Do I Need a Business License to Sell Online?
Your company is ready to start accepting online orders, and someone on the team asks whether you have a business license. You check the state tax agency’s website and find a seller’s permit. The county mentions a privilege license, and the marketplace you plan to sell on wants a tax ID before you can list anything.
All of these get called a “business license,” but they’re separate registrations from separate offices. This article breaks down what each one is, the names states use for it, and who issues it, so you know exactly what to ask for.
At a Glance
- Three meanings: “Business license” can refer to a state general business license, a city or county license, or a sales tax registration.
- Mostly local: Only a few states issue a general business license at the state level, while cities and counties issue most of them.
- Tax registrations often say “license”: Many states put “license” or “permit” in the name of their sales tax registration, but it’s still a tax registration rather than a general business license.
- Marketplaces don’t replace local licenses: Selling through a marketplace can change where you register for sales tax, but it doesn’t replace your local licenses.
“Business License” Can Mean Three Different Registrations
When someone says an online store needs a business license, they usually mean one of three things. A general business license is a basic operating license that applies regardless of your industry. A local license comes from the city or county where you operate.
The third is a sales tax registration, which allows you to collect tax from customers and remit it to the state. A state revenue or tax agency issues it, and the name varies by state. Selling online doesn’t exempt you from any of the three, since each one is tied to where your business operates or what you sell, rather than how orders come in.
Only a Few States Issue a General Business License
Most general business licenses are issued by cities and counties. Only a handful of jurisdictions also require one at the state level: Alabama, Alaska, Delaware, the District of Columbia, Nevada, and Washington.
Washington shows how much a single state license can cover. You need a Washington business license if your gross income reaches $12,000 a year, you sell products or services subject to sales tax, you plan to hire within 90 days, or you operate under a name other than your full legal name. The license comes with a Unified Business Identifier you’ll use for tax filings, and you can add city and state endorsements on the same application.
Local Licenses Go by Different Names
Cities and counties don’t agree on what to call their licenses. In Florida, counties and cities levy a local business tax and issue a receipt rather than a license, and county receipts expire on September 30 each year.
Alabama is a good example of how similar names cause confusion. A business privilege license is issued through your county’s office, which may be the probate judge, revenue commissioner, or license commissioner, and cities may require their own license on top of it. Alabama’s Department of Revenue cautions that this license is different from the state’s business privilege tax, and sales tax is a separate account you open with the state.
If you run your business from a residential address, your city or county may also require a home occupation permit. It confirms that the business complies with local zoning for that address.
Sales Tax Registration Has Many Names
If you sell taxable products, you’ll need to register in each state where you’re required to collect sales tax. Many states refer to that registration as a license or permit, which is why it’s so often confused with a general business license.
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An Ohio vendor’s license or an Arizona TPT license is a tax registration, even with “license” in the name. Our 50-state sales tax compliance guide covers registration forms and fees in every state.
Out-of-State Sales Can Require Registration in Other States
Selling into another state can create an economic nexus, meaning your sales there are high enough that the state can require you to collect its tax. In South Dakota v. Wayfair (2018), the US Supreme Court confirmed that states can apply this to sellers with no physical presence.
Each state sets its own threshold, and some issue a separate registration for remote sellers. Ohio, for example, has an out-of-state seller’s use tax license for businesses outside Ohio that meet its nexus thresholds. You can compare thresholds in our guide to economic nexus requirements by state.
Marketplace Facilitators Collect Tax but Don’t Hold Your Registrations
In states with marketplace facilitator laws, platforms like Amazon and Etsy collect and remit sales tax on the orders they process. In Texas, a remote seller doesn’t need a permit if all its Texas sales go through a marketplace that has certified it collects the tax.
Your home state may still expect you to register. Texas requires sellers based in the state to hold a permit and file returns on time, even when every sale goes through a marketplace, according to the Texas Comptroller’s marketplace guidance. A marketplace also has no role in your city license or home occupation permit.
Who to Ask When the Requirements Aren’t Clear
Which registrations apply depends on what you sell and where you and your customers are located, so check with the professional who covers each question. A CPA or tax advisor can tell you whether your products are taxable and where you’ve crossed a nexus threshold. An attorney can help with entity structure and with activities that need industry-specific licenses.
The agency that issues a registration can also give you a formal answer. California’s tax agency, for example, asks businesses unsure whether they’re engaged in business in the state to contact its customer service center for a determination.
Getting the Right Registrations in Place
Most online sellers end up with a mix of registrations: a local license for the area where they operate, a state license in the few states that require one, and sales tax registrations wherever they collect sales tax. Knowing which is which makes it easier to ask the right office for the right thing.
Once you know what’s required, we handle the filings. Our Business Licensing Service obtains your general business licenses and manages renewals, and our sales and use tax registration service opens your tax accounts in the states where you need them.
Economic nexus - A level of sales or transactions in a state that allows it to require you to collect its sales tax.
General business license - A basic license to operate, required regardless of industry by many cities and counties and a few states.
Home occupation permit - A local permit showing that a business run from a residence complies with zoning rules.
Local business tax receipt - Florida’s name for the document a county or city issues when you pay its local business tax.
Marketplace facilitator - A platform that collects and remits sales tax on the orders it processes for third-party sellers.
Sales tax permit - A state registration that lets you collect sales tax, also called a seller’s permit, vendor’s license, or Certificate of Authority, depending on the state.
Business License FAQs
No. A seller’s permit is a sales tax registration that lets you collect tax from customers. A general business license is a separate license to operate, usually issued by your city or county.
If you sell taxable products, you’ll generally need one in your home state and in other states where your sales cross the nexus threshold. Marketplace facilitator laws can remove that requirement in some states when all your sales there go through a platform that collects the tax.
Possibly. Most general business licenses come from cities and counties, so your local government may require one even when the state doesn’t.
Not everywhere. A marketplace collects tax on the orders it processes in states with facilitator laws, but some states, like Texas, still require sellers based there to hold their own permit.
No. An LLC is a business structure rather than a license, and you can sell online as a sole proprietor. Forming one won’t replace your local license or sales tax registration.
