2006 Looks Bright for Online SMBs

(Link to Article)
JANUARY 18, 2006

ID theft? Online taxes? Rising interest rates? All irrelevant! To the people who work online the horizon looks rosy.

In a survey of 12,000 small and mid-sized business (SMB) owners and operators active in e-commerce, conducted by Avalara, most of the respondents are looking forward to a year of solidly improving performance. A solid majority expects more growth in 2006 for the e-commerce and on-demand-web services they provide.

The survey found that 74% of respondents feel that the US economy was strong in 2005, and 72% think it will be even better in 2006. Only 19% feel that the US economy did not do better in 2005, while a mere 15% do not see further improvements in 2006.

When SMB business owners and operators rated their own business prospects they were even more upbeat than they were about the national economy.

In all, 84% said that their business was better in 2005 than in 2004, and that same percentage saw their business improving again in 2006. Only 12% felt their business did not improve in 2005, and a small 7% do not feel their business would improve in 2006.

"In part, this expected growth is coupled to a perceived growth in business and consumer confidence in the Internet — and in e-commerce," said Jared Vogt, Avalara's CEO. "Of those respondents who are engaged in e-commerce themselves, 79% reported expecting that consumers 'comfort zone' — their willingness to buy online — would grow stronger in 2006. Only 8% felt that this comfort zone would shrink. These measures, taken together, form a strong indicator of continued confidence in the overall US economy — especially in the country's Internet and e-commerce economy."

The survey sample projects sustained growth in e-commerce through at least 2006.

In all, 90% of the SMB owners and operators, who are engaged in e-commerce, feels that not only was the US Internet e-commerce economy strong in 2005, that same number — 90% — anticipates that that economy will perform better in 2006. Only 4% expect 2006 to under-perform 2005.

When it comes to online SMB owners' attitudes towards Internet sales tax, reactions were mixed.

In 2005, 42% of the respondents reported increased online tax collection, while an equal number — also 42% — saw no increase in sales tax collection activity versus the previous year. However, for 2006, 47% expect to see a measured growth in their role as e-commerce sales tax collectors, while only 36% expect no change in 2006 over 2005.

"Some SMB-market e-commerce business owners clearly see that a tax-free environment gives them a competitive advantage — at least enough to offset shipping costs," said Mr. Vogt. "Others seem more concerned with the operational costs of collecting taxes than with the impact of sales taxes on their continued business growth."

Equity is also an issue — 55% of those who responded did not feel it is fair for out-of-state taxing jurisdictions to expect them to collect sales taxes, while just 30% saw no fairness problem.

On one tax point, however, there was broad agreement. Collecting sales tax is seen as an unwelcome operating cost by 72% of SMB-market business owners.

Online tax collection is an especially acute problem for SMBs — and could give larger companies an unfair advantage. Due to economies of scale, large businesses can afford to staff sales tax collection departments to keep up with the 8,000 sales tax jurisdictions — and the more than 1,000 rate changes states and local jurisdictions impose each year — but few small businesses can.

It's a good thing many SMBs do not think they will have to bear that tax-collection burden — at least not in 2006.