eCommerce transactions were largely invisible during the early days of online sales. The times have changed, and online business has become mainstream.
And that’s a good thing. Business owners with proper licensing are ready to maximize their profits. You are able to build your reputation by operating legally with every eCommerce license required by government agencies.
Online selling has seen a rapid increase. Online businesses are growing five times faster than retail businesses. Here’s how to become an online seller.
Types of Business Licenses Needed to Sell Online
The type of appropriate business license you need can vary – by type of business and by your state, county, and local business licenses regulations. For example, you may need a permit to operate a business from your own home. Certain types of home-based business may not be allowed in certain zoning categories. Does your small business need a license ??
Here are some definitions you need to know:
Doing Business as Name (DBA)
If you want to set up your online business with a certain name, you need to acquire a DBA name. This would be done through your Secretary of State. There are different fees and processes for each state. Some states do not require registration.
The first step is to check if the name that you are interested in is available. You may need to publish your information in the local newspaper once you have gotten a DBA.
Professional and Industry Licenses
These are also sometimes called occupational licenses.
Official licenses can be for certain fields of work in some states such as real estate agents and accountants. These sellers might need a state license to do their work.
Sellers of alcohol or tobacco online may also require a specific industry license.
Sales Tax License
You’ll need this license to sell merchandise online. This license can also be called a seller’s permit or sales tax permit. This permits you to obtain a sales tax identification code.
Professional services rendered online – such as income tax preparation – are also considered online sales and require sales tax permits. The Sales Tax License (or Seller’s Permit) registers your company to collect and remit tax from sales. The purchaser or customer pays the state tax and you remit it to the internal revenue department.
What if you sell in your state to another? Every state has its own requirements regarding ecommerce transactions. You may only need to register your seller’s license in the state. For example, Oregon, Alaska, Delaware and Montana don’t charge state tax. Other states set a standard before they collect tax, such as taxable if sales are greater than $100,000 or if more than 200 transactions occur. Check the state requirements before you expand your e-commerce business. It is important to not make mistakes in collecting sales tax, or paying sales taxes. Otherwise you will be subject to tax penalties. This permit is issued by your state revenue department.
Resellers Certificate or Reseller’s Permits
These seller’s permits are needed as ecommerce business licenses for those who buy merchandise and resell it. You can also call it a reseller’s permit or a resale certification.
Federal Employer Identification Number (EIN)
You need an EIN to open a business bank account. Your federal employee identification number is the EIN. You can use your social security number to get your EIN if you are a sole proprietor.
You can get your EIN online from the IRS. If you are hiring employees to pay employer withholding tax, you will need an EIN.
Home Occupation Permit
It’s important to check your local zoning regulations before you state operating a business from your home. Home-based businesses are less likely to be allowed in dense residential areas. Businesses that operate in residential areas are often subject to restrictions by zoning laws.
A homebusiness license . may still be approved by a local zoning Board. To get a zoning permit, you would need to show that your online business has “no effect” on nearby residents.
Statewide General Business Licenses
A general business license or business operation license are appropriate licenses needed to operate a business in a state. These licenses are standard business licenses.
Certain types of business entities require specific state business licenses. A general business license does not usually include the permits and licenses required for brick-and-mortar retail stores or online retail.
Federal Business License
You’ll need federal business licenses if you sell to any entity that is under government supervision. Federal tax would be charged.
Maintaining Your Online Business License
These vary by state. Some are bi-annually, while others are done annually.
Regardless of what your state requires you to check each year that the requirements haven’t changed. It’s more difficult to renew an expired license than to keep one.
How much does a business license cost?
The range of a business license is from $50 to $550.
A better question would be: How much will it cost to get a business licence if you are caught operating a business without one? Your professional reputation is at risk.
How do I Get a Business License to Sell Online?
1. You can check the rules in your state!
Check with your department of revenue and also county and local laws.
2. Acquire All the Paperwork
Business license requirements
Licenses and Permits
State Sales Tax License
Legal Structure – most choose the limited liability corporation to protect personal assets, also with sole proprietorship
3. Register Your Doing Business As (DBA) Name
4. Register Your Employer Identification Number (EIN)
5. Register with Your State Revenue Office
Are business licenses affected if I’m an out of state resident?
The requirements are different. Some states only require you to fill out a form with your EIN.
Do you need a license to provide services online?
This varies from one state to the next. Licenses and permits are required in most states.
Do I need a business license to sell on Amazon?
No. However, you will need to register on Amazon as a seller. Amazon will charge tax for sales.
Do you need a business license for dropshipping?
If you are a reseller, an EIN is required along with either a sales tax ID or reseller certificate. This is because the wholesaler does not charge tax but you will be charged tax for the products that you sell.