Do you need a business license to sell on Shopify

Selling on Shopify often doesn’t require a business license, but there are exceptions based on earnings, regulated inventory, and specific product types. Understanding tax obligations, including sales tax and nexus, is crucial for Shopify sellers, regardless of business structure.

By Douglas Wade, Attorney

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Table of Contents

1. Do you need a business license to sell on Shopify?

2. Why do you need a business license?

3. Shopify and Business Licenses

4. Considering Sales Tax

5. Shopify business licenses for sole proprietorships and LLCs

6. Is a Business License Required to Dropship on Shopify?

7. Is a Seller’s Permit Required in Order to Sell on Shopify?

Do you need a business license to sell on Shopify?

With almost two million sellers on its platform, Shopify is one of the most widely used e-commerce solutions for entrepreneurs. You may be asking if you need a business license to sell on Shopify if you’re using it now or if you intend to use it after starting your own company. In most cases, you can sell on Shopify without a company license, but there are some exceptions.

All the information you require to decide if you require a business license for Shopify, how to obtain one, and what it all entails for your online store is right here.

Why do you need a business license?

A business license is a legally binding document that certifies an owner has complied with all local, state, and federal rules in order to operate a firm. Owners of businesses who comply with the licensing agency—usually a government agency or an industry association—are awarded business licenses.

It’s always necessary to verify with regulatory organizations in your profession, state, city, or county to make sure you meet all the requirements. Certain occupations or types of businesses may require licensing at multiple levels.

Shopify and Business Licenses

Even after learning the definition and purposes of a business license, you might still be wondering if you need to obtain one for your Shopify company. To put it briefly, no, a business license is typically not required in order to use Shopify. Nonetheless, there are a few situations where a business license is required, such as:

If you use Shopify to generate more than $20,000 each month
If you keep regulated inventory (i.e., items that need a health permit to be stored in your house, such as some plants, plants, cosmetics, or supplements)
If your line of work or the products you sell necessitate a government or professional license

You can operate an enterprise on Shopify without a business license outside of these situations. Once more, to make sure you comply with all applicable federal, state, and local laws, it is imperative that you review requirements at every level.

Considering Sales Tax

While a business license is usually not required, you could want a specific kind of authorization in order to charge sales tax on the goods you sell. The documentation or application that you must submit will differ based on the state in which your company was established. However, it can also rely on your place of nexus.

Nexus describes the location and method of taxes your company pays on goods or services sold. Your physical presence (the place where your firm was formally established) is usually where your nexus begins. However, it can also increase based on the amount that you sell in a given area.

Knowing your tax nexus and how it could affect the permissions you need to possess is crucial if you’re selling on Shopify. You may find it helpful to use Shopify Tax. This is a service that assists you in determining where you have nexus and what taxes you must gather and report if you’re getting a lot of sales from customers across the United States.

Shopify Tax is free up to a $100,000 yearly sales threshold. Apart from that, the service is charge-based and is contingent upon your Shopify subscription.

Shopify business licenses for sole proprietorships and LLCs

Does your company’s structure affect the need for a business license in order to sell products on Shopify? Not really. The same criteria that apply to enterprises without a formal business structure—sole proprietorships—also apply to LLCs.

When enrolling for your Shopify account, it can be simpler if you have a limited liability company or other corporate entity that verifies that you are an actual company. Consulting an LLC attorney can help ensure your Shopify business meets all legal requirements. This enables you to open your shop using your EIN and registered business name, which you will obtain when you convert from being a sole proprietor to a limited liability company.

Don’t have an LLC? Not an issue. With a few small tweaks, Shopify can still be used by sole proprietors to launch and successfully operate their company. First, you may want to think about filing a DBA, or Doing Business As, which permits you to conduct business under a name other than your own, if you do not yet have a legally registered business name.

Additionally, sole proprietors must be on the lookout for 1099 documents. Shopify sends these tax forms to freelancers, contractors, and sole proprietors; on them, you will find information about your profits from the preceding year. After that, you must file your taxes using your 1099.

Is a Business License Required to Dropship on Shopify?

To dropship on Shopify, it is not necessary to have a business license. As with other Shopify firms, dropshippers must obtain a business license only if they manage inventory from home, make over $20,000 per month on Shopify, or need a government or professional license.

Dropshipping via Shopify is a popular option since it’s a business you can launch with comparatively minimal capital. Another benefit of dropshipping that lowers costs is that permits and licenses are usually worry-free. Why? Since the suppliers—not the dropshipper—are keeping the items that will be transported in storage, it is their responsibility to adhere to regulations and keep all relevant licenses current.

Is a Seller’s Permit Required in Order to Sell on Shopify?

Depending on the previously mentioned nexus, selling on Shopify may require a seller’s permit. Regardless of where your company is located or where you ship from, if you have nexus in a certain state, you must abide by their sales tax laws.

If a seller wants to collect sales tax on goods sold in their jurisdiction, most states require a seller’s permission, often known as a sales tax permit or resale certificate. It’s usually wise to check the requirements for permits across all fifty states because forms, requirements, and prices differ.

Have a quick question? We answered nearly 2000 FAQs.

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