COVERAGE, METHODOLOGY & ESTIMATES__________MINORITY-/WOMEN-OWNED BUSINESSES =>SURVEY METHODOLOGY => GENERAL The universe of this survey is selected from Internal Revenue Service (IRS) business tax returns. Included in the main tables of this publication are data based on businesses which filed an IRS form 1040, Schedule C (individual proprietorship or self-employed person); 1065 (partnership); or 1120S (subchapter S corporation) in 1992. A subchapter S corporation is a special IRS designation for legally incorporated businesses with 35 or fewer shareholders who, because of tax advantages, elect to be taxed as individual shareholders rather than as corporations. Information for these businesses is based on employer identification (EI) numbers for businesses with employees. For business tax returns, the IRS provided the Census Bureau with the following information: Name and address of the firm Employer identification number of the firm Social security numbers of the owners for filers of Form 1040 Schedule C Principal industrial activity code (see Comparability of 1987 and 1992 Data) Dollar receipts Legal form of organization If an individual filed more than one of the above forms, each was counted as a separate firm. The social security numbers (SSN's) of the owners were sent to the Social Security Administration (SSA), which provided the sex codes that were indicated by the individuals on their original applications for SSN's. => WOMEN-OWNED BUSINESSES A firm is classified as women-owned using the gender codes obtained from the SSA for individual proprietors or from information reported for the majority of owners of partnerships and corporations. If a husband and wife filed a joint tax return, the IRS provided information on both filers as well as an indicator if either filed a self-employment (SE) form. This form is used to collect Federal Insurance Contribution Act (F.I.C.A.) taxes from individuals who operate their own business, have receipts totaling $400 or more, and do not meet the F.I.C.A. tax limit on income from another occupation. This indicator was used to determine whether the husband or wife was the business owner. If neither filed an SE form, ownership was assigned to the husband or wife based on the known ratio for a particular industry by receipts size. => INDIVIDUAL PROPRIETORSHIPS & SELF-EMPLOYED PERSONS (IRS Form 1040, schedule C) The methodology for collecting information about businesses owned by Hispanics, Asians, Pacific Islanders, American Indians, and Alaska Natives that filed IRS Form 1040, Schedule C, was similar to 1987. The SSN's of the owners were sent to the SSA, which provided the race codes that were indicated by the individuals on their original applications for SSN's. Persons applying for SSN's prior to 1981 could categorize their race as (a) White, (b) Black, or (c) Other. In 1981, the racial descriptions on social security applications were expanded to (a) Asian, Asian-American, or Pacific Islander, (b) Hispanic, (c) Black, (d) Northern American Indian or Alaskan Native, and (e) White. Most persons who currently own businesses applied for their SSN's prior to 1981. Therefore, the majority of owners could be classified only as "White," "Black," or "Other" by use of SSA race codes. The SSArace codes were sufficient to determine if a firm was Black-owned, but a sample mail canvass was used to determine if a firm was owned by persons of Hispanic; Asian; Pacific Islander; American Indian or Alaska Native ancestry. Individual proprietors who reported they were of minority ancestry in the 1987 survey and whose firms were still active in 1992 were excluded from the mail canvass. The Census Bureau has developed lists of Hispanic and Asian surnames. A firm was considered potentially minority owned if the owner's surname was included on these lists or the owner's SSA race code was "Hispanic" or "Other." Survey forms were sent to the following potentially minority-owned firms: 1. Individual proprietorships with no employees were sampled at varying rates based on the numbers of firms in a particular industry and State. All cases were selected in States and industries where there were relatively few firms, and the sampling rate was lowest in States and industries with the greatest number of firms. No sampling rate was lower than one in ten. Some cases were selected with certainty based on receipts size and their respective industry and State. 2. Individual proprietorships with paid employees were sampled at a rate of one in two, or were selected with certainty based on receipts size, number of employees, and annual payroll for their respective industry and State. A similar methodology was used to select a sample from the remaining universe of individual proprietorships. A survey form was sent to these cases to estimate the number of firms owned by Americans of minority ancestry who have surnames more often associated with nonminor-ity ancestries. These firms are not included in the published tables, but estimates of the undercoverage are shown in "Estimates of Total Firms Owned by Minorities." => PARTNERSHIPS & SUBCHAPTER S CORPORATIONS (IRS Form 1065 or 1120S) The methodology for collecting information about minority-owned partnerships and subchapter S corporations changed in 1992. Information about the surnames of the business owners was not available. Therefore, a sample of all of the businesses filing 1065 and 1120S tax forms was taken at varying rates depending on the State, industry, and employer/nonemployer status of the businesses, and past SMOBE surveys indicating that the business was Black-, Hispanic-, Asian-, Pacific Islander-, American Indian- or Alaska Native-owned. A firm selected into the sample was mailed a form to determine the ethnicity and race of the owners. In this publication, a firm is classified as minority-owned if the sole owner or information reported for the majority of owners of partnerships and subchapter S corporations indicated Black, American Indian, Alaska Native, Asian American or Pacific Islander race or Hispanic ancestry. It was possible for a firm to be classified in more than one minority group (one racial and one Hispanic ethnicity) and to be included in more than one minority report. For example, a firm could be included in both this report and the Hispanic report if it were owned equally by two people, one of Japanese ancestry and one of Mexican ancestry. However, such a firm is counted only once at total levels in this publication. The following information was obtained for each firm from the Census Bureau's 1992 Economic Census files: Standard Industrial Classification (SIC) code (see "Industry Classifications") Geographic code Legal form of organization code Number of employees, annual payroll, and receipts for firms with paid employees => "C" CORPORATIONS (IRS 1120 tax forms, other than 1120S) Summary information is provided for non-subchapter S (C) corporations (businesses filing any type of the 1120 tax forms, other than 1120S) in the Women-Owned publication, "Summary of Findings" only. These data are provided as a result of the Women's Business Ownership Act of 1988 which required the Bureau to provide statistics for C corporations. Due to the limitations of the sample, C corporations are not included in the main tables. Since many C corporations have several EI numbers, the information for these companies was collected and is published based on consolidated reports for all activities under common ownership rather than based on tax returns. This differs from the methodology for other legal forms of organization where each tax return is counted as a separate business regardless of ownership. =>COMPARABILITY OF 1987 AND 1992 DATA Several other factors prohibit direct comparison of the 1992 statistics with prior census data. Primary is the selection of the legal form of organization by the business owner and the related Federal tax form filed. Newly formed businesses can select the legal form most advantageous to them, within the restrictions of the tax code; factors influencing that decision, such as tax code changes, are not consistent across years. Existing businesses can also change their legal forms of organization for tax reasons, ownership changes, growth factor, etc. In addition, the following major changes were made in survey methodology in 1992 which will affect comparability with past reports. 1. In 1992, the use of administrative record data from the IRS and SSA which identify the owners of partnerships and subchapter S corporations was discontinued. Therefore, a sample of partnerships and subchapter S corporations was canvassed in order to determine which were minority- or women-owned. Consequently, the information reported by these businesses may, in fact, differ from what would have been obtained from administrative data. Individual proprietorships owned by Blacks or women were still identified from administrative records. (Moreover, in the past, only the non-Black and ethnicity data were collected directly from individual proprietors.) 2. Since the 1987 survey, the number of subchapter S corporations (included in SMOBE) has risen at a much faster rate than the number of "C" corporations (not included in SMOBE). The net result was an approximately 20 percent increase in the SMOBE universe compared to an approximately 12 percent overall increase in business tax returns. Finally, there are no comparable 1987 (or prior) numbers for "C" corporations. 3. In 1987, classifications for firm data were based on the 1972 SIC manual. For 1992, classifications are based on the 1987 SIC manual. The SIC structure was changed to better reflect industry trends. These changes limit the comparability of data between the 1987 and 1992 SMOBE. 4. There was a significant overstatement in the number of employer firms in 1987 due to processing errors. The overstatement primarily effects the number of employers, but minimally effects the employee and payroll numbers. =>INDUSTRY CLASSIFICATIONS The system published in the 1987 Standard Industrial Classification Manual was used to classify firms for this report. Under this system, economic activities are coded on a numerical basis. Related activities are grouped at a primary level by industry division (i.e., manufacturing, construction, retail trade, etc.). Within each industry division, successive levels of detail of the economic activity are defined: major group (two-digit code); industry group (three-digit code); and industry (four-digit code). For example, one hierarchy in wholesale trade is: SIC level SIC code Description Industry division 50- Wholesale trade Major group 50\ Durable goods Industry group 506 Electrical goods Industry 5064 Electrical appliances, television and radio sets Data in this report are presented at the industry division or major group level, depending on the table. This study covers all industries in the SIC system except the following: Major Groups 01 and 02, Agricultural Production; 40, Railroad Transportation; 43, U.S. Postal Service; 86, Membership Organizations; 88, Private Households; and 91-97, Public Administration. =>ASSIGNING INDUSTRY CODES Companies or firms in the 1992 Economic Census were classified according to the 1987 SIC manual, issued by the Office of Management and Budget, Executive Office of the President. If a company had only one type of business, it was classified in the appropriate industry category. For companies with more than one major type of activity, payroll data were used for determining the most significant business and the entire company was classified to that category. Payroll data are used in preference to receipts because it is believed to be the most meaningful economic measure common to all businesses. =>COMPARABILITY OF SURVEY DATA WITH OTHER ECONOMIC CENSUSES DATA Universe records show data for all firms that are comparable to the data for minority- and women-owned firms in this report. Caution should be exercised in comparing data presented in this report with published or unpublished data from other reports of the 1992 Economic Census. Factors that affect comparability of data among censuses are industrial scope, business unit covered, receipts size, and coverage of nonemployers. INDUSTRIAL SCOPE. Data in this report are based on the 1987 SIC Manual (see "Industry Descriptions"). Most of the industries in scope of the other 1992 Economic Censuses were also in scope of this study. However, Major Group 86, Membership Organizations, was within the scope of the 1992 Economic Census, but out of the scope of the 1992 SMOBE/WOB. The following major industry groups were in scope of this study, but not in scope of the other economic censuses (see exceptions below): Major Groups 07, Agricultural Services; 08, Forestry; 09, Fishing, Hunting, and Trapping; and domestically-owned scheduled airlines in industry 4512. In this study, industry 6552 (land subdividers and developers, except cemeteries) is included with the construction industry group, unlike the other economic censuses which include it with industry 65 (real estate). BUSINESS UNIT. Most of the economic censuses are conducted on an establishment or physical location basis; each establishment owned by a firm is individually canvassed and tabulated. In this report, however, the unit tabulated was the firm rather than each establishment of the firm. (See "Data Item Definitions" for definition of "firm.") RECEIPTS SIZE. Most of the economic censuses determine whether or not a firm may be counted as an active business according to its receipts size. The specified minimums vary by industry. For this study, a firm had only to file a business tax return with business receipts greater than $500 for it to be counted as an active business. NONEMPLOYER FIRMS. Although nonemployer firms are included in this survey, they are omitted from many of the economic census reports. ###