Small, Midsize Businesses Optimistic About Future of E-Commerce

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Small and midsize businesses are confident about the future growth of e-commerce even as they see collecting sales tax as an emerging burden, according to a study released yesterday by Web-based sales tax services company Avalara.

Avalara, Bainbridge Island, WA, contacted 12,000 opt-in registered small and midsize business owners and operators in the second half of November with an online questionnaire.

Ninety percent who responded to the survey and who are engaged in e-commerce think that the U.S. e-commerce economy was strong in 2005. The same percentage anticipates an even stronger performance in 2006.

As for their own e-commerce operations, 83 percent said that their business performed better in 2005 than 2004 while 81 percent expect this area of their business to improve again in 2006. In contrast, 84 percent of respondents said that their overall business would improve in 2006.

Part of the growth comes from the growing confidence in the Internet.

"Of those respondents who are engaged in e-commerce themselves, 79 percent reported expecting that consumers' 'comfort zone' -- their willingness to buy online, in spite of identity theft concerns -- would grow stronger in 2006 than it had been in 2005," Avalara chairman/CEO Jared Vogt said in a statement.

Regarding the issue of Internet sales tax, 42 percent of small and midsize businesses engaged in e-commerce saw an increase in their role as involuntary tax collectors in 2005 while an equal number saw no increase. However, this year 47 percent expect a growth in their role as sales tax collectors while only 36 percent expect no change.

The recently enacted Streamlined Sales Tax Program is part of the concern, said Rory Rawlings, Avalara's founder/chief tax automation officer. "However, part of this increased tax collections activity merely reflects the states' more aggressive tax auditing and collecting efforts," he continued.

Collecting sales tax is seen as an unwelcome operating cost or other problem by 72 percent of respondents, and 39 percent said the cost of collecting taxes affected their hiring plans in 2005 or was expected to do so for 2006. However, 57 percent see collecting taxes as an acceptable cost of doing business.

With regard to on-demand, Web-based services, 79 percent of respondents rated themselves as familiar with these types of services while 15 percent said they were unfamiliar with this relatively new alternative to conventional software. On-demand Web services are being used by 52 percent of respondents while 64 percent expect to be using them within six to 12 months.

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