Tax fraud, essentially.

E.g. you go to the Minnesota State Fair, merchants may offer to not charge sales tax if you pay cash. It is shockingly brazen sometimes.

> How could a business possibly operate in this reality?

Extremely lax enforcement on the part of the specific US state's department of revenue

I hand the cash to the cashier and they respond with "thank you, have a nice evening", while eventually handing me a printout of my order from their tables organiser software, instead of the legally required fiscal receipt.