A few of the things we've confirmed in our investigations:

A Business Paypal account is not required to conduct business in any state.

Home businesses are legal in all 50 states and do not change your real estate tax rate... although the square footage you use for your business may be tax-deductible.

Non-Business Hobbyists who occasionally make an incidental sale are exempt from sales tax rules in most states.

Most states do not require a business or sellers license if you are a hobbyist and you earn under a certain dollar amount or make fewer than a certain number of annual sales from your hobby. This amount varies from state to state.

Most states will only issue a single business license to a given residential address, and that license is valid for all the permanent businesses residing at that address.

It is acceptable practice to wait until a sales tax permit becomes necessary according to the laws of your State before acquiring one. Most hobbyists wait until it is clear that they are making the jump from hobby to business before obtaining their sales tax permits.

And of course, as we all know, many people have eBay or Etsy accounts for many years before beginning to sell their work, so the age of an eBay or Etsy account is the least reliable method for estimating the age of a business.

We have tightened up and clarified our wording here to make it more clear that we are not talking about people who start out with the intent to do business here... we are addressing the cases where people are being publicly accused of fraud on the basis of having had eBay accounts or Etsy accounts for months or even years before they started selling.

States with sales tax do not require everyone to have a seller's permit before they sell a single item... in Texas, for instance, if you are not presenting yourself as a business, your residence is not considered a place of business until you receive three orders in a calendar year. http://www.window.state.tx.us/taxinfo/sales/faq_permit.html. In Oregon, which has no sales tax, the definition is extremely vague... you are considered to be "probably doing business" if you "expect to make a profit". http://www.filinginoregon.com/business/faq.htm. Minnesota manages to take this vagueness to a new height by simply not addressing incidental sales at all. They do state that you do not need a sales tax permit if you sell through consignment or resale stores. See item #154 here: http://taxes.state.mn.us/taxes/sales/publications/fact_sheets_by_name/sales_fact_sheet_by_name.shtml

If you set up and present yourself as a business in preparation for selling, then you know in advance that you will be selling, and would quite reasonably be expected to obtain a seller's permit and/or business license prior to opening your business. However, many (if not most) hobbyists make incidental sales to people who offer to buy the item, despite not technically having presented it for sale. People who are not actively attempting to sell are not required to have a business license or seller's permit unless their incidental sales warrant it. This includes people who have set up an Etsy or Artfire store but have not placed any work for sale in it.

There are some unaddressed areas in the tax codes when it comes to hobbyists who sell. The Man is not, actually, trying to keep us down, or punish Casey Cupcakebaker for selling one more plate of cupcakes to Aunt June than he should have. If you realize partway through the year that you need a sales tax permit, and you go apply for one and tell them that you have sales from earlier that you need to report, they'll help you file the right papers, not punish you for not doing it in advance.

Deliberate evasion and fraud is one thing. Taking a little too long to get your ducks in a row and playing catch-up is something else entirely... it's called "being human" and amazingly, most government agencies are pretty understanding of that. They're, on average, not staffed by scary people who want to get you in trouble; they're staffed by nice, friendly, helpful people who want you to succeed, and want to help you be in compliance with often-confusing tax code.