, each state has specific eCommerce business requirements. You may only need to register your permit in each state. Make sure to check the requirements for sales to other states. Don’t make the mistake when collecting or paying sales tax. Penalties can be steep.

Resellers Permit

A reseller certificate or permit is required for those who buy merchandise for the purpose of reselling it. It is a separate permit but be sure to check what is required in your location.

EIN: Federal Employer Identification Number

You need a federal EIN to open a business bank account. If you are the sole proprietor, your social security number may be used as your EIN. The IRS assigns EINs. You can apply for one online. If you plan on hiring employees, you’ll need to obtain an EIN.

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Home Occupation Permit

Before operating a business from your home, check your local zoning regulations. Many zoning laws prohibit businesses from operating in a residential area. It is possible to get a home business license if you can get approval from the zoning board. You will probably need to be able to prove that your online store or business will have no impact on your neighbors. You may still need a business license if you work solely out of your home. For example, in Fairfax, VA you are required to apply for a business license if you are self-employed or engage in a home occupation if your income is greater than $10,000.

Federal Business License

If you sell to entities under government supervision, you’ll need a federal business license. You’ll also need to charge federal taxes.

Maintaining an Online Business License

Most business licenses must be renewed annually even though some are biennial. Make sure to keep updated on your state’s requirements. It is much easier to maintain a license than to try to renew an expired one. A business license will cost you anywhere from $50 to $550. However, some steep fines may apply if you are caught operating a business without one. Plus, you put your professional reputation at risk.

5 Steps for Getting a Business License to Sell Online

  1. Check the rules in your state. Look at your county and local requirements and check with your local department of revenue.
  2. Gather all the necessary paperwork.
  3. Register your business with its DBA name.
  4. Obtain and register your EIN.
  5. Register with your state’s revenue office.

Online Seller FAQs

Do I need a license to provide online services?

Most states will require permits and licenses, but it varies from state to state.

Will I need a business license to sell on Amazon?

You will not need a license to sell on Amazon. However, you will need to register on Amazon as a seller. Amazon collects the appropriate sales taxes for you.

Will I need a license if I drop-ship merchandise?

If you are going to resell merchandise, you’ll need a reseller certificate or a sales tax ID. You’ll also need to obtain an EIN. The wholesaler won’t charge you taxes but you will have to charge taxes on any products you sell.