Legal Guide for Sellers

Do You Need a Licenseto Sell on Etsy?

Short answer: Etsy doesn't require one. But your state, city, or county might. This guide breaks down exactly when you need a license, what types exist, and how to stay compliant.

Clear state requirementsLicense types explainedWhen to skip licensingStep-by-step complianceCost breakdownFAQ from sellers

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Etsy's Requirements When You Need One When You Can Skip License Types State Overview How to Get Licensed Common Mistakes Tax Implications All FAQs

Etsy's Official Requirements

Etsy itself has minimal requirements to start selling. Here's what they actually check:

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Be 18 Years Old

Or have parental supervision at 13+

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Agree to Policies

Seller agreement and prohibited items list

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Payment Information

Valid bank account and tax ID

That's it. No business license verification. No LLC requirement. No state registration check.

But "Etsy allows it" doesn't mean "it's legal in your area."

When You DO Need a License

General Business License

Most cities and counties require a general business license for anyone operating a business from that location—including home-based Etsy shops.

You likely need one if:

•You earn more than hobby-level income (varies by location, often $400-$600/year)
•You operate from a physical location (even your home)
•Your city or county requires it for all businesses

Cost: Typically $25-$100 annually
How to check: Search "[your city] business license requirements" or call your local city clerk's office.

Sales Tax Permit (Seller's Permit)

If your state has sales tax and you're selling taxable goods, you need a sales tax permit to collect and remit taxes.

Required in: 45 states (all except Alaska, Delaware, Montana, New Hampshire, Oregon)

Good news: Etsy collects and remits sales tax in most states automatically through their Marketplace Facilitator program.

States requiring registration even with marketplace collection:

• California
• Colorado
• Louisiana
• Some others (check your state's Department of Revenue)

Home Occupation Permit

If you run your Etsy business from home, some cities require a home occupation permit to verify your business activity complies with residential zoning.

Common restrictions:

•No customer visits to your home
•No employees working at your residence
•No commercial signage
•Limited inventory storage

Cost: Usually $0-$50

Special Permits by Product Type

Certain products require additional licensing beyond general business permits:

Product Type	Possible Permits Needed
Food/baked goods	Cottage food license, health department permit
Cosmetics/skincare	FDA registration, state cosmetics license
Alcohol-related items	Alcohol permit (even for accessories)
Candles	Fire marshal approval (some jurisdictions)
Children's items	CPSC compliance, lead testing certificates
Pet products	State agriculture permits

When You DON'T Need a License

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Hobby Sellers

If you're selling occasionally and earning minimal income, you may qualify as a hobbyist.

• Inconsistent sales (a few items per year)
• Not profit-motivated
• No business intent or marketing
• Income under $400/year

Caution: The IRS has specific hobby vs. business tests.

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Certain States

Some states don't require general business licenses at the state level:

• Alaska
• Arizona (for most home businesses)
• Colorado (state level—cities may differ)
• Wyoming

Always verify with your specific city and county.

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Reselling Personal Items

Selling your personal belongings generally doesn't require licensing:

• Cleaning out your closet
• Downsizing possessions
• Occasional personal sales

This applies to occasional sales, not running a resale business.

License Requirements by State

Here's a quick reference. Requirements change—always verify with your state's Secretary of State or Department of Revenue.

States with Stricter Requirements

California:

Business license required in most cities. Seller's permit mandatory. Home occupation permits common in urban areas.

New York:

NYC requires multiple licenses. Sales tax permit needed statewide.

Texas:

No state business license, but sales tax permit required. Cities like Houston and Dallas have local requirements.

Florida:

Most counties require business licenses. Sales tax permit mandatory.

States with Lighter Requirements

Wyoming:

No state business license. No state income tax. Sales tax permit only if you have nexus.

Montana:

No sales tax. Minimal business licensing at state level.

Oregon:

No sales tax. Business registration required but straightforward.

Delaware:

No sales tax. Business-friendly licensing. Popular for LLCs.

How to Get Your Licenses (Step-by-Step)

Check State Requirements

Visit your state's Secretary of State website. Search for "business registration" or "seller's permit."

~15 minutes

Check Local Requirements

Call or visit your city clerk's office. Ask about business licenses and home occupation permits for online businesses.

~15-30 minutes

Apply for Sales Tax Permit

Go to your state's Department of Revenue website. Apply for a seller's permit or sales tax certificate.

~30 minutes

Get Product-Specific Permits

If you sell food, cosmetics, or other regulated items, contact your state health department, FDA, or CPSC.

~Varies

Document Everything

Keep copies of all licenses and permits. Note renewal dates. Store tax registration numbers securely.

~15 minutes

Common Mistakes to Avoid

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Assuming Etsy Handles Everything

Etsy collects sales tax in marketplace facilitator states, but you may still need to register. And Etsy doesn't handle local business licenses.

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Ignoring Local Requirements

State law and local law differ. Your state might not require a license, but your city might.

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Waiting Until You're "Big Enough"

Many sellers wait until earning significant income. But requirements often kick in at the first dollar of business income.

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Over-Licensing

Don't pay for things you don't need. An LLC isn't required. Neither is a DBA in most cases.

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Forgetting Renewals

Business licenses typically renew annually. Mark your calendar. Expired licenses can result in fines.

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Not Keeping Records

Save copies of all licenses, permits, and tax registrations. You'll need them for tax filing and potential audits.

Tax Implications for Etsy Sellers

Getting licensed properly helps with taxes. Here's what you need to know:

Self-Employment Tax

Once you're earning business income, you'll owe self-employment tax (15.3%) on profits over $400/year. This covers Social Security and Medicare that an employer would normally pay.

Income Tax

Business income is taxable at your regular rate. Track expenses (materials, shipping, Etsy fees) to reduce your taxable profit. Deductions can significantly lower your tax burden.

Quarterly Estimated Taxes

If you expect to owe $1,000+ in taxes, the IRS requires quarterly estimated payments to avoid penalties. Due dates: April 15, June 15, September 15, January 15.

EIN vs. SSN

You can use your SSN on Etsy, but an EIN (Employer Identification Number) offers privacy protection. It's free to get from the IRS at irs.gov/ein.

Your Next Steps

If You're Just Starting

1. Check your city's business license requirements
2. Apply for sales tax permit if required
3. Start selling!

If You're Already Selling

1. Review what licenses you have
2. Check for missing permits
3. Get compliant before tax season

If You're Scaling Up

1. Consider LLC formation
2. Get proper insurance
3. Consult a CPA for e-commerce

Research Your Market with InsightAgent

Frequently Asked Questions

Everything you need to know about Etsy licensing and compliance.

No. An LLC is a business structure choice, not a requirement. Many Etsy sellers operate as sole proprietors with no formal business entity. Consider an LLC if you want liability protection or have significant business assets to protect. Most new sellers start without one and add it later as their business grows.

You need to provide tax information (either SSN or EIN) when you reach $600 in sales. Etsy reports this to the IRS. You don't need an EIN specifically—your SSN works. However, many sellers prefer an EIN for privacy protection since it keeps your Social Security Number off business documents. Getting an EIN is free from the IRS and takes about 15 minutes online.

Consequences vary by jurisdiction: (1) Fines ranging from $100-$500 for first offense, potentially more for repeat violations. (2) Back taxes plus penalties and interest. (3) Cease and desist orders requiring you to stop selling until compliant. (4) In rare cases, criminal charges for repeated violations. Most jurisdictions give warnings first, but it's better to be compliant from the start.

For a typical handmade goods seller: Business license: $25-$100/year, Sales tax permit: Usually free, Home occupation permit: $0-$50. Total: Under $150/year in most cases. Some states and cities have no fees at all. The main cost is usually the general business license, which varies significantly by location. Always check your specific city and county requirements.

Yes. If you earn $600 or more in a calendar year, Etsy sends you (and the IRS) a 1099-K form. This threshold was lowered from $20,000 starting in 2024. Below that threshold, you're still legally required to report income on your taxes—Etsy just doesn't file paperwork. Keep good records of all sales regardless of amount.

Digital downloads are taxable in many states, so you may need a seller's permit. The good news: you're less likely to need food permits, zoning approvals, or product-specific licensing since there's no physical product. However, some states classify digital goods differently for tax purposes. Check your state's Department of Revenue for specific digital goods tax rules.

If you sell to buyers in other countries, you generally don't need foreign business licenses. International sales tax is complex—Etsy handles VAT collection for EU sales automatically. You're responsible for compliance in your own jurisdiction first. If you're shipping physical goods internationally, you may need to understand customs declarations and shipping regulations.

The IRS considers several factors: (1) Do you depend on the income for living expenses? (2) Do you have a profit motive and business plan? (3) Do you invest time regularly in the activity? (4) Have you profited in 3 of the last 5 years? (5) Do you maintain separate business records? If you answer yes to most of these, you're likely operating a business, not a hobby.

Yes, for the shop name itself—Etsy has few restrictions beyond length and appropriateness. But if you use a name different from your legal name for business purposes, some states require a DBA (Doing Business As) registration. This is sometimes called a fictitious business name or trade name registration. Costs range from $10-$100 depending on your state.

Etsy doesn't require insurance. However, product liability insurance is smart if you sell items that could cause injury (candles, children's toys, food, cosmetics). General liability insurance covers you if someone gets hurt visiting your workspace. Home-based business insurance typically costs $200-$500/year and can provide peace of mind as your shop grows.

Many licenses are required once you "engage in business"—not just once you make money. Opening an Etsy shop with intent to sell may trigger requirements in some jurisdictions. Practically speaking, most small sellers don't get licensed until they start making consistent sales. However, being proactive about compliance is the safest approach.

Five key practices: (1) Set calendar reminders for license renewals—most are annual. (2) Track all income and expenses in accounting software or spreadsheets. (3) Make quarterly estimated tax payments if you expect to owe $1,000+ in taxes. (4) Review requirements annually since laws change. (5) Consult a local accountant or tax professional for your specific situation, especially as income grows.

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