When you start a brick-and-mortar business, you get a business license from the city or county where your operations are headquartered. So, when you start an eCommerce business, do you need an online business license?
The answer to that question is complicated. While a few product categories are federally regulated, most business licensing is done by state and local governments. When you sell online, you may need to contend with the regulations that govern your products (and sales taxes) in 50 states.
Fortunately, you’re in good company. There are many good resources to help eCommerce entrepreneurs stay in compliance with business regulations. In this post, we highlight the main points and give you references for further help and more detailed local information. If your budget allows, you might want to work with a lawyer who specializes in business formation to help you file all the relevant paperwork.
Do you need an eCommerce business license to sell online?
There is no special eCommerce business license or online business license. However, that doesn’t mean your business doesn’t need a license.
Even if you sell online and ship your products around the country, you probably need to register your business locally. Most local governments require businesses to get a license and pay an annual fee. In some cases, you don’t have to get a business license until you reach a certain revenue threshold.
You may also want to incorporate or register your business as an LLC. Check with your business attorney for advice on which type of business entity is best for your company.
How do you register a business name for eCommerce?
One registration that is important for online businesses is business name registration. You’ll want to register your business name to protect it. Since your business is online, you may need to register your name at the federal as well as the local level.
Your first step is to do a business name search. If you choose a business name that someone else has already registered, this could cause a conflict. That is particularly true if you are in the same business. Choosing a unique name can protect you from legal action and being forced to change your business name.
You can do an entity name registration to get protection at the state level. If you want national protection, it’s a good idea to trademark your business name and logo. It can take up to three months for the US Patent and Trademark Office to process a trademark application.
Another important step in protecting your business name is domain registration. When you’re considering business names, search for the URL to match each name. Once you settle on a business name and matching URL, register your domain name as soon as possible, even if you’re not ready to launch your site. It doesn’t cost much to maintain a domain registration, so it pays to protect your chosen business name.
Do you need a sales tax license to sell online?
Your eCommerce business probably needs a sales tax license to sell online. You’ll need to register to collect and remit sales taxes in your home state. You may also need to register in one or more other states.
There are a few instances where you may not need to get a sales tax license:
- You are based in one of the five US states that doesn’t levy sales taxes. Delaware, Montana, New Hampshire, and Oregon have no sales taxes. Alaska doesn’t have a state sales tax, but there are some local sales taxes. However, if you ship orders across state lines, you may still need to get sales tax licenses for other states.
- You sell products that aren’t subject to sales tax. In some states, clothing isn’t subject to sales tax. Many food items are not taxable. Only a few states add sales tax to electronic downloads such as apps or software. However, since sales tax laws vary from state to state, you can’t assume your eCommerce sales will all be nontaxable.
- You run a nonprofit. When nonprofits sell products, these sales are often exempt from sales taxes. Once again, laws governing this vary from state to state.
- You are a wholesaler. Sales tax is only levied on retail sales, not wholesale. The one exception to this rule is Hawaii, which levies a general excise tax, or GET, on all business revenue, including wholesale sales. Also, any sales you make to retail customers could be subject to sales tax, even if your primary business is wholesale.
Start by getting a sales tax license for your home state. You will need to collect sales taxes on online sales to residents of that state (unless it’s one of the five states with no sales tax). You’ll also need a sales tax license for any states where you have products in an eCommerce fulfillment warehouse, a remote employee, an office, or other physical presence.
Most (but not all) state sales tax regulations have a sales threshold of $100,000 or more. In other words, you won’t have to get a sales tax license until you ship at least $100,000 of orders to certain states. Some states have higher sales thresholds. A couple of states have, at least temporarily, required online sellers to add sales tax to all online sales. Plus, sales tax laws change often, so staying up to date can be challenging.
Sales taxes are complex for online retailers. Don’t let that discourage you from starting an online business, however. You can register, file, and pay your sales taxes online. There are several apps that help eCommerce companies navigate online sales taxes. We’ve included some in the resource section at the end of this post.
One other development takes some pressure off eCommerce businesses. Many states have enacted marketplace facilitator laws. If you sell on Amazon or another eCommerce marketplace, the facilitator (Amazon) has to collect and remit the sales taxes for you. Amazon has compiled a list of which states have marketplace facilitator laws. If you make direct sales in addition to marketplace sales, however, you could still be liable for sales taxes.
What other kinds of online business licenses do eCommerce companies need?
While you don’t need a general online business license to sell products online, you may need licenses specific to your business. For example, some states have special regulations for businesses that sell and ship CBD products. Here are some of the most common products that may need special licenses to sell online.
License to sell foods online
Food-based businesses are subject to many regulations. You may be subject to FDA food labeling requirements. You will need to be licensed by your home state to produce and sell food products. This may include an inspection of the kitchen where you prepare your food products.
Government agencies take food regulations seriously. If you ship perishable products, make sure your order fulfillment company is certified to properly store and ship them. This protects you and your customers.
License to sell liquor online
You’ll need more than a local license to produce alcohol before you sell online. There are restrictions on how much beer, wine, or distilled spirits you can ship directly to consumers. Each state has its own regulations.
To ship alcohol, you’ll need an alcohol shipping license. USPS doesn’t ship alcoholic beverages, but UPS and FedEx do. FedEx and UPS each have strict requirements for shipping alcohol. Because of this, not all 3PL services can process alcohol shipments. In some cases, you may need to ship to a local delivery service, rather than direct to the consumer.
License to sell tobacco online
The federal government prohibits the sale of cigarettes via eCommerce. Some states allow sales of tobacco products. UPS will only accept shipments with tobacco products from shippers with the appropriate licenses. USPS won’t ship tobacco products within the US. FedEx will only accept wholesale tobacco shipments, not direct-to-consumer orders.
Resources for online business licenses and registration
There are great resources available online. In addition, a free mentoring program like SCORE can match you up with a mentor who understands online business licenses.
Here are some good general resources for your online business license questions:
- The Small Business Administration has basic information about permitting and licenses.
- Nolo is a great resource for all your eCommerce business license questions. The site has a state-by-state guide to getting the licenses you need for your business.
How to register your business name:
- Nolo also has resources to help you figure out how to register your business name.
- You can find information about registering a trademark at the USPTO website.
Help with online sales tax licensing:
- There are several apps that can automate your sales taxes. The two biggest are Avalara and Tax Jar. These apps integrate with many popular eCommerce platforms. You can also find helpful information about eCommerce sales tax on each company’s blog.
For help with sales of specialty, hazardous, or controlled products:
- NAABLA, the National Association of Alcoholic Beverage Licensing Attorneys, can connect you with a specialized attorney. Legal help can make it easier to navigate the licenses you need to sell alcohol online.
- UPS has information about the licenses you need to ship special items. This includes firearms, batteries, and hazardous materials.
- The 2nd Kitchen blog has a roundup of alcohol delivery laws in all 50 states.
- Check with your local state authorities about licensing requirements for food businesses.
One resource you can lean on is your fulfillment company. Your 3PL has experience shipping a variety of products. Reach out to your rep for help with resources to make sure you have the licenses you need for your online business.
