Small-Business Success Barriers

The 2012 election was laden with tax jabs and references to “job creators,” many of whom are considered to be small businesses, but a new survey from …

The 2012 election was laden with tax jabs and references to “job creators,” many of whom are considered to be small businesses, but a new survey from of businesses with five or fewer employees indicated that tax rates were only one issue. A far bigger issue was the complexity and logistical ease of various tax codes. Being able to understand what taxes are owed and a convenient way to pay them were the chief subjects of the open-ended write-in portion of the survey. Business regulations were also a general complaint among small-business owners. For more on this continue reading the following article from TheStreet.

The political ads and fundraising calls may have disappeared (insert sigh of relief), but the key economic issues raised by the presidential election will continue to resonate for the foreseeable future. Small businesses’ role in creating jobs was a much-repeated theme along the campaign trail, with politicians of both parties standing up as the champions of American entrepreneurs.

But what exactly can the government do to help a small business succeed? States can promote themselves as "business friendly" (as practically every state does), but what are the specific policies that encourage a start-up to grow?

A recently released survey of small-business owners conducted by, a website that connects service providers with customers, in collaboration with the nonprofit Ewing Marion Kauffman Foundation, offers some answers. Yes, many owners said they had been hampered by "government" in some way. But dig into the specifics, and it’s clear tax rates don’t play the outsized role that they did in political debates.

More than 6,000 service providers across the country, the majority of whom had five or fewer employees, answered a variety of questions about starting and maintaining a business in their state. The states getting the highest overall rankings were Idaho, Texas, Oklahoma, Utah and Louisiana; Rhode Island, Vermont, Hawaii, California, and New York ranked lowest.

But the really interesting data were collected from an open-ended question inserted in the middle of the survey: "Please let us know any experiences or thoughts you have regarding the ease of doing business in your state." The door was left open for complaints or compliments, and about 40% of respondents chose to answer.

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Obviously, every business owner would be thrilled to pay less in taxes. But only 15% of the people who offered specific comments mentioned taxes at all, and those who complained their taxes were too high did not necessarily live in the states where the corporate tax rate was highest. Much more common were complaints about the complexity of the tax code, or the difficulties of navigating different local tax systems (sales tax, use tax, city and county taxes, etc.).

The takeaway? Business-wise, it can be an advantage to live in a state with no sales tax or no income tax. But the actual rate paid did not seem to be a top concern for most of the survey takers. Overall, what mattered more was that tax systems were easy to understand, with convenient (ideally online) payment systems,and easy-to-reach, knowledgeable support staff.

Consider, for example, the South Carolina Business One-Stop, a website that consolidates all the information and forms a small-business owner might need. In one place, you can change your address, order a license application, pay quarterly taxes and sign up for an educational webinar. It’s no wonder South Carolina respondents praised their state’s small-business environment. (By contrast, compare South Carolina’s extensive, welcoming site with California’s relatively bare-bones Small Business Assistance Center, a division of the California Tax Service Center).

Regulations — as separate from taxes — were another hot-button issue. About one-third of respondents mentioned regulation or licensing in their comments, with most offering strong criticisms of their state’s regulatory environment. Again, owners did not object to regulations per se, but they were frustrated by the layers of complexity that made compliance and hiring difficult (especially when states, counties and towns all had separate procedures).

America may be sharply divided along ideological lines, but this survey, completed by business owners of all political persuasions, shows there are relatively straightforward, nonpartisan fixes that any state can make to improve their small-business environment. One top recommendation is to simplify state tax codes, creating more uniformity between regional and local policies, and set up online systems that offer "one-stop-shopping" for all tax-related issues.

Similar websites could also be established for all regulation and licensing issues, so business owners can find all the relevant forms in one place. States could also re-evaluate their licensing procedures, requiring licenses only for those businesses where quality assurance is of vital importance.

Most surveys that tout the "best states for business" use one specific data point as their main point of reference, whether it’s tax rates or the number of well-paying "creative class" jobs. The Foundation survey went deeper, to find out in business owners’ own words which specific policies made a difference, good and bad.

The good news is that main challenges are fixable and nonpartisan. All that’s needed is the political will to make them happen.

This article was republished with permission from TheStreet.


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