When I do drive around with the hitch on, I try to do things like park backed in to a spot so that someone doesn't hit the hitch. Just keep in mind you have that hanging out behind your vehicle. As mentioned, some people put a cap over the hitch ball... does two things: Keep the grease on the ball, and if it is brightly colored can help other people to see the hitch (so they don't crash their shins into it). A tennis ball with a slit cut in it can work.
I think the reason that hitches are not supposed to be used without towing on State roads is that they don't have marker lights on them, and/or a surrounding bumper. I believe this is more geared towards highway / interstate roads. Probably also can get the state another ticket fee.
(I'm in Connecticut... EVERYTHING has a fee or tax!)