Etsy is one of the most popular online shopping sites which provides you with wonderful DIY craftworks and many other similar products. Though it’s one of the most valued sites when it comes to online shopping websites, one question always pops up when a seller anticipates on setting up one’s business here. The question is if one needs a business license to sell one’s products on Etsy.
Many sellers have repeatedly tried to know the details regarding the business license policy through the official website of Etsy. But, the policy regarding if the business license is necessary or not, is not available on the policy page of Etsy. Also, there are many articles on the internet which have given some ideas regarding the business license policy but not in a very detailed manner. Hence, here’s all the information you need to know to clear your confused minds about what to do and what not to, whether to get a business or not, how to start with the entire procedure, before you set up your business on Etsy and do you need a business license to sell on Etsy or not?
Importance of Business License to sell on Etsy
A business license is basically a permit which a merchant or a seller needs to get once he/she sets up the business to gain profit out of it. Now, if you are the budding entrepreneur or you have a small business which you want to set up on Etsy, you need to go through the details here.
First and foremost, the need to have a business license depends entirely on how you wish to perceive your career on Etsy. For instance, if you pursue working as a seller as your profession or you are working as a seller just as a hobby or passion. Now, if you decide on being a fulltime seller on Etsy, then you would have to get that business license to be legal with your business. Your business would only be considered as legal, if you have the permit in the form of the business license. Once your store becomes legalised, you can start working as a fulltime business merchant on Etsy, without any further delay.
To apply for the Business License or not?
Now, I guess, you’ve already made up your mind to pursue this as your business and hence, you need to be sure about a few more things related to the need for Business License here, also why do you need a business license to sell on Etsy? Firstly, if you’re gaining profit from your store on Etsy. If the answer to this is yes, then you would have to make a report of how much amount you are earning from the store and inform it to the IRS.
Secondly, if your Etsy store is set up on partnership or LLC, then you would have to get an EIN to continue with your business here, and you would also need to get the business license. Here, EIN stands for Employer Identification Number. This is basically important if you have a partner or multiple partners in your business.
Types of Business Licenses for Sellers
There are three types of business licenses for business merchants on Etsy. It mostly depends on the seller’s location or ownership or kind of products he or she sells here.
- A Basic Business Operation License: This license provides you with the allowance to spread your business locally. You need to have the idea of how far you can spread your business, in geographical terms and this license helps you to operate your store within that periphery. You must get the idea of how far your business can reach from the local business administration office. You can contact them and know the details regarding the same.
- An Employer Identification Number: As mentioned earlier, an Employer Identification Number is only required if you have a partnership business or LLC. Other than that, you don’t require an Employer Identification Number. If you are the owner of your store, which mostly is the case on Etsy, you don’t need an Employer Identification Number. This is only for the business sellers who have more than one or multiple partners attached.
- A Home Occupation Permit: The Home Occupation Permit is needed if your business is based out of your home. You need this permit if your work is out of your home, like most others Etsy sellers. This kind of permit is very common on Etsy because here, most sellers have their business set out of their homes.
Where to begin with the Business License?
Most readers now would want to know where to begin and where to go to get the much-needed business license. The entire process of how to get a business license pretty much varies from one place to another. The rules and regulations are pretty different from one city to that of another.
You would have to make a proper conversation with the local SBA to know the complete detailed procedure of setting up your business and where to start. Once you contact them, you become aware of the entire process in your area or city, without any further confusion. Then, you won’t have any confusion about do you need a business license to sell on Etsy or not?
How safe is Etsy if you don’t have a Business License?
Etsy is mostly safe if you’re pursuing this platform as a hobby. Once you start making profit out of your business, you would need to get that business license done. Otherwise, you might risk getting caught by the IRS. The safest way to go about it is to make up your mind if you wish to make your store a profit-earning business for you or not. If you want to make this as your business, it’s better to be safe than sorry. You never know when you get caught without a valid business license. My advice would be to apply for that business license as soon as you make up your mind about making Etsy store your business platform or not.
If you’re pursuing your Etsy store as a hobby or as your passion, you don’t need to have a business license. You can continue with your hobby as a seller, as much as you want. You won’t get in any trouble. The business license, as the name suggests, is only for those who are seriously taking Etsy as their start up career or as an entrepreneurship platform for their business.
How to decide if it’s Business or not?
The entire choice really depends upon how you see your store, whether you see it as a hobby outlet or a business outlet, whether you want to make a profit out of your store or you are just doing it because you like doing it. The entire decision is yours. Also, the business license depends entirely upon this decision of yours. Many sellers get confused even after making their Etsy store, a business platform, about if they would gain profit or not.
This is a very legitimate confusion and one might always have this doubt on their mind. If you feel you need to be completely assured with your decision and how much profitable it is turning up for you, there’s always a way. You can opt for a five-year exemption which would automatically postpone your choice on whether to get a business license or not. So, you can work on your business store for five years and see whether it makes a good profit on your profit. Once you’re satisfied with the feedbacks you would be getting, within the particular framework of five years, you can easily go for the business license and make your business legalised and legitimate.
Etsy as a business site is really business-friendly. So, you got nothing to worry about when it comes to your start up career there. You can start with your store any day, even now just after reading this article and follow the procedures to make a hobby out of it or a profitable business out of it. But you would have to keep in mind, a few things before you jumpstart your business career, here. You cannot continue your business once you are making profit. You need to report your profits and your earnings to the IRS. You would obviously find out many business holders there, who are using unfair means to continue gaining profit without making their business legitimate.
They are going to get caught someday and they would have to pay a hefty sum of fine to the IRS. It’s better you stay clean once you set up your business. Other than that, you need to contact your local business administration and get the remaining details about the business license from there and they would start with your paperwork once you understand the whole procedure. Once more, if you are a seller on Etsy who is not looking for profit there, you are not a business seller then. You don’t need to apply for the business permit if it’s a hobby. But you surely need the business license once you are planning to make your business legalised and legitimate.
Who pays for Shipping on Etsy?
Apart from the business license, many sellers also face doubts regarding how and who pays for shipping on Etsy. So, I am going to cover that part along with the business license details I gave previously. Etsy has a detailed shipping policy which is available on their personal website. Irrespective of that, here’s some important details regarding the shipping details.
The buyer definitely pays for the shipping charge, no doubt in that. Many buyers only look for free shipping products so that they don’t have to pay for the extra charges which come for the product. Along with the buyer, the seller also has to pay a certain amount to Etsy for the transaction and the shipping of the product. If you charge shipping fee for the products you sell on your store, you would find a shipping transaction fee. Even if you ship the product for free, you need to pay a certain percentage as the transaction fee.
The transaction fee is compulsory for the seller. It doesn’t matter if you are charging the buyer for the shipping transaction or not, you need to pay a 5% of the transaction cost anyway. Also, if you charge the shipping fee, you need to pay 5% of the shipping transaction cost as well as the 5% of the transaction cost. This is the policy of Etsy and it is given in a detailed manner on their personaliZed website.
The only profitable way to sell your products is to divide the shipping transaction between you and your buyer. If you try to make the buyer pay most of the shipping transaction cost, they might not end up ordering your product even after liking it.
Many buyers remove the products from the cart once they see the shipping charge to be more than usual. It’s better to divide the shipping transaction cost and not let one party pay the entire or the higher amount, neither the seller nor the buyer. Also, it would not be profitable for you if you end up selling the product, free of any shipping charge. You would end up paying the shipping transaction cost on your own which might turn out to be a loss on your part. You need to calculate the entire cost and divide it skillfully to make the product look pocket friendly for the buyer as well as profitable for the seller.
You may need to go through the policy guidelines available on the Etsy website to get a detailed idea regarding the shipping transaction cost and the transaction cost and calculate what makes it profitable for you and lucrative for the buyer.
Once you are in the midway, you might become satisfied with the profit you would be making even after you pay 5% of the transaction cost and 5% of the shipping transaction cost. But you also need to keep in mind that many sellers opt for free shipping so that buyers find the product more lucrative and end up buying more. You need to decide wisely how to move forward with the shipping cost. Rest assured the buyer is the one who pays for the major part of the shipping cost.