The short answer is yes, you most likely do. While you can start selling on many platforms without first showing a license, operating a legitimate business in the United States requires you to comply with federal, state, and local laws. This guide will walk you through exactly what you need, why you need it, and how to get it for 2025 .

Key Takeaways

  • Platform vs. Legal Requirements: Platforms like Shopify or Etsy don’t require you to show a license to start. However, your city, state, and the federal government legally require you to be licensed based on your location, revenue, and products. You are 100% responsible for your own legal compliance.
  • It Starts Local: Your first and most common license requirement will come from your city or county. Nearly every municipality requires a general business license to operate, even for a home-based online business.
  • The “Hobby” Myth: If you intend to make a profit, the IRS considers you a business, not a hobby. “Hobby” is a tax classification, not a legal shield. Once you operate with a profit motive, you are subject to business rules.
  • Sales Tax is Non-Negotiable: If you sell taxable goods, you must collect sales tax. You get the authority to do this by registering for a seller’s permit (or sales tax license) in every state where you have “nexus.”
  • Nexus is Key: “Nexus” is the connection your business has to a state. It can be physical (a warehouse, employee, or you) or economic (exceeding a sales threshold like $100,000), thanks to the South Dakota v. Wayfair ruling.
  • Marketplaces are Your Friend (for Taxes): If you sell only on platforms like Amazon, Etsy, or eBay, “Marketplace Facilitator Laws” mean the platform is responsible for collecting and remitting sales tax on your behalf. This is a massive simplification for small sellers.
  • Your Own Store, Your Rules, Your Responsibility: Building your own store with tools like the Elementor WooCommerce Builder gives you total control over your brand, customers, and profits. It also means you are 100% responsible for your own tax collection and license compliance.

The First Question: Are You a Hobby or a Business?

Many online sellers start as hobbyists. You might be a creator on Etsy, a dropshipper testing a product, or a blogger selling an ebook. The line between hobby and business is a critical one for the IRS, and it all comes down to intent.

The IRS provides a nine-factor test to help you determine your status, but the core question is: Are you actively trying to make a profit?

If your activity is “not engaged in for profit,” the IRS considers it a hobby. You must report hobby income, but you can only deduct expenses up to the amount of income you earned.

If you intend to be profitable, you are a business. This means:

  • You can deduct business losses from other income (a major benefit).
  • You must pay self-employment tax on your net earnings.
  • You are subject to all the licensing and registration rules that follow.

For 2025 , it’s safest to assume that if you are setting up a store, running ads, and trying to build a brand, you are a business in the eyes of the law, even if you haven’t made a profit yet.

The 3 Levels of eCommerce Business Licensing

Business licensing isn’t one single document. It’s a collection of registrations, licenses, and permits issued by different levels of government.

1. Federal Licenses

For most online sellers, the good news is you probably do not need a federal license. Federal licenses are only required for businesses in federally regulated industries.

You would need a federal license or permit if your online business sells:

  • Firearms or ammunition
  • Alcoholic beverages
  • Tobacco products
  • Wildlife (fish, animals)
  • Meat or poultry products
  • Commercial fish
  • Transportation and logistics

If your business falls into one ofthese categories, you would register with the specific agency, such as the Alcohol and Tobacco Tax and Trade Bureau (TTB) or the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF).

2. State-Level Licenses

This is where licensing becomes a certainty for most eCommerce businesses. State-level requirements primarily fall into two categories:

  • State Business Registration: This is the formal creation of your business entity. If you form a Limited Liability Company (LLC) or a Corporation, you must register with your state’s Secretary of State.
  • Seller’s Permit (Sales Tax License): This is the most important state-level requirement for eCommerce. We will cover this in detail below.

3. Local Licenses (City and County)

This is the most common and most frequently overlooked license. Nearly every city and county requires any business operating within its jurisdiction to have a general business license or business tax certificate.

This applies even if you are a home-based, online-only business. Your local government wants to know you exist and, in most cases, wants to collect a small annual registration fee. This is a non-negotiable step for operating a legal business.

The 4 Core Licenses and Registrations for Your Online Business

Let’s break down the most common documents you will need to operate legally.

1. General Business License

  • What it is: A license from your city or county that gives you permission to operate a business in that location.
  • Who needs it: Virtually everyone. If your business is registered at your home address, your city or county wants you to have this.
  • How to get it: Go to your city hall or county clerk’s website. Search for “business license” or “business tax certificate.” You can typically apply and pay online for a small fee (usually $50 – $100 per year).

2. “Doing Business As” (DBA) Registration

  • What it is: A registered “fictitious” name for your business. It allows you to operate under a name that isn’t your own legal name.
  • Who needs it:
    • Sole Proprietors: If your name is John Smith and you want to call your business “Smith’s Supreme Sneakers,” you must register “Smith’s Supreme Sneakers” as a DBA. If you just call your business “John Smith,” you don’t need one.
    • LLCs/Corporations: If your legal business name is “J-Smith LLC” but you want to run a store called “Supreme Sneakers,” you would register “Supreme Sneakers” as a DBA for your LLC.
  • How to get it: This is typically filed with your state’s Secretary of State or your local county clerk’s office. A DBA is crucial for opening a business bank account in your brand’s name.

3. Seller’s Permit (Sales Tax License/Permit)

  • What it is: This is the most critical license for eCommerce. It is not a license to “sell,” but rather a license to collect sales tax from customers and remit it to the state. It’s almost always free to register.
  • Who needs it: Any business that sells taxable goods or services to residents in a state where they have nexus.
  • How to get it: You must register with each state’s Department of Revenue (or equivalent tax agency) where you have nexus.

This license is so central to eCommerce that it needs its own section.

4. Home Occupation Permit (HOP)

  • What it is: A permit from your local zoning or planning department that allows you to run a business from your residential address.
  • Who needs it: Many home-based online sellers. The government’s main concern is that your business won’t disrupt the neighborhood. They want to ensure you don’t have:
    • Excessive foot traffic or customer visits.
    • Large, disruptive deliveries.
    • Employees working from your home.
    • Excessive noise, fumes, or signage.
  • How to get it: This is usually handled by your city or county’s planning/zoning department. In many cases, it’s a simple form you fill out when you get your general business license.

The Most Important Concept in eCommerce: Understanding “Nexus”

You cannot understand eCommerce licensing without understanding nexus. Nexus is a legal term for a “sufficient connection” that gives a state the right to require your business to comply with its laws, specifically sales tax laws.

For decades, nexus was simple: you only had to collect sales tax in states where you had a physical presence.

Physical Nexus

You have physical nexus in a state if you have:

  • An office or retail store.
  • A warehouse or storage facility.
  • An employee working there (including you).
  • Inventory stored there (this is critical for Amazon FBA sellers).
  • Temporarily selling at a trade show or pop-up shop.

If you are a sole proprietor in Texas, you have physical nexus in Texas. If you rent a warehouse in California, you now have physical nexus in California, too.

Economic Nexus (The Wayfair Revolution)

In 2018, the Supreme Court case South Dakota v. Wayfair changed everything. The court ruled that a state could require a business to collect sales tax based solely on its economic activity in that state, with no physical presence required.

This is economic nexus. Every state with a sales tax now has its own economic nexus law. The most common threshold is:

  • $100,000 in gross sales in that state; OR
  • 200 separate transactions into that state (whichever comes first, in a 12-month period).

What this means for you: If your store in Texas (your only location) sells $110,000 worth of products to customers in New York, you now have economic nexus in New York. You are legally required to register for a New York seller’s permit, collect sales tax from your New York customers, and remit it to the state of New York.

Yes, this is as complicated as it sounds. Which brings us to the most practical part of this guide…

The Practical Reality: Marketplaces vs. Your Own Store

Understanding the law is one thing. Understanding how it’s applied in practice is another. Your compliance responsibilities change dramatically based on where you sell.

Selling on Marketplaces (Amazon, Etsy, eBay)

For sellers who are just starting, selling on a major marketplace is the simplest and safest way to handle the complexities of sales tax.

This is because of Marketplace Facilitator Laws.

These state laws (now in almost every state) legally shift the responsibility of collecting and remitting sales tax from you (the third-party seller) to the marketplace (Amazon, Etsy, etc.).

When you make a sale on Etsy to a customer in New York, Etsy calculates the tax, collects it from the customer, and remits it to the state of New York. You never touch it. This one change single-handedly solves the biggest compliance headache for small businesses.

Platform Requirements:

  • Etsy: Does not require a business license to start. You are expected to comply with local laws.
  • Amazon: Does not require an LLC or business license to start. You can sell as a sole proprietor using your Social Security Number (though using a free EIN is smarter).
  • eBay: Requires you to follow all laws, but does not verify your licenses.

Selling on Your Own Store (The “Pro” Move)

The ultimate goal for many entrepreneurs is to build their own brand on their own platform. This gives you full control over your customer relationships, branding, and data. You aren’t building your business on someone else’s land.

This is where WordPress, the world’s most popular website platform, comes in. By using a tool like the Elementor WooCommerce Builder, you can design a pixel-perfect, professional, and high-converting eCommerce store without writing a single line of code.

When you build your own site, you need a foundation you can trust. A high-performance store requires a high-performance-managed platform like Elementor Hosting. This ensures your site is secure, fast, and always online, which is critical when you are processing payments and managing customer data.

The Responsibility of Control This freedom and control comes with a critical tradeoff: You are 100% responsible for your own compliance.

  1. Sales Tax: Those Marketplace Facilitator Laws do not apply to you. You are now responsible for tracking your own physical and economic nexus in all 50 states.
  2. Compliance: You must determine where you have nexus, register for a seller’s permit in each of those states, configure your store to collect the correct tax rates (which change constantly), and file and remit those taxes on time.
  3. Platform Requirements (Shopify): Even on a platform like Shopify, which helps you build your own store, you are the merchant of record. Shopify’s terms of service make it clear that you are responsible for all legal and tax compliance. They provide tools to help you collect tax, but it’s up to you to tell it where and what to collect.

As a web creation expert, Itamar Haim puts it, “Building your own store with a tool like Elementor is the difference between being a stall in a flea market and owning the entire building. You have total creative freedom, but you also become responsible for the plumbing, security, and taxes. It’s the natural-and most rewarding-step for a serious business.”

A Step-by-Step Guide to Getting Licensed for Your Online Business

Ready to get legal? Here is your actionable checklist.

Step 1: Choose Your Business Structure (The Foundation) Your structure determines your liability, tax burden, and registration requirements.

  • Sole Proprietorship:
    • What it is: The default. You and the business are one and the same.
    • Pros: Easy, free, no registration.
    • Cons: Unlimited personal liability. If your business is sued or racks up debt, your personal assets (car, house, bank account) are at risk.
  • Limited Liability Company (LLC):
    • What it is: A legal entity, separate from you, that you register with your state.
    • Pros: Provides liability protection. Your personal assets are protected from business debts. It also makes your business look more professional.
    • Cons: Costs money to file (typically $50 – $500) and has an annual renewal fee or report.
    • Recommendation: For any serious business, an LLC is a highly recommended and affordable layer of protection.

Step 2: Get Your Federal Employer Identification Number (EIN)

  • What it is: A “Social Security Number for your business.”
  • Who needs it: All LLCs, Corporations, and Partnerships. Also, any sole proprietor who wants to hire employees or open a business bank account without using their personal SSN.
  • How to get it: It is 100% free from the IRS website. Do not pay any third-party service for this. It takes about 5 minutes online.

Step 3: Register Your “Doing Business As” (DBA) Name (If Needed)

  • What it is: Your business’s “nickname.”
  • How to do it: Check with your state or county clerk’s office. This is usually a simple form and a small fee. This is necessary to open a business bank account in your brand’s name.

Step 4: Get Your Local Licenses (City & County)

  • Go to your city or county clerk’s website.
  • Apply for a General Business License (or “Business Tax Certificate”).
  • While you’re there, apply for a Home Occupation Permit (HOP) if required. This is often part of the same application.

Step 5: Get Your State Seller’s Permit

  • Go to your state’s Department of Revenue website.
  • Register for a Seller’s Permit (or “Sales and Use Tax License”). This is usually free.
  • This gives you the legal authority to collect sales tax from customers in your state.
  • If you sell on a marketplace, you still need this for your “home” state registration, even if the marketplace is remitting tax for you. It registers your business with the state tax authority.

Step 6: Assess Your Nexus & Register in Other States (If Selling on Your Own Site)

  • If you are not on a marketplace, this is your most complex, ongoing task.
  • Track your sales revenue and transaction volume in every state.
  • When you cross an economic nexus threshold (e.g., $100,000 in sales) in a new state, you must go to that state’s Department of Revenue website and register for a seller’s permit.
  • Use a tax automation service. Tools like TaxJar, Avalara, or Quaderno are essential for any business on its own platform, as they automate this entire process.

What About Specific Products? (Food, Cosmetics, Digital)

Certain products have their own set of rules.

  • Selling Food (Cottage Food Laws): If you sell “low-risk” foods (jams, baked goods, coffee beans), you are likely covered by your state’s “Cottage Food Laws.” These laws allow you to produce food in your home kitchen for sale.
    • Check your state’s laws. Each state has different rules for what you can sell, how much you can sell (there’s an annual revenue cap), and where you can sell (some forbid online sales, though this is changing).
    • You will likely need: A food handler’s permit and a kitchen inspection.
    • Selling “high-risk” food (meat, dairy, refrigerated items) requires a commercial kitchen and federal (USDA/FDA) oversight.
  • Selling Cosmetics: In the U.S., the FDA does not pre-approve cosmetic products or require a special “cosmetics license.”
    • You are 100% responsible for the safety of your product.
    • You must not mislabel your product (e.g., claim it’s “organic” if it’s not).
    • You must not make medical claims (e.g., “cures wrinkles”). That would classify your product as a “drug,” which has extremely different and expensive rules.
  • Selling Digital Products (Ebooks, Courses, Templates):
    • Licenses: You generally don’t need a special license to sell digital goods.
    • Sales Tax: This is the main issue. Many states have begun taxing digital products. You are responsible for collecting sales tax on digital goods in states where they are taxed and where you have nexus (if you’re not on a marketplace that handles it for you).

The Consequences: What Happens If You Don’t Get a License?

Ignoring licensing might seem easy at first, but it can destroy your business.

  • Fines and Penalties: Your local or state government can levy steep fines for operating without a license.
  • Back Taxes: The most terrifying risk. If a state finds you had nexus for three years and never collected sales tax, they can bill you for all the uncollected tax you should have paid, plus penalties and interest. Since you never collected it, this comes 100% out of your pocket and can be a business-ending sum.
  • Business Shutdown: Your city can issue a “cease and desist” order, legally forcing you to shut down your business until you are compliant.
  • Personal Liability: If you are a sole proprietor, all those fines, debts, and penalties are your personal responsibility.

The small fee for a local license is a tiny price to pay for peace of mind.

Conclusion

So, do you need a business license to sell online in 2025 ?

Yes. To operate a legal, legitimate business that has the power to grow, you do.

While you can launch an Etsy shop in an afternoon without one, that is just the start. The “rules” of the platform are not the “laws” of the country.

Start by registering as a business in your own city and state. Get your general business license and your seller’s permit. From there, your path will be determined by where and what you sell. Selling on a marketplace will simplify your tax life, while building your own store on a platform like Elementor will give you the ultimate power to build a real, lasting brand-a brand that is worth protecting by doing things right from day one.

Frequently Asked Questions (FAQ)

1. Can I sell online using just my Social Security Number (SSN)? Yes, you can, as a sole proprietor. Platforms like Amazon or Shopify will ask for your SSN for their 1099-K tax reporting. However, it is highly recommended you get a free EIN from the IRS to use instead. This separates your personal identity from your business and is much more professional and secure.

2. Do I need a business license if I’m just dropshipping? Yes. You are still the seller of record. You still need a general business license in your hometown, and you are still responsible for sales tax. In fact, many dropshipping suppliers will require you to provide a seller’s permit (or resale certificate) to prove you are a legitimate business so they don’t have to charge you sales tax on the wholesale purchase.

3. What’s the difference between a seller’s permit and a resale certificate? A seller’s permit gives you the authority to collect sales tax from your customers. A resale certificate is a document you show to your suppliers that proves you are buying items for resale. This allows you to purchase your inventory wholesale without paying sales tax. You typically get your resale certificate from the same state agency that issues your seller’s permit.

4. Do I need a license if my business is 100% digital (e.g., selling ebooks)? You will almost certainly still need a general business license from your city or county. You may also need a seller’s permit, as many states now charge sales tax on digital goods.

5. How much does it cost to get all these licenses? It’s surprisingly affordable to start.

  • EIN: $0 (from the IRS)
  • Seller’s Permit: $0 in most states.
  • General Business License: $50 – $150 (annually, from your city/county).
  • LLC Formation: $50 – $500 (one-time state filing fee) + any annual report fees. You can get legally set up in your home state for under $100 in most cases.

6. Do I need a business bank account for my online business? If you are an LLC, yes, it’s legally required to keep your liability protection. If you are a sole proprietor, it’s not required, but it is highly recommended. It makes bookkeeping, tax time, and professional expense tracking infinitely easier. You will need your EIN and DBA registration to open one.

7. I sell on Etsy/Amazon. Do I still need my own seller’s permit? Yes. You should at least have a seller’s permit for your “home” state (where you have physical nexus). This registers your business with your state’s tax authority and is a foundational legal step, even if Etsy is remitting the taxes on your behalf.

8. How do I get a license if I’m not in the US? If you are a non-US resident selling to US-based customers, the rules are different. You generally don’t need US-based local licenses, but you may still trigger economic nexus. This is a complex international tax situation, and you must consult with a tax professional who specializes in cross-border eCommerce.

9. What about AI? Are there AI tools to help with this? Yes, AI is becoming a powerful tool for planning. For example, you can use the Elementor AI Site Planner to generate a complete sitemap and structure for your new eCommerce website. While AI can’t file the legal paperwork for you, it can help you plan your business structure, research your market, and even write your business plan, getting you to the “ready-to-file” stage much faster.

10. I’m overwhelmed. Where should I go for help? Start local. Your best, most accurate, and free resource is your local Small Business Administration (SBA) office or SCORE chapter. They have volunteers and counselors who can walk you through your specific city, county, and state requirements for free.