Why small business owners lose sleep over sales tax

Sales tax is one of the few areas of compliance that many small business owners find genuinely stressful.

Not because they are reckless. Not because they are trying to avoid tax. But because the rules are fragmented, the consequences can feel outsized, and it is often hard to know with confidence whether you are doing things “right.”

This came up repeatedly in the research I conducted for my Master’s dissertation, which focused on the sales tax compliance burden small businesses face, particularly after remote seller rules expanded. What stood out was not panic or indifference, but uncertainty.

In that research, 75 percent of small remote sellers said they either currently worry or have previously worried about sales tax audits. More than a third said it is something they think about regularly. That kind of background worry is not common across other tax types.

Most business owners accept income tax, payroll tax, and even property tax as manageable parts of running a business. The rules are not perfect, but the expectations are generally clear. Sales tax tends to feel different.

Sales tax compliance asks businesses to navigate state-specific rules, keep an eye on thresholds that change over time, and make judgment calls with incomplete information. Many sellers are not ignoring their obligations. They are actively trying to understand them while also running a business.

The structure of sales tax enforcement adds to the mental load. Sales tax is a fiduciary tax, which means accuracy matters. For businesses that have not yet registered, potential exposure can also build over time, which makes timing decisions feel heavier than they probably need to be.

What is worth saying, though, is that this stress often eases with structure.

Several business owners I spoke with said their anxiety dropped significantly once they had better tracking in place, clearer documentation, or outside support. The rules did not suddenly become simple. They just became visible.

The system is more complex than it needs to be, but it is the system businesses have to operate within. Spending energy wishing it were different rarely helps. Understanding it well enough to make calm, informed decisions does.

This is why sales tax has a habit of stealing a bit of sleep. It is not the work itself, but the not knowing that tends to follow people home at the end of the day. Once there is clarity around what actually matters, that background noise tends to quiet down.

Why “economic nexus” sounds simple but isn’t

Economic nexus is often explained as a simple rule: once you cross a sales threshold in a state, you must register and collect sales tax.

That explanation is incomplete and often misleading.

There is no single economic nexus standard in the United States. There are dozens.

States differ on:

• Revenue thresholds

• Transaction thresholds

• Measurement periods

• Types of sales included

• When registration and collection must begin

Some states look at gross sales. Others look only at retail or taxable sales. Some include exempt sales. Others do not. Marketplace sales may count toward thresholds in one state and be excluded entirely in another.

Timing matters as well.

In some states, registration is required immediately upon crossing the threshold. In others, collection begins on the next sale, the next month, or the following year.

This means two businesses with identical revenue can have completely different obligations depending on what they sell, who they sell to, and how their sales are structured.

This is also why software dashboards and high-level nexus summaries can be misleading. A simple “yes or no” indicator does not capture whether registration is actually required yet, or whether delaying registration is permissible under state law.

Economic nexus is not a single trigger.
It is a moving target.

For small businesses, this creates constant uncertainty. A shift in customer mix can alter how thresholds are calculated. A change in marketplace activity can shift liability entirely. A single large sale can suddenly change compliance obligations.

I have had multiple clients message after closing a major deal, worried less about celebrating and more about whether it triggered nexus. Not exactly the follow-up most business owners hope to be having after a great sales day.

Understanding economic nexus requires context, not just numbers. And for many businesses, that context is what makes compliance far more difficult than it first appears.

What the Wayfair Ruling actually changed for online sellers

Before 2018, sales tax obligations were largely tied to physical presence.

If a business had an office, warehouse, employees, or inventory in a state, that state could require the business to collect sales tax. If it did not, the burden technically fell on the customer through use tax, which was rarely enforced in practice.

That framework changed with the Supreme Court’s decision in South Dakota v. Wayfair.

The Court eliminated the physical presence requirement and allowed states to impose sales tax obligations based on economic activity alone. This concept is known as economic nexus.

In theory, the ruling was meant to modernize the tax system and level the playing field between online sellers and brick-and-mortar retailers. In practice, it shifted enormous administrative responsibility onto businesses that had never dealt with multistate sales tax before.

After Wayfair, states moved quickly to enact their own economic nexus laws. While the Court suggested that small businesses should be protected by safe harbor thresholds, it did not require states to adopt uniform rules.

The result is a patchwork of laws that differ by state.

Thresholds vary. Measurement periods vary. Definitions of what counts toward those thresholds vary. Registration timing varies.

For many small and mid-sized sellers, Wayfair did not just create new tax obligations. It created continuous monitoring obligations.

Every sale now carries the potential to trigger new compliance requirements in a state the business has never registered in before.

I’ve written previously about Wayfair’s unintended consequences for small remote sellers. What has become clear in practice is that the ruling exposed businesses to the full complexity of the U.S. sales tax system at scale.

Wayfair did not simplify sales tax.

It multiplied exposure to it.

Why U.S. Sales Tax is the most complicated consumption tax in the world

If you sell into the United States, you are dealing with one of the most fragmented consumption tax systems in the world.

This is not because sales tax is inherently complex.
It is because of how the system is structured.

The U.S. does not have a national sales tax. Instead, sales tax is administered at the state level, with additional layers imposed by counties, cities, and special taxing districts. Today, there are 46 separate state sales tax regimes and more than 12,000 unique taxing jurisdictions.

Each jurisdiction can independently determine:

• What is taxable

• What is exempt

• How tax is calculated

• When tax must be collected

• How and when returns must be filed

Rates are not the real problem. Rates are relatively easy to automate.

The real problem is lack of uniformity.

A product that is taxable in one state may be exempt in another. Shipping may be fully taxable, partially taxable, or exempt depending on the destination. Digital goods, SaaS, services, and bundled transactions are all treated differently across states, often with subtle distinctions that materially affect compliance. Sales tax exemption forms are handled differently across states.

There is also no centralized administration.

Businesses must register, file, remit, and respond to notices separately in every state where they are required to collect tax. Each state operates its own portal, uses its own forms and terminology, and enforces compliance differently.

Globally, this is unusual.

Most countries administer consumption taxes at the national level. Even when rates vary by region, the underlying rules are consistent. Businesses learn one system and apply it everywhere.

In the U.S., remote sellers must learn dozens.

This structural complexity existed long before e-commerce. But it became unavoidable after the 2018 Supreme Court decision that expanded states’ authority to require sales tax collection from out-of-state sellers.

If you want historical context on how we got here, I’ve written about that separately in A Brief History of U.S. Sales Tax. What matters today is this: the system small businesses are expected to comply with was never designed for modern interstate commerce.

Sales tax complexity is not about rates. It is about fragmentation, inconsistent rules, and decentralized enforcement.

Understanding this structural reality is the foundation for every sales tax decision that follows.

Wayfair’s unintended consequences: compliance challenges for small remote sellers

To mitigate the impact on small remote sellers, the federal Wayfair ruling required states to include a safe harbor provision in their sales tax laws. These provisions are meant to lessen the compliance burden by exempting businesses that fall below certain thresholds—typically based on sales volume or transaction count, like $100,000 in sales or 200 transactions—from the obligation to collect and remit sales tax.

While this was a step in the right direction, the varying safe harbor thresholds and requirements across states have created an overwhelming burden for small remote sellers. They must first determine where they have economic nexus based on the 46 different safe harbor provisions and then navigate the various requirements related to registration, return filings, notice responses, and audits.

Sales tax compliance in this environment is highly complicated, costly, and stressful for small remote sellers. Unlike large corporations with dedicated tax teams, these small businesses often lack the resources to confidently comply with the myriad state tax laws. Many small remote sellers who decide to pursue compliance turn to software solutions and external consultants, while others attempt to handle compliance in-house, often with less favorable outcomes.

Managing Sales Tax Compliance as a Small Business

If you’re a small remote seller, here are a few strategies to manage compliance more effectively:

1. Evaluate Software Solutions: Look for sales tax software that can automate calculation and reporting to ease (though not replace) the compliance process.

2. Consult an Expert: A sales tax consultant can help you understand nexus thresholds and manage filings across states, saving time and reducing the risk of errors.

Six years after the Wayfair ruling, challenges for small remote sellers persist. The ruling, while addressing inequities for local businesses, has inadvertently created barriers to small business creation, growth, and entrepreneurial spirit. Non-compliance—whether intentional or unintentional—poses a high risk, and many small sellers are increasingly anxious about potential audits in the coming years.