Not legal advice. Requirements may change — always verify with your local government authority before applying. Last verified: .
The quick answer
- 1Most online businesses need a general business license from their city or county — even if the business operates entirely online from your home. This is the most commonly skipped requirement.
- 2If you sell physical products, you need a seller's permit in your home state and potentially sales tax registration in other states where you hit economic nexus thresholds ($100K in sales).
- 3Get an EIN from the IRS even as a sole proprietor — it keeps your SSN off vendor forms and is free to obtain online in minutes.
- 4Privacy and data obligations — CCPA, COPPA, CAN-SPAM, the FTC Safeguards Rule — apply based on who your customers are and what data you collect, not whether your business is online.
1. The licenses every online business needs
There is no such thing as a federal "online business license" or a special state internet commerce license. What exists is the same licensing framework that applies to all businesses — just applied to your situation.
General business license
Required in most U.S. cities and counties for any business operating from that address. If you're running your online business from your home in Austin, you need an Austin business license. If you're in unincorporated Los Angeles County, you need a county business license. Annual cost: $20–$100. Apply at your city or county clerk's office or online through their portal. This is the most commonly missed requirement for online business owners.
Home occupation permit
Many cities require a home occupation permit on top of the business license for businesses operating from a residence. This confirms your business activity is compatible with residential zoning — that you're not running a manufacturing operation, storing hazardous materials, or generating commercial traffic in a residential neighborhood. For a typical online business with no customer visits, approval is usually straightforward. Cost: $25–$75, one-time or annual.
EIN (Employer Identification Number)
An EIN is your business's federal tax ID, issued free by the IRS at irs.gov. Required if you form an LLC or corporation, have employees, or operate as a partnership. Recommended for all sole proprietors too — it lets you use a business tax ID on vendor forms and payment processors instead of your Social Security number. Apply online and receive your EIN immediately.
Seller's permit / sales tax permit
Required in most states if you sell taxable products or services. This authorizes you to collect sales tax from customers. Getting a seller's permit is typically free and fast — apply through your state's Department of Revenue or Taxation. If you sell products and you're in a sales-tax state (all except Oregon, New Hampshire, Montana, Delaware, and Alaska at the state level), this is not optional.
2. Business structure: sole proprietor vs. LLC
You can operate as a sole proprietor without any formation filing — just use your own name and SSN. But there are real reasons to form an LLC:
- Liability protection: An LLC separates your personal assets from business debts and lawsuits. If a customer sues your online business, your personal savings aren't on the table.
- Professional credibility: Many payment processors, wholesale suppliers, and affiliate programs prefer or require a formal business entity.
- Tax flexibility: LLCs can elect to be taxed as an S-Corp once income reaches a level where the self-employment tax savings justify the administrative cost (typically around $40,000–$50,000+ in net profit).
- Banking: Business bank accounts — which help maintain the liability protection — are easier to open with an LLC and EIN than as a sole proprietor.
State LLC filing fees range from $50 (Colorado, Kentucky) to $500 (Massachusetts). Annual report fees vary by state. Most single-member LLC owners just file a Schedule C with their personal tax return — no separate business tax return required.
One additional requirement since January 1, 2024: most new LLCs and corporations must file a Beneficial Ownership Information (BOI) report with FinCEN within 90 days of formation. This is a federal anti-money-laundering requirement. Failure to file carries civil penalties of $500/day. File free at fincen.gov/boi.
3. Sales tax for online sellers: what post-Wayfair actually means
The 2018 Supreme Court decision South Dakota v. Wayfair fundamentally changed online sales tax. Before Wayfair, states could only require sales tax collection from sellers with a physical presence in the state. After Wayfair, states can require collection from any seller who exceeds their economic nexus threshold — typically $100,000 in sales or 200 transactions in a calendar year.
What this means for your online business:
- In your home state: Register for a seller's permit immediately if you sell taxable products. Doesn't matter how small your revenue is.
- In other states: Once you hit the $100K / 200-transaction threshold in a state, you must register for sales tax there, collect it, and remit it. Most small online businesses don't hit nexus in multiple states until they reach $300K–$500K in annual revenue.
- Marketplace facilitators: If you sell through Amazon, Etsy, eBay, or Shopify (using Shopify's marketplace facilitator services), these platforms collect and remit sales tax in most states on your behalf. But you may still need to register in your home state.
- Digital products: About 20+ states now tax digital products — SaaS, digital downloads, streaming services. If you sell software, e-books, or online courses, check whether your state and states where you have nexus tax your specific product type.
Sales tax compliance software (TaxJar, Avalara) automates nexus tracking and filing for $20–$100/month. Worth it once you're selling in multiple states.
4. Requirements by online business type
The specific licenses and permits you need beyond the basics depend on what your business actually does.
E-commerce (physical products)
Business license + seller's permit + sales tax compliance + EIN. If you import goods, watch for customs and CBP compliance. If you sell food products, FDA registration may be required. If you sell products subject to FDA, CPSC, or FTC regulation (supplements, cosmetics, children's toys), product-specific compliance applies regardless of whether you sell online or offline.
Dropshipping
Same requirements as e-commerce, even though you don't hold inventory. You're still the seller of record for tax purposes. The supplier-retailer relationship doesn't change your state registration or tax collection obligations. See our dropshipping licensing guide for full details.
Online services and consulting
Business license + EIN. Services are not taxable in most states (though about 20 states tax at least some services). Professional services — law, accounting, financial advising, mental health — require the same state professional licenses online as offline. You can't give legal advice online without a bar license. You can't provide mental health counseling online without a state clinical license. The medium doesn't change the professional licensing requirement.
Online courses and coaching
Business license + EIN. No specialized license for general coaching or course creation. However: health coaches making specific medical claims, financial coaches giving investment advice, and legal coaches straying into legal advice all face professional licensing requirements and FTC enforcement risk. Keep your marketing claims within what you can legally substantiate.
SaaS and software
Business license + EIN. If you sell to businesses, many B2B SaaS buyers will require a W-9 and may want proof of business formation. Sales tax on SaaS varies by state — some states exempt SaaS entirely, others tax it at full rates, and some tax SaaS but not custom software. This is an area where getting it right from the start matters; retroactive sales tax assessments are painful.
Affiliate marketing and content publishing
Business license + EIN. FTC rules require clear disclosure of affiliate relationships and material connections. The FTC's updated endorsement guides (2023) extend disclosure requirements to social media, reviews, and any content where there's a material connection to what you're promoting. Non-disclosure can result in FTC enforcement action.
Online food business (cottage food, meal prep)
Business license + food handler certification + compliance with your state's cottage food law (for home production). Most cottage food laws restrict sales to direct-to-consumer only — shipping food products across state lines triggers FDA and interstate commerce rules that override state cottage food exemptions. See our catering and food business guide.
5. State-by-state comparison for online businesses
Online business requirements vary significantly by state — LLC fees, seller's permit processes, digital product taxation, and state privacy laws all differ. This table compares the key variables across 10 high-population states.
| State | LLC filing fee | Annual report | Taxes SaaS? | State privacy law | Notes |
|---|---|---|---|---|---|
| California | $70 | $20 biennial + $800 franchise tax | No (services exemption) | CCPA/CPRA ($25M+ rev) | $800 minimum franchise tax hits from year 1 |
| Texas | $300 | No annual report; franchise tax if >$2.47M rev | Yes (20% of SaaS price or actual cost) | TDPSA (2024) | No state income tax; data processing taxed |
| Florida | $125 | $138.75/year | No | None (as of 2026) | No state income tax; sunbelt migration hub |
| New York | $200 | $9 biennial | Yes | SHIELD Act (data security) | Publication requirement adds $1,000–$2,000 |
| Illinois | $150 | $75/year | No (personal property tax repealed) | BIPA (biometrics) | BIPA has strict biometric data rules |
| Washington | $200 | $71/year | Yes (B&O tax applies) | My Health My Data Act | No income tax but B&O on gross receipts |
| Colorado | $50 | $10/year | Yes | CPA (2023) | Lowest LLC cost; destination-based sales tax |
| Virginia | $100 | $50/year | No | VCDPA (2023) | First state after CA to pass comprehensive privacy law |
| Delaware | $90 | $300/year franchise tax | No sales tax | DPDPA (2025) | Popular for incorporation; no sales tax at all |
| Wyoming | $100 | $60/year | No sales tax on services | None | No income tax; strong LLC privacy protections |
Key takeaway: State choice matters for ongoing costs. California's $800 annual franchise tax and New York's publication requirement can add significant expense for early-stage businesses. Colorado and Wyoming offer the lowest formation and maintenance costs. SaaS taxation is a moving target — verify current rules before registering for sales tax in each state.
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6. Intellectual property: trademarks, copyrights, and terms of service
Online businesses rely on intellectual property more heavily than brick-and-mortar operations — your brand name, logo, website content, and proprietary code are often your primary assets. Protecting them from the start costs less than fighting infringement later.
Trademark registration
A federal trademark registration with the USPTO protects your brand name, logo, or slogan nationwide. Filing cost: $250–$350 per class of goods/services (using TEAS Plus or TEAS Standard). Timeline: 8–12 months from application to registration. Before filing, run a trademark search on the USPTO's TESS database and a broader common-law search (Google, state business registries, domain registrars). You can use the ™ symbol immediately upon first use in commerce; the ® symbol only after registration is granted. A trademark attorney can conduct a comprehensive clearance search for $500–$1,500 — worth it if your brand name is central to your business.
Copyright and DMCA
Your original website content, blog posts, photos, videos, and software code are automatically protected by copyright upon creation. However, registration with the U.S. Copyright Office ($45–$65 per work) is required to file a federal infringement lawsuit and enables statutory damages of up to $150,000 per work. If you publish substantial original content, register your most valuable works. As a website operator, you should also designate a DMCA agent with the Copyright Office ($6 fee) and post a DMCA takedown procedure — this provides safe harbor protection under Section 512 of the DMCA if users post infringing content on your platform.
Terms of service and refund policies
Terms of service (TOS) are your contract with users. For e-commerce: include shipping policies, return/refund policies, limitation of liability, dispute resolution (arbitration vs. litigation), and governing law. The FTC requires that refund policies be clearly disclosed before purchase — failure to honor stated return policies violates the FTC Act. For SaaS: include subscription terms, auto-renewal disclosure (many states require affirmative consent for auto-renewal, including California's ARL), data ownership/portability, and service level commitments. Have an attorney draft your TOS — template generators produce legally fragile documents.
7. Payment processing and financial compliance
Online businesses process payments electronically — which triggers PCI DSS requirements, 1099-K reporting thresholds, and chargeback management considerations that physical retail businesses often handle through their POS provider.
PCI DSS compliance
If you accept credit cards, you must comply with the Payment Card Industry Data Security Standard. For most small online businesses using Stripe, Square, or PayPal, the payment processor handles the heavy lifting — your responsibility is to complete an annual Self-Assessment Questionnaire (SAQ). Never store credit card numbers on your own servers. If you use a hosted checkout page (Stripe Checkout, PayPal Standard), you qualify for SAQ A — the simplest compliance level. If you handle card data directly (custom checkout forms), you face SAQ A-EP or SAQ D requirements, which are significantly more complex.
1099-K reporting
Payment processors (Stripe, PayPal, Square, Shopify Payments) are required to issue a 1099-K to you and the IRS when your gross payment volume exceeds the reporting threshold. As of 2024, the IRS threshold is $5,000 (down from the pre-2022 threshold of $20,000 and 200 transactions). This form reports your gross receipts to the IRS — it does not account for refunds, fees, or expenses. Reconcile your 1099-K against your actual income to avoid discrepancies with your tax return. The reporting threshold is scheduled to decrease further — check IRS.gov for the current year's threshold.
Chargebacks and fraud prevention
Online businesses face higher chargeback rates than in-person retailers — industry average is 0.5–1.0% for e-commerce vs. 0.1–0.3% for retail. Excessive chargebacks (above 1%) can result in your merchant account being terminated or placed on the MATCH list, effectively preventing you from accepting credit cards. Preventive measures: use clear billing descriptors (so customers recognize charges), send confirmation emails immediately, provide easy refund processes (it's cheaper to refund than fight a chargeback), use Address Verification Service (AVS) and CVV verification, and implement 3D Secure for high-risk transactions.
8. Federal and state privacy compliance
Online businesses collect personal data — and federal and state laws set rules for how you handle it. Most small online businesses aren't randomly targeted for enforcement, but violations can trigger complaints, class actions, and regulatory scrutiny.
CCPA (California Consumer Privacy Act)
Applies to for-profit businesses that collect personal data from California residents and meet one of three thresholds: annual gross revenue over $25M, buy/sell personal data of 100,000+ consumers per year, or derive 50%+ of revenue from selling personal data. Most small online businesses fall below these thresholds. But if you're in that range, CCPA compliance requires a privacy policy, opt-out rights for data sales, and a data deletion process.
COPPA (Children's Online Privacy Protection Act)
Applies if your site or app is directed to children under 13, or if you know you're collecting personal data from a child under 13. COPPA requires verifiable parental consent before collecting any personal data from minors. FTC enforcement here is active — violations have resulted in multi-million-dollar penalties against both large platforms and small operators.
CAN-SPAM Act
Governs commercial email. Requirements: your physical mailing address must be included in every commercial email, subject lines can't be deceptive, you must honor opt-out requests within 10 business days, and opt-out mechanisms must be easy to find and functional. Penalties up to $50,120 per email in violation. Most email service providers (Mailchimp, ConvertKit, etc.) build CAN-SPAM compliance into their platform — but you're still legally responsible.
FTC Safeguards Rule
Applies to "financial institutions" under the Gramm-Leach-Bliley Act — which the FTC defines broadly to include businesses that provide financial services or collect financial data. If you operate a tax prep business, bookkeeping service, mortgage broker, or any business that handles customer financial records online, the Safeguards Rule requires a written information security program. Effective for most covered businesses since June 2023.
9. Step-by-step launch checklist
- Choose a business name and check availability in your state's business entity database. If you want trademark protection, run a USPTO search.
- Form your entity (LLC recommended). File with your Secretary of State online. Costs $50–$500 depending on state.
- Get your EIN from the IRS at irs.gov. Free, immediate online issuance.
- File BOI report with FinCEN within 90 days of formation (new LLCs and corporations only). Free at fincen.gov/boi.
- Get your general business license from your city or county. $20–$100/year.
- Get a home occupation permit if required by your city (many do require it for home-based businesses).
- Register for a seller's permit if you sell taxable products or services.
- Open a business bank account using your EIN and formation documents. Keeps personal and business finances separate — critical for LLC liability protection.
- Set up sales tax collection for your home state. Add multi-state once you hit nexus thresholds.
- Post a privacy policy on your website disclosing what data you collect and how you use it.
10. Startup cost breakdown
Costs vary significantly by business type. A service business (coaching, consulting) launches for under $500 in most states. A product business adds inventory, shipping, and sales tax compliance. A SaaS business adds development costs. The table below covers the universal filing and compliance costs.
| Item | Cost | Notes |
|---|---|---|
| LLC formation | $50–$500 | State filing fee; CO $50, CA $70, NY $200+publication |
| EIN | Free | IRS.gov, instant online |
| BOI report | Free | FinCEN.gov, required within 90 days of formation |
| Business license | $20–$100/year | City or county; renewable annually |
| Home occupation permit | $25–$75 | Required in many cities for home-based businesses |
| Seller's permit | Free (most states) | Required if selling taxable products |
| Domain name | $10–$15/year | .com preferred; register through Namecheap, Cloudflare, Google |
| Website hosting | $0–$30/month | Shopify $39/mo; WordPress+hosting $5–$30/mo; static sites free |
| Sales tax software | $20–$100/month | TaxJar, Avalara; needed once selling in multiple states |
| General liability insurance | $300–$800/year | Hiscox, Next Insurance; optional but recommended |
| Trademark registration (optional) | $250–$350 per class | USPTO; 8–12 month process |
| Payment processor setup | Free (per-transaction fees apply) | Stripe 2.9%+$0.30; PayPal similar; Square competitive |
Bottom line: The minimum filing cost for a service-based online business is $150–$400 (LLC + business license + EIN). A product-based e-commerce business adds $300–$1,500/year in sales tax software and insurance. Website and marketing costs are the variable — a basic site can cost $0–$500, while a full e-commerce buildout with Shopify runs $500–$5,000 including theme, apps, and initial advertising.
11. Common mistakes when starting an online business
Not registering for sales tax in your home state
Many online sellers focus on multi-state nexus complexities and overlook the basic requirement: registering for a seller's permit in their home state. If you sell taxable products in a state that has sales tax, you must register, collect, and remit from day one — regardless of revenue. States can assess back taxes, penalties, and interest for years of uncollected sales tax. The registration is typically free and takes days. There is no excuse for not doing this first.
Skipping the general business license because "it's just online"
Operating from your home address doesn't exempt you from your city or county's general business license requirement. Most jurisdictions require a business license for any commercial activity conducted from within their boundaries — online or offline. The fine for operating without a business license is typically $100–$500, and some cities will also assess back-dated license fees. A $50–$100 annual business license is the cheapest compliance item on the list.
Commingling personal and business funds
Running business revenue through your personal bank account undermines the liability protection of your LLC. Courts can "pierce the corporate veil" and hold you personally liable for business debts if personal and business finances are not separated. Open a dedicated business bank account and use it exclusively for business transactions. Use a business credit card for business expenses. This is not optional — it is the foundational requirement for maintaining LLC protection.
Ignoring FTC disclosure requirements for affiliate income
The FTC's updated Endorsement Guides (2023) require clear, conspicuous disclosure of any material connection between you and a product you promote — including affiliate links, sponsored content, and free products received for review. "Clear and conspicuous" means the disclosure must be visible without scrolling or clicking, not buried in a footer or behind a link. The FTC has taken enforcement action against individual bloggers, influencers, and content creators for inadequate disclosure. Use "#ad" or "Affiliate link" labels prominently and directly adjacent to the endorsement.
Filing BOI report late or not at all
New LLCs and corporations formed after January 1, 2024 must file a Beneficial Ownership Information (BOI) report with FinCEN within 90 days of formation. Civil penalties for non-compliance are $500 per day of violation, up to $10,000 total, with potential criminal penalties for willful violations. Many new business owners are unaware of this requirement. File free at fincen.gov/boi immediately after forming your entity. The form takes 15 minutes.
Form your business entity
Before applying for permits, you need a registered business. LegalZoom makes LLC formation fast and simple.
Form your LLC with LegalZoom →Affiliate disclosure · no extra cost to you
Frequently asked questions
Do I need a business license to sell things online?
Do I need a seller's permit to sell online?
What is economic nexus and does it apply to me?
Do I need an LLC for an online business?
What federal taxes does an online business owe?
What licenses does a specific type of online business need?
What privacy and data compliance applies to online businesses?
How do I find the exact permit requirements for my business and location?
Do I need business insurance for an online business?
What are the tax implications of selling digital products vs. physical products online?
Official Sources
- SBA: Register Your Business
- IRS: Small Business and Self-Employed Tax Center
- IRS: Employer Identification Number
- FTC: Safeguards Rule
- Streamlined Sales Tax Governing Board
- FTC: CAN-SPAM Act Compliance Guide
- USPTO: Trademark Basics
- FinCEN: Beneficial Ownership Information Reporting
- PCI Security Standards Council: PCI DSS
- DMCA: Online Copyright Infringement Liability
- IRS: Form 1099-K Reporting Thresholds
- FTC: Endorsement Guides (2023)