Why “just register everywhere” is rarely the right answer for small businesses

When small business owners ask about sales tax compliance, they are often met with advice that sounds reassuringly simple.

Register everywhere you have nexus.
Be conservative.
Err on the side of caution.

I understand why this guidance shows up. It feels responsible. It removes ambiguity. It gives a clear next step in a system that rarely offers one.

And to be clear, registration is often the right decision, especially once a business has meaningful taxable activity or clear exposure in a state.

The problem is not registration itself. The problem is treating registration as automatic rather than intentional.

Sales tax compliance is not simple. Advice that skips context can quietly create more work and more risk than it resolves.

Registration is not a harmless box to check. Once a business registers in a state, it creates an ongoing relationship with that tax authority. There are filing obligations. There are notices. There is recordkeeping. There is audit exposure. Even when no tax is due, returns still have to be filed.

For some businesses, especially those with minimal taxable sales in a state, registration can increase complexity without meaningfully reducing risk, at least in the short term.

This comes up often with B2B sellers, exempt customers, and marketplace-heavy businesses. On paper, economic nexus may exist. In practice, actual tax liability may be close to zero. The ongoing administrative burden, however, is very real.

A more helpful approach asks better questions.

• Are the sales actually taxable?

• Are customers exempt, and are exemption certificates realistic to manage?

• Are marketplaces already collecting and remitting?

• What obligations begin after registration, not just at registration?

• What does it realistically cost to stay compliant in this state over time?

This is where judgment matters.

Sales tax compliance is not a moral purity test. It is a risk management exercise. Businesses are allowed to think about materiality, proportionality, timing, and tradeoffs.

Small businesses do not need advice designed for companies with internal tax departments. They need guidance that acknowledges how limited time, focus, and resources actually are.

Registering is often the right answer. The mistake is assuming it is always the first answer.

The hidden internal cost of sales tax compliance

When people ask me about the cost of sales tax compliance, they usually mean software pricing or consulting fees.

That part is relatively easy to quantify.

What gets discussed far less is the internal cost. And for many small businesses, that is the part that feels heaviest.

Sales tax compliance rarely sits neatly inside a single role. In small companies, it tends to spill across teams. Finance touches it. Operations touches it. Sometimes founders touch it directly. Often, no one feels fully responsible for it, but everyone feels the interruption.

I have watched capable, thoughtful teams get worn down by sales tax work that feels constant and unrewarding. Tracking thresholds. Updating integrations. Researching taxability. Reconciling reports. Following up on exemption certificates.

None of this work helps the business grow. None of it improves the product. None of it creates leverage.

And yet, it still demands attention.

Implementation alone can take months. Even with software, there is setup, testing, cleanup, and ongoing review. Once things are live, the work does not disappear. Laws change. Rates change. Sales patterns change. Someone has to notice, and someone has to respond.

Exemption certificates are a good example. On paper, they look straightforward. In practice, they are fragile. Documents go missing. Forms are incomplete. Certificates expire quietly. Customers promise to send them but never do. 

Faced with this, businesses make understandable trade-offs. Some absorb sales tax rather than going back to customers. Others delay compliance because they cannot justify the internal disruption right away. I have seen businesses quietly decide that the internal cost of compliance outweighs the likely exposure, at least for a period of time.

That decision is not careless. It is human.

Sales tax compliance does not just cost money. It consumes focus. And focus is one of the most limited resources a small business has.

The goal is not to eliminate that reality or pretend it is easy. The goal is to recognize the internal cost for what it is, plan for it honestly, and build systems that reduce the mental load over time.

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.

A practical way to think about economic nexus

Economic nexus is often treated as a bright-line rule in U.S. sales tax compliance. Cross a threshold, register, collect, file.

In reality, it is not a single rule. It is a decision-making framework with long-term consequences.

After the Wayfair decision, each sales tax state enacted its own version of economic nexus. While many states adopted similar headline thresholds, the similarities largely end there.

The differences matter because registration is not a one-time act. It creates recurring compliance obligations that continue even in periods with no taxable sales. Once registered, a business is committing to filings, recordkeeping, and exposure to notices, penalties, and audits.

This is why blanket advice like “register everywhere you have nexus” is often harmful for small businesses.

A thoughtful economic nexus approach requires context. It considers what is being sold, whether customers are taxable or exempt, how sales are routed through marketplaces, and how thresholds are calculated in practice. It also weighs the cost of compliance against the actual tax at issue, rather than treating registration as a purely moral or binary decision.

In practice, there are situations where a business technically meets a state’s economic nexus threshold, but the cost and administrative burden of registration materially outweigh the potential exposure. In those cases, the decision is not about ignoring the rules. It is about evaluating risk, timing, and proportionality.

Economic nexus should be treated as a risk management exercise, not a moral one.

When it comes to sales tax, the goal is not theoretical perfection across every jurisdiction. The goal is informed, defensible decision-making that aligns with a business’s size, risk tolerance, and growth plans.

For small businesses, fear-driven compliance decisions often create more problems than they solve. Clarity comes from understanding how the rules actually work, when registration is truly required, and what obligations follow.

Economic nexus is not about registering everywhere.
It is about knowing when registration makes sense and why.

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.