Entrepreneurs profit, consumers love the convenience, but loss of sales tax revenue concerns some

Internet changing the face of peninsula business

Posted: Saturday, April 22, 2000

Just a few years ago, the Internet was a sparsely populated community of nerds. Today, grandmothers are "surfing" the World Wide Web looking for just the right baby blanket.

But that's only the tip of the iceberg. On the Kenai Peninsula, like everywhere else in the world, the Internet has become a boon to buyers and sellers alike.

Kenai Peninsula Small Business Development Center director Mark Gregory said he has seen a tremendous growth in Internet use by business people in the year and a half he's been on the job.

"It's growing rapidly," he said. "We've probably seen a doubling, if not a tripling, of the number of people interested in Internet-based business."

Tourism is by far the largest market segment that has gone online, he said, but he expects other businesses to follow suit.

"Conventional advertising is still an equally important factor," Gregory said. "(But) if we don't get online, we'll be in the dark, and people will have other places to go."

On the peninsula there already are bed and breakfasts online, as well as tour operators and e-commerce retailers with Web sites drawing visitors from around the world.

"There are service-oriented businesses that provide online training," Gregory said. "We're able to out-source to the Outside."

He also said there are virtual malls being created in Homer that are marketing arts and crafts from Russia.

"And the Peninsula Center Mall is putting together a virtual mall for the shops there," he added.

One of the new Internet entrepreneurs is 19-year-old Stephen Gilbertson. He has parleyed a youthful interest in computers into a very lucrative computer consulting business.

Gilbertson said he initially had difficulty convincing banks to back him because of his age. But he persevered and founded Stephen's Computer Consulting. He said his 4-year old company grossed half a million dollars last year.

"We primarily build computers and have our own brand called Century," Gilbertson said.

The computers are built from off the shelf components that Gilbertson tests and puts together.

"We also do a lot of service work," he added. "Right now we do all the computer work for the city of Kenai. We're trying to get more involved in government contracts."

Besides plans to put the entire Peninsula Center Mall onto the Web, Gilbertson foresees his company hosting 50,000 pages of e-commerce for businesses all around the area.

While Gregory said the focus of his office -- part of the Economic Development District in Kenai -- is to help people market online, that's only half the picture. Getting good wholesale prices online for retailers is the other half.

"We have small retailers opening kiosks and selling specialty goods, and dollar-type stores getting better pricing and products from the Internet," Gregory said.

The arts community is another segment of the economy that is discovering online commerce.

Ricky Gease, president of both the Kenai Arts and Humanities Council and the Peninsula Arts Guild, said more and more local artists are discovering the Internet as a way of selling their work.

"The Internet has great potential for a community like ours," Gease said. "You can produce and sell art year-round instead of just waiting for the fish to come in."

Gease said he knows artists who are bringing in $2,000 a month marketing directly to customers (See related story, page 22).

"I've seen (local) artists making and auctioning jewelry on eBay," Gregory said. "On occasion, they are getting five times the price they normally would because of the bidding."

The World Wide Web site eBay is an Internet auction house.

However, getting a handle on how much money actually changes hands over the Internet is difficult. Gregory said it is impossible to track the amount of e-commerce the Kenai Peninsula participates in.

"How to monitor that is one of the struggles with interstate commerce," Gregory said. "It's very nebulous. Even Internet providers don't track dollar amounts."

Nationally, though, Gregory said retail sales on the Internet were $36 billion in 1999, up from $14.9 billion the year before.

But that doesn't mean anyone can sell anything on the Internet.

"The top 50 Internet sites accounted for 75 percent of the sales," he said.

Which on the face of it may seem discouraging to a mom-and-pop business that wants to get into e-commerce. But not so, said Gregory.

"What this means is that while there is a large bulk (of Internet business) being captured by big businesses like Amazon.com, there is a lot of opportunity for specialty products online," he said. "It clearly states that we need to fill niche markets, as we always have, around mega-stores."

Something in the mega-stores that you won't find on the Internet is sales tax. In October 1998, the U.S. Congress passed the Internet Tax Freedom Act, which put a three-year moratorium on state and local Internet taxes.

While that may be good for consumers, it is not at all good for communities where sales tax makes up a sizable portion of a city's revenue.

Kenai Mayor John Williams is concerned about that. He said the estimated $6 million spent on the Internet by peninsula residents last year cost the city $180,000 in sales tax revenue.

"Industry estimates are that $12 million will be spent this year," Williams said. "That equates to $360,000 in lost sales tax revenue, which is the equivalent of one full mill of property tax."

Given the fact that Alaskans are prone to buying through catalogs, have so many computers and are hooked up to the Internet in large numbers, Williams speculated that the loss to the local economy could be even greater.

"We're after the federal government to allow the tax, but Congress is reluctant," Williams said.

As part of the Internet Tax Freedom Act, the Advisory Commission on Electronic Commerce was created to come up with recommendations regarding Internet taxation. The act expires in October 2001.



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