Here is all you need to know about Business Licensing and manufacturing rules at Etsy?
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With a thriving community of over 1.7 million sellers and 33 million buyers, it’s conspicuous why Etsy is popular among the buyers and sellers alike. However if you’re planning to open an Etsy shop, you need to comply with their criterion which includes Etsy manufacturing rules and tax related compliances.
Though good news is anyone can open a shop on etsy – whether you’re a seasonal seller or, you’re just getting started. Etsy offers a level playing field to all. This blog works best for those who’re just getting started because pros already know about it. So there are two things to know:
- Manufacturer related information
- Business Licensing compliance issues
The Manufacturer depends on the end location where a product has been assembled
The Business Licensing depends on location of a buyer, location of a business and item you’re selling on Etsy.
Etsy manufacturing rules:
As discussed earlier, the final location of manufacture depends on where the product tooks its final shape. On drilling further down, there are two situations →
- If the products don’t change shape
- Product Changes the shape
The Product don’t change shape:
This implies the listings are made without their changing their form and use. To better understand it let’s take some examples:
- label wrapped around a spool of twine – You can see manufacture location mentioned directly on the product packaging)
- clay or paint containers – You can see manufacture location mentioned directly on the top or bottom of containers
- a pair of scissors – You can see manufacture location mentioned on product itself
In this case the location of manufacture refers to the country where your item was made, produced, or grown.
Product Changes the shape:
In Case where Raw materials were sourced from Multiple Countries:
If the item contains raw materials which are sourced from multiple country then the final location where these materials were combined to take a different shape, the location of manufacture would be the place where these materials were combined. A DIY kit is a classical example of products belonging to this category.
In Case where Product was assembled in other country:
Another example is where the raw materials were not sourced from multiple countries but one. Nevertheless, they were transformed into another country. The example in consideration here could be silk threads sourced from one country and then transformed into decorative tassels into another. Here , the latter country is the location of manufacture.
Note: These rules apply to the sellers who lives outside the US territory as well.
Now that the Manufacture related information is settled. Let’s discuss about the business license related requirement on Etsy.
Business License to Sell on Etsy?
As already mentioned the Business licensing also depends on the the state, county or municipality where your business can be located. It is to be noted here that overlooking these regulations will attract a fine.
Many states require Etsy sellers to collect sales tax. Depending on the state where you do business, sales and use tax can be complicated.
In this regard June 2018 declaration by the US Supreme Court is crucial. The court directed states to enforce sellers to collect sales tax even if they do not have a physical presence in that state. Online sellers will require to register for a license and collect and remit sales taxes in all states that impose a sales tax where they satisfy the tax law’s nexus requirement.
Physical Vs. Digital Sales
Tax and licensing laws do not always apply equally to digital and physical goods. Some states require sales tax collection on physical goods only, while others tax both physical and digital products. Check with your local taxing authority and accountant to determine if you need to collect sales tax from your buyers.
Fictitious Business Names
Most Etsy sellers come up with unique names for their shops to stand out and let buyers know the types of products they sell. If you sell products under a name other than your own you may need to register a Doing Business As (DBA) with your state or locality, even if you’re not required to be licensed.
Selling Food on Etsy
If you’re selling food on your Etsy store, you may need to be certified through your local Health Department to sell online. The US Food and Drug Administration has great resources to help you navigate the various requirements for US sellers.
Hobby vs. For-Profit Business:
Do you have the same business license requirements for your Etsy store if it’s only a hobby?
The answer to this question is it depends on the IRS requires every penny of income you receive to be reported on your federal tax return whether you do it for fun or for profit. Every state is different, and some may require licenses and others don’t. Check with your state and local taxing authorities to answer this question.
Conclusion:
Etsy is a great way to make money from your passion for crafting. While the business side of things can seem a little complicated, don’t be discouraged. Just be sure to follow your local rules and regulations when it comes to licenses, permits and taxes.
Want to sell successfully on Etsy?
To make sure you start it right, we’ve come up with a Podcast series answering all your questions. Listen Now!
Wait! One more thing!
For the ultimate solution on the best way to excel on Etsy Marketplace this holiday season, check out our eBook: Ultimate Guide To Selling On Etsy. Look for regions of improvement yourselves, or let us help. Reach us with your query at apps@cedcommerce.com
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