The Market for Small Business Tax Education: An Exploratory Study

ABSTRACT This study was based on the premise that small business owners are interested in acquiring tax knowledge. Data were collected from a sample of 500 small business owners located in a Southern city in 1993. While independent accountants provide tax compliance services and expertise, small business owners who lack basic tax knowledge may be interested in acquiring such knowledge because it might lead to tax savings for their business. The findings reveal that the small business owners' desire for tax education may be moderated by years of experience. Futhermore, most small business owners were unwilling to incur out of pocket expenses for tax education. The market for providing tax education to small business owners appears to be an elusive one which may require a great deal of creativity to stimulate. INTRODUCTION According to the U.S. Small Business Administration Office of Advocacy (1994), the number of small businesses in the United States has increased 49% since 1982. In 1993, there were approximately 21.5 million small (nonfarm) businesses, of which 99% had fewer than 500 employees (U.S. Small Business Office of Advocacy, 1994). In addition, the number of new small businesses has increased steadily during the past 30 years. There were 666,800 new small businesses recorded during 1992 (U.S. Small Business Office of Advocacy, 1994). Small businesses create many new jobs and are an important part of our nation's economic growth. In 1993, small businesses employed 54% of the private work-force, contributed 52% of all sales in the country, and were responsible for 50% of the private gross domestic product. Seventy-one percent of the 1.9 million new jobs created during 1993 were produced by small businesses (U.S. Small Business Administration Office of Advocacy, 1994). Thus, small businesses are important to the U.S. economy. Businesses are a major source of tax revenue. In the tax system, businesses play the dual roles of agent and debtor. As an agent, a business withholds and pays taxes such as social security (FICA) and unemployment (FUTA) for its employees. As a debtor, a business pays taxes such as income and franchise for which it is directly liable. However, the current tax system is complex and tax compliance is a complicated job. The routine tax matters of large businesses are met by their in-house tax departments. Additional tax support comes from international accounting firms. In contrast, small businesses rely primarily on local tax experts for assistance in complying with the tax laws and may resort to a self-help approach. That is, they may supplement the assistance of local experts by acquiring their own knowledge. This may be accomplished by attending short courses or seminars and by consulting tax articles, pamphlets, and books. The purpose of this research is to explore the market for tax education for small businesses. Three research questions were identified: (1) Is the small business owner's interest in acquiring tax education impacted by years of experience? (2) Is better knowledge of tax important to small business owners because it translates into tax savings and better business decisions? (3) Are small business owners willing to make out of pocket payment for tax education? Several criteria have been used to define a small business, such as the type of business, the number of employees, and the dollar value. The most widely used criterion is the number of people on the payroll. The Small Business Administration has formulated size standards according to the number of employees and sales volume. The definition adhered to in this study is that a small business is one with 500 or fewer employees. LITERATURE REVIEW A review of the recent research on small business revealed about eight research streams. Recent research has addressed the financial reporting and analysis practices of small businesses (cf. McMahon & Davies, 1994; Coker & Hayes, 1992), international strategies of small business (cf. …