So your website is set up and now you can sell art online. Great! Good start. But, you might be wondering whether or not you need to obtain any licenses or permit in order to comply with local, state, and Federal rules. The answer is: Yes. There are certain licenses that you should obtain for your online art business.
When Should your Get Your Online Art Business Licensed?
There is not specific rules of thumb. Generally speaking, if you ask your local licensing official, you will be advised to obtain a business license before you sell anything. In some cases, this is absolutely true. For example, you will need to acquire a seller’s permit to collect sales tax. (More on this below.)
On the other hand, you could find some debate about whether or not it is totally necessary to obtain full licensure before your art business actually becomes profitable. For example, it might not make a lot of sense to obtain a local business license if you only sell one piece of art. For this reason, many artists take a wait-and-see approach. Once they are selling enough art to pay for the licensing fees, they move forward with obtaining them.
Full disclosure here: Please use this article as a place to begin your research. This article is being written by a fellow artist, not a Certified Public Accountant. As with any financial advice, it is important that you contact your accounting professional to determine the requirements in your area, which vary widely from state to state.
What Types of Business Licenses Should You Consider for Your Online Art Business?
Standard Business License
A business license through your local jurisdiction authorizes you to operate a business for profit. Typically, you can apply for the business license through your city. If your business is outside city limits, you can obtain this license through your county (or parish if you’re in Louisiana.)
When issuing you a license, your jurisdiction will consider the location of your business and whether it is zoned for the type of business you intend to operate.
Since you are operating an internet business for the sale of art, your jurisdiction may consider your business a home business if you do not have a physical studio outside of your home. In this case, the jurisdiction will be interested in knowing if you intend to have customers come to your home for the purpose of purchasing art or classes. Some jurisdictions will restrict in-home access, especially if it could be bothersome to neighbors or if parking is limited.
To obtain a Business License, check with your city’s business administration office. Your city might also issue business licenses through the finance department. If your business is located outside of city limits, you will obtain your business license through your County.
A Seller’s Permit is also known as a Wholesale Permit. It is typically obtained at the state level. A Seller’s Permit authorizes you to do two things:
- Purchase business and art supplies at a wholesale rate without paying sales taxes directly from wholesale suppliers.
- Collect and remit sales tax to your state. When you sell art to buyers within your own state, you must collect sales tax. This sales tax is not yours to keep. You must file a sales tax return (which is different than your income tax return) and send the state the sales tax you collected. This is true whether you are selling your art online or in person. If you do not collect the sales tax, or collect the wrong amount, you are still responsible for paying the tax on behalf of your collector. As an aside, there are instances when you must collect sales tax for online sales made to other states. Most artists will not have to deal with this, nevertheless, it is covered more fully in another article.
To obtain a Seller’s/Wholesale Permit, check with your State’s Department of Sales Tax Revenue.
Fictitious Business Name Statement
A Fictitious Business Name Statement is also called a “Doing Business As” or “DBA” license. It means that you are doing business under a name that is different from your own. For example, if you are going by the name, “Best Art Studio Ever,” but your legal name is Jane Doe Artist, you will need to obtain a Fictitious Business Name Statement.
The process involves filing for the license, which is typically done at the county level. Once the fees have been paid, you must publish the statement in a local newspaper. The idea is that the publication will give the public notice that you are doing business under a different name. In our example, the public is notified that Jane Doe Artist is doing business as “Best Art Studio Ever.”
Once the process is complete, Jane Doe Artist will be able to open a bank account in the name of “Best Art Studio Ever,” as well as receive money and make legal agreements in this name.
You can avoid the need for a Fictitious Business Name Statement by using your own legal name as the name of your business. In our example, Jane Doe Artist can operate as Jane Doe Art Studio, or Jane Doe Mixed Media and simply accept payments as Jane Doe.
To file a Fictitious Business Name Statement, check with your County Recorder or Clerk.
Employer Identification Number
An Employer Identification Number (EIN) is issued by the IRS. It is a unique account number that works like a social security number for a business entity. The process of obtaining an EIN is simple and free.
You must obtain an EIN if you intend to have employees, or if you operate your business as a partnership, limited liability company or corporation.
Although it is not required, another reason to obtain an EIN is to protect the privacy of your personal social security number when using online payment processors or online sales platforms. Since these platforms are subject to security breaches, many artists chose to use an EIN. That way, when your income is reported by the various platforms, it is reported under your EIN. But the IRS will associate it with your social security number at tax time.
You can obtain your EIN right here.
Additional Business License and Permit Resources
US Small Business Administration (SBA)
The SBA offers information about licensing and permits for small businesses. Much of it won’t apply to online art businesses, however, there is a state-by-state directory that can lead you to the licensing officials relevant to your business location.
SCORE offers free small business advice. They offer free business workshops and will assign a volunteer business mentor to anyone in the US who has a business or is thinking of starting a business. A mentor can assist you in understanding what licenses and permits are required for your particular circumstances and location.. Although their workshops are not tailored to online art business, many of their resources are valuable.