Do You Need a Business License to Sell on Etsy?

Looking to start a small business or side hustle? Etsy makes it easier than ever to get your arts, crafts, or other products in front of consumers.

One of the most common questions we hear from owners is, "Do you need a business license to sell on Etsy?" In this article, we'll explain when a business license is required and how to operate an Etsy business.

TL;DR

• If you’re selling with the intent to profit, the IRS treats your shop as a business, not a hobby.
• Etsy itself doesn’t demand a license, but most states/locals require a seller’s permit (sales tax) and often a general business or home-occupation license.
• Five states with no statewide sales tax (DE, MT, NH, OR, AK) skip the seller’s permit, though cities may still charge.
• An LLC isn’t mandatory; you can operate as a sole proprietor, but an LLC adds liability protection and tax flexibility.
• Operating under a brand name without an LLC requires filing a DBA in your state/county.
• Renters should check leases—some prohibit home-based businesses or need extra insurance.
• Keep personal and business finances separate and track nexus thresholds for multistate sales tax.

Does Selling on Etsy Count as a Business?

First, let’s discuss whether selling on Etsy is considered a business in the first place. 

In the eyes of the IRS, whether something is a business or a hobby depends on the intent. 

Are you selling your product with the intent of making a profit? If so, that’s considered a business — whether you’re successful in turning a profit or not — and you’ll likely be expected to pay sales tax. 

Remember, many businesses operate at a loss in their first few years. But because future profit is expected, and because time is dedicated to them on a regular basis, they are considered businesses.

The IRS lists nine factors, such as the manner in which you carry on the activity, the time and effort invested, and your expertise etc., to decide if you’re pursuing profit or pleasure.

A complementary “three-of-five” safe-harbor rule deems an activity a business if it shows net profit in at least three of any five consecutive years; otherwise, hobby-loss limits apply.

States mirror the federal lens: once you intend to earn, advertise, or scale, most departments of revenue classify the shop as a business and expect registration and tax compliance, even if you’re still operating from a spare bedroom. In practice, that means a hobbyist who begins restocking regularly, tracking costs, or accepting custom orders usually tips into “business” status, and licensing kicks in.

Core Licenses & Permits Etsy Sellers Commonly Need

Seller’s (Sales-Tax) Permit

Most states still require you to hold a seller’s permit to collect/remit sales tax, even though Etsy processes and forwards the money on your behalf. The permit links your shop to the state’s tax system, allowing audit access and resale-certificate privileges. Application fees are usually minimal or free; renewals range from annual to biennial, depending on the state. Five states with no sales tax: DE, MT, NH, OR, and AK, skip this permit altogether at the state level, but local sales taxes may still apply.

General Business/Occupational License

Cities or counties often issue a general business license that covers zoning, public safety, and nuisance rules for any commercial activity, including e-commerce. Fees range from USD 25 to 150 and are renewed annually. Even sole proprietors using their own name may need this license if local ordinances specify “all businesses engaging in retail sales,” so check your municipal clerk’s portal.

Home-Occupation Permit (for Residential Zoning)

Operating from a residence can trigger a home-occupation or “cottage industry” permit that confirms minimal traffic, signage, and hazard-free production. Many jurisdictions streamline approvals for online sellers who ship via carriers and keep all inventory indoors, but activities involving loud machinery, noxious fumes, or foot traffic may require a zoning hearing or higher-tier permit. Landlords may also mandate proof of this permit before consenting to home-based commerce, so review your lease first.

Do I need to have an LLC? 

No, you don’t need to have an LLC to sell on Etsy. Without an LLC, you’ll be considered a sole proprietor, which is perfectly acceptable for this type of venture. 

Of course, it might be advantageous to form an LLC anyway. We’ve already discussed the difference between sole proprietorships and LLCs in another blog post, but let’s take a look at how these differences look when discussing an Etsy business. 

LLCs, or limited liability companies, are separate legal entities from their owners (LLCs can have more than one owner, which is another possible advantage over sole proprietorships). This type of business structure protects its owners from lawsuits and debt.

This might be advantageous for you. For example, if you sell crafts that contain hazardous or fragile materials, like glass, you could potentially be liable if a customer were to injure themselves. Having an LLC would protect your personal assets from the suit. 

LLCs also allow for multiple types of tax filing options, providing owners with more flexibility. This could also be beneficial, depending on the size of your Etsy business as well as other factors.

In other words, you don't need an LLC to sell on Etsy, but creating one could still help various aspects of your business. Firstbase makes it easy to incorporate an LLC in either Wyoming or Delaware.

I don’t Want an LLC. Do I Still Need to Register My Business? 

If you’re choosing to operate as a sole proprietor and operate under your own name, then you don’t need to register your business. 

However, maybe you’d like to do business under a different name or business moniker. In this case, you’ll need to register what’s known as a “Doing Business As,” or DBA. This is also sometimes referred to as a “fictitious name,” “trade name,” “trading as,” or “assumed name,” depending on the state.  

The rules for filing a DBA vary from state to state, so be sure to consult with an expert for the specific rules relevant to your location. 

So, do I Need a Business License? 

Etsy does not require its sellers to have a business license to sell on their platform. However, that doesn’t mean you’re off the hook. 

Your state or county still might require you to have a business license in order to do business. State laws vary, as do county laws, so it’s important to check on the rules for your specific area. It will typically involve filling out an application form with the relevant municipality and paying a licensing fee. 

Consideration for Renters 

Be aware that if you rent your apartment or home, the terms of your rental agreement may prohibit you from operating a business, even if it’s from home, and doesn’t involve customers coming through the door. 

Running a business could have insurance implications for your landlord. 

Can I Operate an Etsy Business Out of My Home?

While some Etsy sellers are concerned about running a business from their homes, this is unlikely to be an issue. These regulations typically apply to brick-and-mortar businesses rather than ecommerce sales.

It may be worth talking to a lawyer if you start generating tens of thousands of dollars in monthly sales, but it isn't a concern for a typical seller. The main reasons to consider incorporating a business are to avoid liability and get more tax flexibility for your Etsy revenue.

Ready to register your US business? Click below to start the incorporation process with Firstbase.

‍