What are the legal considerations for starting an ETSY store?

Author: Ian Aldridge, Progressive Legal

If you’re thinking about starting an ETSY store, it’s important to understand the legal considerations involved. While there is no formal requirement for sellers to register their businesses on platforms like ETSY, national laws may require you to do so for tax purposes.

Additionally, as a seller, you are obligated to ensure that your products meet certain legal requirements such as safety, usability, and authenticity to protect consumers.

In this article, we’ll take a closer look at the legal considerations involved in starting an ETSY store to help you navigate the process with confidence.

Business registration and licensing

Business registration and licensing is an essential requirement for ETSY sellers who wish to operate their online store as a formal business entity in Australia. ETSY sellers generating over $75,000 AUD in annual revenue must have a registered business account through which they conduct their ETSY sales. Registering a business with the Australian Securities and Investments Commission (ASIC) is a straightforward process and can be done online. Once registered, sellers will receive an Australian Business Number (ABN) that they can use to report their business income and expenses to the Australian Taxation Office (ATO).

In addition, some businesses may require additional licenses and permits to operate legally. For instance, if you plan to sell food, you may need to apply for a food business license. Selling food is allowed on ETSY’s platform, but the sale of food is governed by national law and policies, some of which vary from State to State, or their business structure. While in Victoria the ‘Food Act 1984’ governs the sale of food, in WA the ‘Food Act 2008’ is the governing legislation. Business owners need to be acutely aware of the specific laws which affect their businesses based on their resident state and importing/exporting states. 

There are also permits and licenses which sellers require for operating a food business out of their home premises. These include health and safety permits, and home-occupancy permits – allowing sellers to operate their business out of their homes. These forms apply to many sectors other than food and are generally required in any business operation conducted from home. In addition to the home-occupancy permit, business owners must file all appropriate tax forms, receive insurance for product liability and their home-work space, and ensure their residence zoning laws permit the use of the home as a business space.

If you’re unsure about the type of licenses and permits required for your business, you can check the Australian Business Licence and Information Service (ABLIS) website or seek advice from a specialist. By taking care of the necessary registration and licensing requirements, ETSY sellers can avoid costly penalties and operate their online store in compliance with Australian laws and regulations.

Taxes

As an ETSY seller, it’s important to understand your tax obligations to ensure compliance with the law and avoid potential penalties or legal issues. In Australia, ETSY sellers must register for an Australian Business Number (ABN) and Goods and Services Tax (GST) if they generate over $75,000 AUD in annual revenue, or if they operate a business that provides goods or services in Australia. Once registered for GST, ETSY sellers are required to collect and remit the GST of 10% on their sales to Australian customers.

In addition to GST, ETSY sellers may also be subject to income tax on their earnings. Income tax is based on the profit generated by the business, which is calculated by subtracting business expenses from revenue. ETSY sellers are required to report their earnings on their tax return and pay any applicable income tax. It’s important to keep accurate records of business expenses and sales to ensure accurate reporting.

To manage taxes for your ETSY store, here are some tips:

1. Register for an ABN: If your annual revenue exceeds $75,000 AUD or you operate a business that provides goods or services in Australia, you must register for an ABN.
2. Understand your tax obligations: Research and understand the tax laws that apply to your business to ensure compliance and avoid any penalties or legal issues.
3. Keep accurate records: Keep detailed records of all business expenses and sales to ensure accurate reporting of income and expenses. Consider using accounting software or working with a bookkeeper and accountant to stay organised.
4. Collect and remit GST: If your business is registered for GST, make sure to collect and remit the tax on all sales to Australian customers.
5. Consult a tax professional: Consider consulting with a tax professional or accountant who can provide guidance on managing taxes for your ETSY store and ensure compliance with tax laws.

Product liability and safety

Product liability and safety is a critical aspect for any ETSY seller to consider. It is essential to ensure that the products sold are safe for customers to use and comply with Australian safety standards. ETSY sellers must take necessary precautions to avoid any potential harm caused by their products, as they can be held legally responsible for any injuries or damages caused.

Sellers should have legally drafted Disclaimers and Waivers that outlines the potential risks associated with their products. This document should be prominently displayed on their ETSY shop page, outlining the limitations of liability and the extent of responsibility the seller takes for any injuries or damages that may arise from the use of their products. This can provide an added layer of protection for the seller in the event of any legal action taken against them.

Additionally, ETSY sellers should ensure they have appropriate product liability insurance to protect themselves in case of any legal claims. Compliance with product safety regulations can be a complex and challenging process. Therefore, it is crucial for ETSY sellers to research and understand the relevant regulations and standards that apply to their products. Seeking professional advice and guidance from a legal expert can also help ensure that ETSY sellers meet all necessary product safety standards and requirements.

Intellectual property

As a seller, you should ensure that all the products you sell do not infringe on any existing intellectual property rights, including trademarks, copyrights, and patents. This includes making sure that the images and descriptions used in your listings are original or properly licensed. Additionally, sellers should be aware of the rules regarding the use of other brands or logos in their products or store name, as this may also result in trade mark infringement. To avoid any legal issues, it is important to research and obtain proper permissions or licenses for any intellectual property used in your store. Failure to do so may result in legal action being taken against you personally or your business, and negative impact on your business including financial loss.

Further legal considerations for starting an ETSY store

ETSY sellers who operate their business seriously and have a significant volume of sales should consider having a returns policy or guarantee for their products. Such warranties, guarantees, and returns policies are usually subject to the terms and conditions of the business, which will smooth the process of dealing with customer/product issues. Additionally, supply chain management is a significant concern for ETSY sellers. Unless they are making their products entirely from scratch, they will require the services or products of other vendors or wholesalers. To ensure timely and reliable fulfillment of customer orders, ETSY sellers are advised to establish supplier agreements with their vendors and wholesalers. As such, having a registered business can benefit ETSY sellers in many ways, including mitigating potential risks and optimizing supply chain management.

Starting an ETSY store: Special considerations for Australian business owners in the wine and jewelry industry

Specific to Australia, there are some niche markets which sellers are more popularly engaged in, which have added complexities in terms of necessary licenses, permits or taxes. The first is wine; Wine like other alcohol is uniquely taxed, especially if imported and exported out of Australia. For wine producers and wholesalers, the ATO also requires a WET (Wine Equalization Tax) to be paid at 29% of sale of goods. Wine production also requires permits and licenses to make, especially if producers engage in the entire grape farming process leading up to wine production. For wholesalers, licenses are required for sale on location of wine. 

Secondly, rocks and gemstones require mining permits and authenticity statements if being imported into Australia, or Imported from other countries, namely African countries such as Tanzania, Kenya, and Nigeria, and India. For Australian sellers exporting Australian precious gemstones and rare earth metals, the weighting and valuation of the stone must be done in accordance with the National Measurement Act 1960 and National Trade Measurement Regulations 2009 (as amended). If these stones or metals are inaccurately measured and sold to customers, fines of up to $222,000 may be incurred by the seller. 

Key Takeaways 

To summarise, registering a business for your ETSY store can help ensure smooth operations of e-sales, and to ensure that all tax responsibilities are being met through your sales. Properly managing taxes is crucial for ETSY sellers, including sales tax and income tax. Seeking professional advice and keeping accurate records can help in managing tax obligations. Protecting your intellectual property is important for ETSY sellers, including trademarks and copyrights. ETSY sellers should have a legally drafted Disclaimer/Waiver to protect themselves from potential product liability and safety issues.

If you are an ETSY seller, take the necessary steps to protect your business by registering your business, managing your taxes, protecting your intellectual property, and having a legally drafted disclaimer/waiver and terms and conditions. Seek professional advice and guidance to ensure that you are meeting all legal and tax obligations. By taking these steps, you can help ensure the success and longevity of your ETSY store.