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.

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.

A brief history of U.S. sales tax

The Birth of U.S. Sales Tax

The complexities of the United States (U.S.) sales tax system are not new; they have deep historical roots. The U.S. sales tax system was born out of necessity during the Great Depression in the 1930s and expanded to additional states throughout the following decades. From its inception, sales tax has been monitored at the state level rather than federally, with multiple jurisdictions within each state levying taxes on top of the state tax, leading to a complex and varied tax landscape across the country.

The authority of states to impose taxes on interstate commerce has long been limited by the Commerce Clause in the U.S. Constitution. The landmark 1977 case Complete Auto Transit, Inc. v. Brady established that a "substantial" connection must exist between the state and the activity being taxed. However, the definition of what constituted a "substantial connection" was not particularly clear from this outcome, leading to another landmark case in 1992.

The Impact of Quill and Physical Nexus

In the 1992 case Quill Corp. v. North Dakota, the U.S. Supreme Court reinforced the physical presence—known as "physical nexus"—rule, clarifying that a company must have a physical presence, such as offices, warehouses, or employees in a state, for that state to require the company to collect and remit sales taxes. Until that time, states were limited in their ability to require a “remote seller”—an out-of-state seller that does not have a physical presence in the state—to collect and remit sales tax on transactions. Instead, the burden fell on the buyer in those transactions to remit a "use tax" to the state, which had a notoriously low compliance rate.

The Wayfair Ruling and Modern Implications

This all changed on June 21, 2018, when the U.S. Supreme Court overturned the Quill decision in its landmark decision in South Dakota v. Wayfair Inc. et al., commonly referred to as the "Wayfair ruling." The Court overturned the long-standing physical nexus rule, making it lawful for states to require remote sellers to collect and remit sales tax based on "economic nexus," a significant economic connection to a state, in addition to physical nexus. This decision, passed by a narrow 5-4 vote, has had far-reaching implications. Each state has since enacted its own sales tax laws related to economic nexus, adding to the already complex web of regulations that businesses must navigate.

The Wayfair ruling was seen as a logical evolution, reflecting the growing importance of e-commerce and aiming to level the playing field between online sellers and local businesses. Over the past few decades, the U.S. retail landscape has transformed, with online sellers gaining a competitive edge over brick-and-mortar stores due to the absence of sales tax obligations. The ruling sought to address this disparity by allowing states to capture revenue from remote sellers who had a significant economic presence within their borders.

How These Changes Affect Businesses Today

For e-commerce and other remote sellers, understanding and complying with these complex sales tax laws can be daunting. Each state has its own regulations around economic nexus thresholds, and new businesses may struggle to keep up with compliance requirements, especially as they expand their market reach. My work with e-commerce companies has shown me just how overwhelming these changes can be—particularly for those new to navigating U.S. sales tax requirements.