The short answer is no. You don’t need a business license to sell products on Amazon. Registering as a seller on Amazon does not require you to establish a company, especially if you are only selling a limited number of products and will only be selling seasonally. However, establishing your own company can be an ideal situation as it can offer you a number of benefits.
Since there is no need for a seller to have their own company to sell on Amazon, then the same thing goes when it comes to having a business license. Have it in mind that most of the products sold on Amazon and other online marketplaces are consumer products that are not federally regulated, so you won’t need the government’s approval to be an online seller on Amazon.
But if you want to grow your business and start earning consistently from your online sales, then registering as a business will be a good idea. And depending on how you want to be taxed, experts will always advise online sellers to consider registering their business as an LLC or a Limited Liability Company.
A simple way to look at it is that when you create an LLC, you get to provide your business with a legal foundation. Meanwhile, acquiring a business license will give you the right to operate and have the ability to protect your business from any possible lawsuits that might arise.
If your brand’s reach and sales are starting to grow, then the probability of getting entangled with a lawsuit also increases. But by forming an LLC, you extensively protect your name from any legal actions attempted against your company. Instead, when someone decides to sue your business, they will instead sue the LLC, not you directly.
However, you might not need one to establish your online business, but forming an LLC is the best legal entity for an Amazon seller. It is a better and smarter way of managing risks and may well be the best legal entity for Amazon sellers. And if you ever decide to switch up to an LLC, you can always update your Amazon seller account.
Business Licenses and Permits Needed to Sell on Amazon FBA
Note that the requirements will vary greatly depending on your business’s location and industry. The SBA’s website provides information and services to help business owners identify the business licenses and permits that apply to them. Nonetheless, here is an overview of various types of licenses and permits you might need to sell on Amazon.
Federal Business Licenses
First and foremost, business licenses required at the federal level cover 11 different industries, and various federal agencies issue them:
- Agriculture – US Department of Agriculture
- Alcoholic beverages – Alcohol and Tobacco Tax and Trade Bureau and the Local Alcohol Beverage Control Board
- Aviation – Federal Aviation Administration
- Firearms, ammunition, and explosives – Bureau of Alcohol, Tobacco, Firearms and Explosives
- Fish and wildlife – US Fish and Wildlife Service
- Commercial fisheries – National Oceanic and Atmospheric Administration Fisheries Service
- Maritime transportation – Federal Maritime Commission
- Mining and drilling – Bureau of Safety and Environmental Enforcement
- Nuclear energy – US Nuclear Regulatory Commission
- Radio and television broadcasting – Federal Communications Commission
- Transportation and logistics – US Department of Transportation
However, most Amazon sellers won’t find themselves in need of acquiring a federal license.
State and Local Business Licenses
States, counties and cities oversee a broader range of activities than the federal government. Several examples include: Restaurants and bars, Plumbing, Construction, Accounting, Legal, Medicine, and Food production. In some local jurisdictions, a general business license may be required—even in the case of a home-based business that doesn’t have customers coming to its location.
Also note that the licensing requirements (and their fees) will depend on the business activities carried out and the business location. Since these rules vary from state to state and municipality to municipality, Amazon sellers are always adviced to check with the state and local jurisdictions to ensure they know which licenses and permits them must obtain to sell on Amazon lawfully.
Coupled with possibly needing an EIN from the federal government, an Amazon seller should identify and file for any required state and local tax permits.
State Sales Tax
Have it in mind that Amazon sellers require a sales tax ID and may need a sales tax permit to collect and pay sales tax. However, this requirement and rules on state sales tax requirements tend to be quite shaky. Sometime ago, many sellers didn’t collect and remit sales tax, but states are beginning to nail down on that now. Howbeit, it is confusing when determining which state’s sales tax applies to online orders.
Moreover, according to Amazon’s website, customers ordering from Amazon sellers can expect that: “The tax rate applied to your order will be the combined state and local rates of the address where your order is delivered to or fulfilled from. However, the destination of your order’s delivery will often determine if tax is applicable.”
Therefore, it is not explicitly clear whether an Amazon seller is expected to collect sales tax and remit it to the state where the product is delivered or the state where the product is shipped from. However, to cover all of the bases, Amazon sellers might potentially have to apply for a foreign qualification in each state where they conduct business and where they sell their products.
Other Tax Permits
Other tax permit requirements that an Amazon seller might face include income tax withholding, unemployment insurance tax, and local sales tax.
Other Legal Documents Required
In running your Amazon FBA business successfully, there are other documents asides your licenses that you would require so that you have no problems whatsoever with the regulatory authorities. One major document that is important for you is a Taxpayer Identification Number (TIN) which is what the Internal Revenue Service (IRS) uses in identifying your business.
While most entrepreneurs make use of the social security number especially if they are sole proprietors, getting a TIN is however highly recommended as against sharing your social security number with strangers. TIN is however important for sellers that are incorporated or have hired employees. Another reason why you would need a TIN is that most wholesale companies will take your seriously if you have one in addition to your sales tax or resale number.
Other documents that you would require in order to be able to run your Amazon FBA business successfully includes;
- Certificate of Incorporation
- Business License
- Business Plan
- Non – disclosure Agreement
- Employment Agreement (offer letters)
- Operating Agreement for LLCs
- Insurance Policy
- Consulting contract documents
- Apostille (for sellers intending to operate beyond the united states of America)
- Federal Taxpayers Identification Number (TIN)
- State Employee Identification Number (EIN)
- Employees Agreement
- Records (for shipping supplies and expenses, charges for DSL, office supplies and hosting fees)
Entrepreneurs who want to sell their products through Amazon’s marketplace face many of the same opportunities and challenges as brick-and-mortar stores. The moment you choose to sign up for a seller account on Amazon, be it as an individual or as a professional seller, it is imperative to start considering all the important aspects for your registration.
See to it that you have decided whether or not to register as an LLC and have a business license, choose what address to use, and make sure that you incorporate your tax information.