Lisa Kivirist owns Inn Serendipity Farm and B&B in Browntown, Wisconsin, where she serves cookies, muffins and breads that she takes pride in making for guests. But selling the baked goods under certain circumstances could potentially land her in jail for up to six months. Kivirist, as a B&B operator, can share baked goods with her guests, as the food is considered part of the B&B service. But state law does not allow her to sell the same baked treats to customers in or outside her establishment. It's a nuance in the state law that hits Kivirist because she doesn't make the treats in a licensed commercial kitchen, which she estimates would cost her about $50,000 to install. Chalk it up to yet another example of strict government regulations. "People have been baking in their homes and selling to neighbors for centuries," Kivirist said. "You can get these businesses up and running without a lot of investment."

Lisa Kivirist is fighting back against business baking regulations in Wisconsin. Photo: Joe Hoffman

Regulation and government red tape have long plagued Main Street. Regulations historically have ranked as among the top three issues for , according to the National Federation of Independent Business, the D.C.-based lobbying group.

But in recent years, red tape faced by small businesses in various states has intensified, according to the Institute for Justice, a nonprofit public interest law firm that fights to limit the size of government. That's why they are taking on small business regulations like Wisconsin's "cookie ban," as well as a seemingly labyrinth of licensing laws for a variety of occupations. Examples include a written test for tour guides that can test knowledge of celebrities like Darius Rucker from Hootie and the Blowfish. Another law requires more than 2,000 hours of costly training as a condition of a cosmetology license. "In the 1950s about 5 percent of the workforce needed a license to work, and they were doctors, lawyers — the people you would expect. Today, that number is over 20 percent — they're florists, interior designers and hair braiders," said Robert McNamara, senior attorney at the Institute for Justice. "We are in the midst of an explosion of occupational licensing laws in this country." Read MoreIRS to return seized cash to small-business owner The Washington-based institute filed a lawsuit challenging portions of Wisconsin's food regulation in January 2016 in state court. The suit is against the Wisconsin Department of Agriculture Trade and Consumer Protection.

A spokeswoman for the Wisconsin Department of Justice told CNBC by email that it is representing the agency and is reviewing the complaint.

While parts of Wisconsin's food regulations were updated in 2010, the change did not cover home-baked goods.

And to unpack the maze of food laws further, Kivirist can produce and sell cider, maple syrup and other nonbaked goods without a commercial kitchen because those specific items are exempt. That's why she sells canned items including pickles and sauerkraut locally without violating regulations. The Wisconsin Bakers Association, a trade group, supports the regulation. "We welcome anyone that wants to get into the business on a level playing field," said executive director Dave Schmidt.

Hootie and the Blowfish knowledge preferred

Main Street businesses are seeing a rise in the number and complexity of occupational licensing laws. Even the White House has stepped into the fray. "Often the requirements for obtaining a license are not in sync with the skills needed for the job," according to a July 2015 White House report on occupational licensing. Just ask Kimberly Billups, who is trying to open a tour business in Charleston, South Carolina. Billups failed the city's 200-question tour guide exam, which draws on questions from a 490-page book Billups says she was told to "memorize." There is also an oral exam. She's a former tour guide at a historical house in Savannah, Georgia, and hopes to open a business that would allow her to showcase Charleston's historical sights. The entrepreneur wants to lead historical tours in the area, and says celebrity knowledge shouldn't be a high priority for her kind of business. "Hootie from Hootie and the Blowfish was born in Charleston — there were questions like that" on the exam, she said. The Institute of Justice filed a federal lawsuit in January challenging the city's tour guide license regulations.

The city defends the requirement. In an email to CNBC, spokesman Jack O'Toole said the regulation helps protect "the City's tourism economy and its residents and visitors from false or misleading offers of service for compensation, such as a tour guide for hire who has insufficient knowledge to actually guide anyone through the city."

'They're hindering their citizens here'

Aicheria Bell is taking on hair-braiding licensing laws in Iowa. Source: Mark Mostad