License requirements for an Etsy business are no different than selling on any other online store. Here's what you need to know to get your legal house in order.
No Business License Requirement
You don't need to acquire a business license in most cases to sell on any online store, and it's not required for selling on Etsy. There may be benefits to obtaining one for other purposes, but not to sell your crafts on the website. It would be a different matter if you had a brick and mortar store, or if you were selling to customers who came to your home. States charge an annual fee for business licenses in order to conduct business in the state.
When you sell online exclusively, then you're conducting business in multiple states at once. You're also not required to obtain a business license if you make below a certain amount, because it's considered a hobby. Find out the rules of your state by contacting the Corporations Division or similar department in your state.
Business License Requirement for Teams
There are teams on Etsy that sell items together. Some of those teams may require you to get your business license before you can become eligible to join. If you plan to join a team, then research whether they require a license to make a decision. You could open your own store without joining a team, and you wouldn't have to obtain a license for that purpose.
You should apply for an employment identification number so that you're not sharing your social security number in connection with your Etsy business. It's easy to apply for one at http://www.irs.gov/businesses/small/article/0,,id=102767,00.html. You'll also need a state tax identification number to collect and pay sales taxes for transactions in your state. Contact the tax revenue or similar department in your state to learn how to apply for one.