When operating a business selling handcrafted items at craft fairs, flea markets, farmers market, and festivals there are some licenses and other requirements to be aware of.
Let’s look at a few of these!
There isn’t a business license specifically for crafting business or attending craft shows, however, some areas require a general business license in order to operate.
Licensing requirements vary by state and in some, a business license will be needed in order to operate, while in some, only the local municipalities require one. And this goes for home-based businesses as well, so it’s important to research the basic requirements to start a business in your area.
When you first get started, nobody is likely going to notice your business, but as you grow, the business is more visible, making you a bigger target.
Owning a business means needing to select a business entity (sometimes referred to as a business structure). Some entities are simply the individual (sole proprietorship). However, if a sole proprietorship (and general partnership) business is sued, the owner’s personal assets are at risk. While that isn’t a likely scenario for most businesses selling crafts, it is worth researching to make sure the correct entity is selected. Here is a brief summary of the different types of entities:
A sole proprietorship is a business entity for either an individual or a married couple who pursue entrepreneurship. This entity has benefits such as:
- The least expensive business entity to form
- No need for a FEIN (Federal Employer Identification Number) unless the sole proprietorship has employees
Sole proprietorships are one of the most chosen entities of the four, with an estimation of 73% of American businesses being sole proprietorships.
There is potentially more risk with sole proprietorship because, unlike a corporation, the owner and business are considered the same entity.
A general partnership is when a group of two or more people go into business together. This entity is similar to a sole proprietorship in that there isn’t a formal filing requirement in most states. The income that is generated from a general partnership is subject to self-employment tax and does not pay tax through business income but instead personal losses of the group making up the general partnership.
Corporations, as a business entity, are separate from the individual. Unlike previous business structures like sole proprietorships and general partnerships, operating your business as a corporation protects your personal finances if the company were to be sued.
Limited Liability Company (LLC)
An LLC or Limited Liability Company is a business entity that sits in between a corporation and a sole proprietorship in the way that an LLC provides the security of personal assets if anything were to happen to the company.
While most craft businesses will operate as a sole proprietorship, if they are operating under a business name that is different from the owner’s full first and last name, they may need to register to use their business name. In most states, a DBA sometimes referred to as a Doing Business As, Fictitious Name, or Assumed Name will need to be registered for in order to legally operate under that name.
Sales Tax Permit
Craft businesses selling their products at craft fairs and festivals will likely need to register for a sales tax permit (sometimes referred to as a seller’s permit sales and use tax permit, vendors license, or sales tax license) in order to collect sales tax. In some states, if a business is temporarily selling at events in different states they can get a one-time special event or temporary sales tax permit.
It’s important to note that the sales tax rate will vary on the location where the retail location is set up at.
The show organizers of craft shows are liable to the state for tax on sales made by their vendors, so they will be checking to make sure everyone is registered.
Sales tax requirements vary by state, so be sure to do your research before selling your crafts.