Online Business License: Do You Need One?

Most local governments require business owners — even online sellers — to legitimize their operations by obtaining business licenses.

In the 1989 remake of the movie "Parenthood," father-to-be Tod remarks to his future mother-in-law, "You know, Mrs. Buckman, you need a license to buy a dog or drive a car. Hell, you need a license to catch a fish! But they'll let any [expletive] be a father" [source: IMDB]. Tod's perception is that licensing is arbitrary — it doesn't make much sense. However, when you break it down, licensing makes perfect sense. The word "license" comes from the Latin licentia (freedom, liberty), a cognate of licentem/licere (to be lawful), whose root, leik, means "to offer or bargain" [source: eymonline.com]. A license affirms one's freedom to perform the licensed action. Most local governments require business owners — even online sellers — to legitimize their operations by obtaining business licenses.

Whether you're selling through a marketplace like Etsy or operating an independent website, you're required to abide by your local laws. This often means getting a business license. Depending on what you're selling, you might also need to obtain additional licensing. Furthermore, depending on how you structure your business (sole proprietorship, partnership, or corporation), you might need to obtain certain federal permits. Check your city or county's website for information about the permits required in your area.

In addition, here are some other things to consider when you're thinking about starting a business that sells things online:

• If you're operating from home, be sure to check with your city or county zoning and planning agency to see if a home occupation permit is required.
• If you're operating your online store from an apartment or rented residence, check your lease for any restrictions or rules around operating a home business.
• Etsy advises its online sellers that they may be obligated to pay sales taxes. If so, you'll need to apply for a sales tax ID number.

If you're not sure where to start, the U.S. Small Business Administration offers a useful hyperlinked list of federal and state websites where you can find information about licensing requirements in your area and for your type of business. In addition, companies like Intuit can help you identify and — for a fee — submit the permits and licenses required for your business area and type. Click over to the next page to learn more about how you can get legit by obtaining a business license.