Running a business in any state isn’t easy. There are a lot of rules and regulations that you have to follow. Depending on where you live, the rules for physical businesses and online ones may not be very different.
If you’re running any of the following types of businesses in California, then you have to apply for a business license:
Sole proprietorship
Limited liability company (LLC)
Partnership
Corporation
Non-profit organization
Whether you need a business license to sell on Etsy in California depends on which city/county you are in. Different places have different rules. Some counties don’t require you to get a business license, but you do need a seller’s permit no matter where you are in California.
In this article, we are going to explain in detail which licenses and permits you need to sell on Etsy. We’ll also get into what things you need to register your business and how long it takes to get a license, along with more useful information.
Do You Need a Business License to Sell on Etsy in California?
Contents
What Is Required to Open a Shop on Etsy?
To open a shop on Etsy, all you really need to do is create an account on the online platform, choose your country and currency, and come up with a name for your shop.
Etsy itself doesn’t require you to get a business license in order to open a shop. However, it classifies your shop as a “small business,” which means you have to check and adhere to local laws and regulations regarding small businesses.
Once your shop has been created, you can start adding items to it. Keep in mind that there is a long list of products that you’re not allowed to sell on Etsy. Some of these items include alcohol, tobacco, drugs, animal products, and internationally regulated items. You can check the full list of prohibited items on Etsy’s official site.
You also have to set up a payment method. Connect your bank account to your Etsy shop and add a debit/credit card, so you can easily receive payments.
You don’t need an LLC to sell on Etsy. You can sell as a sole proprietor. Just keep in mind that the structure of your business will determine your tax obligations and potential benefits.
If you’re self-employed and you’ve made over $400 by selling on Etsy, then you’ll have to pay self-employment tax (Social Security and Medicare taxes) on your income. In 2024, Social Security tax is 12.4% of the first $168,800 you earn. Medicare tax is 2.9% of the total income.
How Do You Know if Your Etsy Shop Is a Business or a Hobby?
You don’t need a business license for your hobbies. However, it can be a bit of a challenge to determine if your Etsy store is a small business or a hobby. If you’re actively selling items through your shop and making a living off of it, then it’s a business.
If you only use Etsy to sell your products casually without relying on it as a primary source of income, then it may be considered a hobby. In other words, the distinction depends on how committed you are to the shop and how much you depend on it financially.
In California, making 2 or 3 sales in a year on Etsy won’t require you to get a business license. However, if you sell more than 3 items in a 12-month period, then you’ll need a business license to sell on Etsy in California. It’s best to check your local laws to see what licenses and permits your business requires.
If you’re still confused, you can check the Internal Revenue Service’s (IRS) guidelines. They state that you should consider the following factors when determining if your online selling activity is a business or a hobby:
- You treat it like a business (i.e., you maintain complete records).
- You have personal motives to continue selling.
- You have the intention to make a profit out of it.
- You are financially dependent on it.
- Your losses are due to circumstances beyond your control.
- You have the knowledge that’s required to continue selling as a successful business.
- You have made a profit in similar activities in the past.
- It makes a profit in the future (and also how much profit it makes).
- You expect to make a future profit from “the appreciation of the assets used in the activity.”
In any case, you will have to pay sales tax on every item you sell. Fortunately, Etsy does this on behalf of sellers. It automatically calculates the sales tax based on your location. When you sell on Etsy as a business, there are many benefits you can claim. For example, you can deduct business expenses like advertising, shipping, and cost of materials from your taxable income.
If you suffer a business loss (your expenses are higher than your Etsy income), then you can deduct it from any other income you may have (another job or business). This will further lower your taxable income.
Do You Need a Tax ID to Sell on Etsy?
If you’re running a business on Etsy, then yes, you need a tax ID. Using a tax ID instead of your personal social security number (SSN) will make you look more professional, and it’s also beneficial for legal and tax purposes. You’ll also need it when applying for a seller’s permit (or any other license or permit).
Sole proprietors aren’t required to get a tax ID since they can just use their SSNs, but if you’re serious about running a business, then you should get a tax ID.
If you’re an LLC or a corporation, then you’ll need an Employer Identification Number (EIN). Without an EIN, you can’t pay federal taxes, open up a bank account, hire employees, and obtain licenses and permits.
Do I Need a Seller’s Permit to Sell on Etsy?
A seller’s permit is required in every state. You can apply for it online to the California Department of Tax and Fee Administration (CDTFA) and it’s completely free.
In case you’re only going to be selling during temporary periods (such as Christmas holidays), you can apply for a “temporary seller’s permit.” A temporary seller’s permit lasts 90 days. Note that if you have multiple shops on Etsy, then you’ll need a separate seller’s permit for each of them.
Etsy doesn’t allow you to create multiple shops using a single account. You need a separate email address for the other account. You can, however, use the same debit/credit card across all of your accounts to receive payments.
To confirm the requirements, it’s a good idea to check your local laws. Etsy is legally required to report your gross income to the IRS on Form 1099-K if you have had over 200 transactions and have made over $20,000. The IRS has been planning to change these requirements, though, and will lower the threshold to $600.
Some states have already started using the new reporting threshold of $600. Some of these states include Vermont, Massachusetts, Virginia, North Carolina, and Montana. California isn’t one of them right now, but may follow suit soon.
What Information Do You Have to Provide for a Seller’s Permit?
You can check the CDTFA site to see the complete list of the information you have to provide when applying for a seller’s permit. Here are some of the things that are included in that list:
- Your tax ID (or social security number)
- Any form of identification (such as your passport or driver’s license)
- Projected monthly sales
- Products to be sold
- Your name and email address
What Licenses or Permits Do You Need to Sell on Etsy in California?
To sell on Etsy in California, you need a business license, seller’s permit, a Home Occupation permit, and Fictitious Business Name (FBN). You may need other permits as well depending on what you’re selling on Etsy.
For example, if you’re selling food items on Etsy, then you may need permits from the local health department.
A Home Occupation permit is required because you’re running a business out of home. It tells the authorities that you have permission to run a business from your residential property. You’ll need to file this with your county.
You only need a Fictitious Business Name (also known as “Doing Business As (DBA)”) if the name of your Etsy business doesn’t include your name in it. Sellers often choose a fictitious name for their Etsy store because it helps build brand value. You do not need an FBN or DBA if your legal name is attached to your Etsy store.
We suggest consulting CalGold to see what licenses and permits you need. Select your county/city and enter the industry your business operates in to see a full list of all the permits you need. Every permit/license shown on CalGold is linked to local county sites so you can easily find more information.
If you’re confused about anything, then we suggest calling the county offices or sending them an email. You can also visit their offices to get a faster response (and for personalized assistance).
How Can I Apply for Licenses and Permits in California?
In most counties in California, you should be able to apply for any license or permit online. Some of the information you’ll be asked to provide include:
- Your SSN or tax ID
- Description of your business activities
- Contact information of you and anyone else involved in the business
- Start date of your business
In case your business is a limited liability company (LLC) or a corporation, you’ll also have to provide your business’ EIN.
If you apply online, you should receive a digital copy of your California business license immediately. A physical copy of it will be mailed to you in about 4 weeks.
For small businesses, the cost of a business license in California is around $50. For large businesses, it typically depends on how many employees you have and your annual revenue. You’ll have to get it renewed every year (in some counties, it’s after every 3 years).
As mentioned above, a seller’s permit is free. However, depending on what sort of business you’re running, you may have to apply for other permits which will incur additional costs.
It’s very important that you check your local laws and regulations to see which permits you need for your business. If you operate your business without the right licenses and permits, you can get fined and even risk imprisonment.
Start Selling on Etsy in California
Starting a business may be hard, but if you’re dedicated, the satisfaction of seeing your efforts come to fruition makes every challenge worthwhile. Selling on Etsy in California can be a bit confusing if you’re not just doing it as a hobby because the online platform doesn’t have clear guidelines on what’s required to start a business.
If you make more than 3 sales in a 12-month period, then it’s classified as a business. Any business that’s based in California needs a business license and since you’re selling things, you also need a seller’s permit.
In case the name of your business doesn’t include your name in it, you need a Fictitious Business Name or Doing Business As. You also need a Home Occupation permit since you’re running a business from your home.
Once you’ve gotten those out of the way, you’re left with some additional permits which depend on the industry your business is operating in.
Depending on where you live in California, the whole process can be done online. Once you have everything you need, you’re ready to start selling on Etsy in California!