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.

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.

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.