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What Licenses Does An E-commerce Business Need?

What Licenses Does An E-commerce Business Need?

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What Licenses Does An E-commerce Business Need?

What Licenses Does An E-commerce Business Need?

It may not be the most fun part of opening a business, but to start a successful e-commerce business, you will likely need a few different licenses and permits.

Here we’ll break down the different types of permits and licenses you may need, along with sharing some resources to help get you started.

Let’s get started and see which licenses to consider when starting an e-commerce business.

Related: Guide to starting an e-commerce business

While we have researched what licenses and permits your business may need, please be aware that there is no way for us to have uncovered every state and local requirement.

To not miss any important licenses and permits, we recommend also checking with your local Chamber of Commerce, economic development agency, or use a business license service like Incfile or LegalZoom.

What Licenses Do You Need to Start an E-commerce Business?

There are several licensing requirements for starting an e-commerce business at the federal, state, and local levels. While licensing requirements vary by location, here are a few common business licenses and permits your businesses may need:

One of the first registrations to complete when starting an e-commerce business is selecting a legal structure. A legal structure refers to how a business is organized to operate. A legal structure refers to how a business is organized to operate. It should be at the top of your list because the other licenses your business will need will require the business’s legal name, which can’t be registered until the business entity is formed.

The four main types include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC).

Related: What is the difference between a sole proprietorship, partnership, corporation, or LLC?

Business Name Registration

While not necessarily a business license, it’s worth noting that to use a name for a business, many states require the registration of that name. Making matters more complicated, the process of name registration is different by state and the type of business entity.

For instance, sole proprietorships and partnerships generally need to register a business name (also referred to as a Doing Business As, DBA, fictitious name, or assumed name).

Learn: How to register a DBA

Corporations and LLCs register the business name when the entity is formed with the state.

General Business License or Permit

Depending on where the business is located, a general business license or permit may be required. A few states require a business license; however, they are more commonly found at the city level.

Learn more: Business license requirements by state

Federal Employer Identification Number

The Federal Employer Identification Number (also referred to as a FEIN, Employer Identification Number, EIN, or Federal Tax ID Number) is a unique nine-digit number that identifies a business with the Internal Revenue Service (IRS).

Any business with employees or those that form as a partnership, corporation, and in many cases, an LLC, the business will need to get an EIN.

Sole proprietors and single-owner LLCs without employees can instead use the owner’s social security number.

Learn: How to get an EIN

Sales Tax License or Business Number

In order to sell products and/or offer certain services, a state sales tax license (also referred to as a sales tax permit, business tax identification number or tax ID number) may be needed.  This permit creates an account number with the state’s Department of Revenue (or similarly named state taxing agency) to collect and remit sales tax.

The South Dakota v. Wayfair ruled that states can require the collection of sales taxes from out-of-state online retailers.

Because of this, small businesses are now potentially required to pay sales tax in every state where products are shipped. Making matters more complex, every state (and some cities – 12,000 jurisdictions overall) have different requirements. In general, a business will need to cross the revenue threshold of $100,000 in sales or 200 products to the residents of a state before needing to report and submit sales tax. However, there are states where there is no threshold, and all sales to their residents require sales tax collection.

At a minimum, if the state you reside in charges sales tax, a sales tax permit is required because you have “economic nexus” (meaning you have a physical presence). If your sales cross the thresholds of other jurisdictions, or you have a physical presence in another state (warehouse, employee, office, etc.), a sales tax permit would be needed for that state as well.

The requirements for remote sellers to collect sales tax are constantly changing, so be sure to stay on top of these requirements or utilize software to help manage the process.

Related: Tax information for e-commerce sellers

Learn: How to get a sales tax permit in each state

Resale Certificate

When buying inventory that is being resold to customers, the business can purchase these items tax-free. A resale certificate (sometimes referred to as a seller’s permit or resale permit) allows a business to purchase inventory, and instead of paying the sales tax to their supplier, they charge the sales tax to the end-user of the product.

A resale certificate only allows a business to not pay sales tax for items being resold, and sales tax will still need to be paid for supplies or equipment.

Learn: How to get a resale certificate

Certificate of Occupancy

If you are operating your business from a warehouse or other commercial building, a Certificate of Occupancy (CO) will likely be needed. This certificate is typically obtained from the city planning department.

Before the certificate is issued, the building must comply with local zoning restrictions, building codes, local zoning restrictions, building codes, and any other local requirements.

Also, in some communities, an e-commerce business operating as a home-based business will need to get a home occupation permit in order to operate out of their home legally. Home-based businesses storing inventory in the owner’s home will also want to double check their insurance policy as business inventory may not be covered in the event of a loss.

While researching licenses and permits isn’t the most exciting thing to do when starting an e-commerce business, it is critical to spend time upfront on getting it right. Be sure to take some extra time doing your research and talking with city officials to ensure the correct licenses have been obtained so your business can operate without any interruptions.

These are some of the most common business licenses, but there may be specific licensing that isn't listed. Before starting your business, be sure to check with the City Clerk, County Clerk, Chamber of Commerce, and/or Economic Developer in your area to get more information regarding business licensing.

For some additional peace of mind, companies like Incfile or Legalzoom can do the research and ensure you have all of the proper federal, state, and local licenses to start your business.

What Licenses Does An E-commerce Business Need?

What Licenses Does An E-commerce Business Need?

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