Purpose. The Annual Business Survey (ABS) provides information on selected economic and demographic characteristics for businesses and business owners by sex, ethnicity, race, and veteran status. Further, the survey measures research and development (R&D) for microbusinesses, business topics such as innovation and technology, and other business characteristics. The ABS is conducted jointly by the Census Bureau and the National Center for Science and Engineering Statistics (NCSES) within the National Science Foundation (NSF). The ABS replaces the quinquennial Survey of Business Owners for employer businesses, the Annual Survey of Entrepreneurs, the Business R&D and Innovation for Microbusinesses Survey, and the Innovation section of the Business R&D and Innovation Survey.

The ABS is designed to incorporate new content each survey year based on topics of relevance. For the 2022 ABS, content includes company information, owner characteristics, research activities at nonprofit organizations, R&D, technology, innovation, financing, and management practices. R&D data are collected on the ABS for businesses with a W-2 employment range between one and nine employees.

Data collection authority. Title 13, U.S. Code, Sections 8(b), 131, and 182; Title 42, U.S. Code, Sections 1861–76 (NSF Act of 1950, as amended); and Section 505 within the America COMPETES Reauthorization Act of 2010, authorize this collection. Sections 224 and 225 of Title 13 require mandatory response. Office of Management and Budget (OMB) No. 0607-1004.

Survey sponsor. NCSES within NSF.

Survey collection and tabulation agent. The survey is conducted annually by the Census Bureau in accordance with an interagency agreement with NCSES within NSF.

Frequency. Annual.

Initial survey year. Calendar year 2017; for innovation, the reference period was 2015–17.

Reference period. Calendar year 2021; for innovation, the reference period was 2019–21.

Response unit. Nonfarm businesses in the United States.

Sample or census. Sample.

Population size. A total of 4.9 million employer firms; approximately 505,000 firms with one to nine employees and in North American Industry Classification System (NAICS) industries 31–33 (manufacturing), 42 (wholesale trade), 51 (information), 5413 (architectural, engineering, and related services), 5415 (computer systems design and related services), or 5417 (scientific research and development services) were in scope for the R&D module.

Sample size. 300,000 employer businesses.

Target population. Included are all nonfarm businesses filing Internal Revenue Service (IRS) tax forms as individual proprietorships, partnerships, or any type of corporation and with receipts of $1,000 or more. The target population included only companies that had paid employees according to the IRS Form 941 that covered 12 March 2022, are classified in an in-scope NAICS industry, were physically located in the United States, and were in business at the end of calendar year 2022. The ABS covers firms with paid employees only. The ABS is conducted on a company or firm basis rather than an establishment basis.

Sampling frame. The sampling universe was constructed from the final 2020 Business Register. The Business Register is the Census Bureau’s comprehensive database of U.S. businesses. Business Register data are compiled from a combination of business tax returns, data collected from the economic census, and data from other Census Bureau surveys. The Business Register includes sole proprietorships, partnerships, and corporations reporting business activity to the IRS on any one of the following IRS tax forms: 1040 (Schedule C), “Profit or Loss from Business” (Sole Proprietorship); 1065, “U.S. Return of Partnership Income”; 941, “Employer’s Quarterly Federal Tax Return”; 944, “Employer’s Annual Federal Tax Return”; or any one of the 1120 corporate tax forms.

The Business Register contains establishments that are out of scope for the ABS sample. These establishments are removed from the sampling universe. They include the following:

• Establishments engaged in the following NAICS industries:
• 110000, 111, or 112 - Agriculture production
• 482 - Railroads
• 491 - U.S. Postal Service
• 521 - Monetary authorities—central bank
• 525 - Funds, trusts, and other financial vehicles
• 813 - Religious, grantmaking, civic, professional, and similar organizations
• 814 - Private households
• 92 - Public administration
• Unclassified with legal form of organization as tax exempt or unknown
• Establishments located in American Samoa, Northern Mariana Islands, Guam, Puerto Rico, or the U.S. Virgin Islands
• Establishments belonging to foreign entities
• Government establishments
• Establishments with zero payroll and zero employment
• Establishments identified as out of business during prior year data review
• Single-unit establishments modeled as likely to be out of business using administrative data from the most recent monthly Business Register data sets

Information on industry classification, receipts, payroll, and employment was extracted from the Business Register during the frame construction.

The sample is also designed to estimate demographic characteristics of the business owners. To efficiently sample for demographic characteristics, a variety of sources of information are used to estimate the likelihood that a business is a woman- or minority-owned business. Administrative sources include the Decennial Census, the American Community Survey (ACS), and the Numident file, which is the Social Security Administration’s comprehensive database of information from Social Security applications. Individual business owners are identified through IRS K-1 filings for partnerships and corporations and from the Business Register for sole proprietorships. The owners are matched to the 2000 and 2010 Decennial Censuses to get race, sex, and ethnicity data; to the 2000–20 ACS; and to the Numident file (in that order) through a Protected Identification Key. Country of birth is also identified through the linkages to the ACS or Numident data. Each firm is then placed in one of the following eight strata describing characteristics of business owners for sampling: American Indian or Alaska Native, Asian, Black or African American, Hispanic, non-Hispanic White men, Native Hawaiian and Other Pacific Islander, publicly owned, and women owned. Businesses are assigned to one and only one stratum, with priority given to the less common race or ethnicity groups.

Sample design. The ABS frame is stratified by state, expected owner race or ethnicity, and industry and is systematically sampled within each stratum. A standard type of estimation for stratified systematic sampling is used. Large companies were selected with certainty based on volume of sales, payroll, or number of paid employees. Certainty cases have a selection probability of 1, a sampling weight of 1, and represent only themselves. Specifically for the 2022 ABS, firms were selected with certainty based on the following criteria:

• Firms in NAICS 5415 or 5417 with expected employment of fewer than 10 employees that reported at least $500,000 in R&D expenses in a prior year ABS,
• Firms in NAICS 5413, 31, 32, 33, 42, or 51 with expected employment of fewer than 10 employees that reported at least $50,000 in R&D expenses in a prior year ABS,
• Firms with more than 500 employees, or
• Firms larger than stratum-specific payroll and receipt cutoffs.

The certainty cutoffs vary by sampling stratum, and each stratum is sampled at varying rates, depending on the number and size of firms in a particular stratum.

The remaining frame is subjected to stratified systematic random sampling. Sampling rates vary by strata and are determined by the following calculations. Note that a systematic sample uses take rate to sample, and the sampling rate is 1/take rate.

The ABS sample consisted of 300,000 businesses. There were 46,000 selected with certainty. The certainty portion of the sample consisted of

• 5,000 with sufficient R&D expenses in previous cycles of the ABS,
• 17,000 with 500 or more employees,
• 16,000 with payroll above the stratum cutoff, and
• 8,000 with receipts above the stratum cutoff. (Note that payroll cutoffs are applied first so cases above both cutoffs appear in payroll count.)

The remaining 254,000 noncertainty cases were selected using the systematic stratified random sample selection. The maximum sample weight was 40.

Data collection. Prior to mailing the survey, certain businesses selected were determined to be out of scope and were not contacted. The survey was mailed to 300,000 employer businesses in July 2022. Businesses were sent a letter informing them of their requirement to report. The letter also provided instructions on how to access the survey and submit online. There were three mail follow-ups conducted to increase response. Additionally, the Census Bureau conducted e-mail follow-ups to respondents who entered the electronic system but did not submit the questionnaire. The collection period closed in January 2023.

Mode. The 2022 ABS was collected using a Web-based survey instrument.

Check-in rate. The check-in rate is defined as the unweighted number of surveys that were submitted online by in-scope companies, divided by the unweighted total number of all in-scope companies in the sample. Response to individual questions did not factor into this metric. At the close of the collection period in January 2023, there were 184,000 responses submitted (62% of the sample).

There were an additional 1,900 businesses that contacted the Census Bureau to indicate that the business was no longer in operation or had been sold for the reference year via the call center.

Businesses selected to report R&D represented 39% of those mailed. Of the businesses mailed and selected to report R&D, 71,000 businesses (or 65%) submitted responses.

Unit response rate (URR). The URR is the unweighted number of responding companies for the survey. For the ABS, response is defined as a company providing the number of owners, number of paid owners, and number of employees or a company responding that it ceased operations prior to 2021.

For the ABS, the URR was 67.0%. The URR for businesses eligible to report the R&D module was 70.3%.

Item response rates (IRR). The 2022 ABS collected data on approximately 650 variables, and the distribution of values reported by sample companies is highly skewed. Thus, rather than report unweighted item response rates, total quantity response rates are calculated, which are based on weighted data. The survey skip patterns vary for respondents; therefore, it can be impossible to know an exact denominator for item response calculations.

Total quantity response rate (TQRR). For a given published estimate other than count or ratio estimates, TQRR is the percentage of the weighted estimate based on data that were reported by units in the sample or on data that were obtained from other sources and were determined to be equivalent in quality to reported data and weighted only by sampling but not nonresponse weights. The TQRR for total sales in the United States in 2020 was 72.6%.

Total quantity nonresponse rate (TQNR). For a given published estimate, TQNR, defined as 100% minus TQRR, is calculated for each tabulation cell from the ABS, except for cells that contain count or ratio estimates. TQNR measures the combined effect of the procedures used to handle unit and item nonresponse on the weighted ABS estimate. Detailed imputation rates are available on request.

Data editing. Prior to tabulating the data, response data were reviewed and edited to correct reporting errors. R&D data were tabulated for records reporting $50,000 or more in R&D expenditures.

Additionally, R&D data were only tabbed for records classified in the following NAICS industries:

• 31–33 - Manufacturing
• 42 - Wholesale trade
• 51 - Information
• 5413 - Architectural, engineering, and related services
• 5415 - Computer systems design and related services
• 5417 - Scientific research and development services

Survey analysts reviewed the R&D reported by the survey respondents. Research was done by evaluating the reported business descriptions, reported R&D-to-sales ratio, and company website information. The majority of corrections involved false-positive reports or data reported using incorrect units (such as whole dollars instead of thousands of dollars). For NAICS industries 5415 and 5417, it is difficult to differentiate R&D from other technical work based solely on company website information. Due to this difficulty and the large number of companies sampled in these industries, it was not feasible to review each case individually; thus, relatively few corrections were made for false-positive reports. All cases were reviewed in these industries that had greater than $50,000 in R&D expenses.

Additional data errors were detected and corrected through mass corrections and an automated data edit system designed to review the data for reasonableness and consistency. The editing process interactively performed corrections by using standard procedures to fix detectable errors. Quality control techniques were used to verify that operating procedures were carried out as specified.

Unit nonresponse. Unit nonresponse is handled by adjusting weighted reported data as follows. Each company’s sampling weight is multiplied by a nonresponse adjustment factor. To calculate the adjustment factors, each company in the sample that is eligible for tabulation is assigned to one (and only one) adjustment cell. The adjustment cells are based on employment size and NAICS sector. For employment size, there are five categories: 1–4 employees, 5–9 employees, 10–49 employees, 50–249 employees, and 250 or more employees. For a given adjustment cell, the nonresponse adjustment factor is the ratio of the sum of the sampling weights for all companies in the cell to the sum of the sampling weights for all companies in the cell with reported data. The nonresponse adjustment factor for adjustment cell h was calculated as follows:

where

r is the respondents (partial and complete),

nr is the nonrespondents,

wgt is the original sampling weight value,

h is the nonresponse adjustment cell, and

NAF_h is the nonresponse adjust factor for cell h.

For the nonresponse adjustment, a business is considered a respondent if it provided the number of owners, number of paid owners, and number of employees. Businesses that responded they ceased operations prior to 2021 are excluded from nonresponse adjustments as out of scope.

Tabulation. Although as many firms as possible were identified as out of scope during sampling, additional out-of-scope firms were identified with either response or updated administrative data not available at the time of sampling. These 33,000 firms were removed for tabulations and include

• Firms reporting zero employment,
• Firms that responded as having gone out of business before 2021,
• Nonprofit organizations,
• Firms that responded as being owned by a domestic parent company, and
• Firms with unclassified NAICS industry.

Industry classification. The industry classifications of firms are based on the 2017 NAICS (https://www.census.gov/naics/). Firms with more than one domestic establishment are assigned a single industry classification using a hierarchal system based on the largest payroll sector, largest payroll 3-digit NAICS (within the largest sector), largest payroll 4-digit NAICS (within the largest 3-digit), and largest payroll 6-digit NAICS (within the largest 4-digit). For tabulation, industry classification was based on administrative data for 2017.

Geography. Firms with establishments operating in more than one state are tabulated as unclassified geography and counted only once in state and national totals.

Variance estimation. The ABS uses the delete-a-group jackknife variance estimator. Note that certainty cases do not contribute to the sampling variance. The delete-a-group jackknife variance estimator requires that every sampling stratum contains at least two sampled firms. Sampling strata that do not meet this requirement are collapsed as needed to create a new set of variance estimation strata that satisfies this requirement.

Data tables showing relative standard errors are available on request from the Survey Manager.

The estimates produced from the ABS are subject to both sampling and nonsampling errors.

Sampling error. The sampling error is described above in the variance estimation section.

Coverage error. Coverage error occurs when the frame fails to completely enumerate the population of interest. There can be both undercoverage error, where units are not included in the frame, and overcoverage error, where units included in the frame are actually out of scope for the population of interest. The ABS uses the prior-year Business Register to construct the frame, so any changes in businesses that would change the inclusion or exclusion of the business to the survey scope could be sources of coverage error. Prior to tabulation, survey units’ information is updated with the most recently available Business Register data to mitigate this source of error.

Nonsampling error. All surveys and censuses have nonsampling errors. Nonsampling errors are attributable to various sources, such as the inability to obtain information for all cases in the universe, imputation for missing data, data errors and biases, mistakes in recording or keying data, errors in collection or processing, and coverage problems.

Although explicit measures of the effects of these nonsampling errors are not available, adjustments are made to the published relative standard errors to account for errors associated with imputation of missing data. It is believed that most of the important operational and data errors were detected and corrected through an automated data edit designed to review the data for reasonableness and consistency. Quality control techniques were used to verify that operating procedures were carried out as specified.

Measurement error. The most common source of measurement error was reporting in different units (e.g., reporting whole dollars rather than thousands of dollars). Variations in respondent interpretations of the definitions of R&D activities are of particular concern, and error can occur when respondents do not report dollar amounts correctly. Little public information exists for most of the small businesses surveyed by the ABS, so it is difficult to determine whether companies are reporting R&D that satisfies the survey's definitions, particularly where the development of software and Internet applications are concerned. Although no metric of measurement error is produced, ongoing efforts to minimize measurement error include questionnaire pretesting, improvement of questionnaire wording and format, inclusion of more cues and examples in the questionnaire instructions, telephone interviews and consultations with respondents, and post-survey evaluations.

Some estimates from the 2022 ABS may not be directly comparable to prior ABS results due to changes in survey methodology. Sources of possible incomparability include changes to questionnaire wording and instructions, changes to data editing and tabulation, and changes to imputation and nonresponse adjustments.

Changes in survey coverage and population. There were no changes to survey coverage and population for reference year 2021 (ABS 2022).

Changes to questionnaire wording and instructions. The survey section that collected information on R&D from businesses (section D) had nearly identical question wording and instructions for both the ABS 2021 and the ABS 2020 questionnaires. The 2022 ABS collected additional detail from businesses on the location of R&D performance and explicitly highlighted the concept of “domestic R&D performance.” For the 2022 ABS detailed questions about R&D expenditures (types of costs, funding sources, and R&D categories) were tied to domestic R&D performance (a subset of total R&D costs), whereas previous ABS questionnaires asked similar questions tied to total R&D costs.

The following are survey changes in the questionnaire from ABS 2021 to ABS 2022; question number references are in reference to the ABS 2022:

• New question: B.15 Owner Disability (added for all owners)
• New question: C.11 Research Performance by Type of Cost
• New questions: C.17–C.19 Additional questions on Capital Expenditures for Research Activities at Nonprofit Organizations
• New questions: D.10–D.12 Additional questions on Capital Expenditures for businesses with 1–9 employees
• New question: D.18 State Tax Credit for Research Activities
• New section E: Goods, Services, and Business Processes and Technology
• New section F: Design and Intellectual Property
• New section G: Domestic and Foreign Transactions
• Revised section H: Coronavirus Pandemic Impact on Research and Development and Business Activities
• Removed question: H.5 Outsourcing R&D Expenditures Due to the Coronavirus Pandemic
• New question: H.5 Changing R&D Payment Due to the Coronavirus Pandemic
• New question: H.6 Effect of Coronavirus Pandemic on Business Sales
• New question: H.7 Financial Health of the Business
• New question: H.8 Outstanding Debt for the Business

• New question: H.9 Level of Operations During the Coronavirus Pandemic

Changes in reporting procedures or classification. There were no changes to reporting procedures or classification for data year 2021.

Changes to data editing and tabulation. For data collected in the R&D section of the ABS, every response with $50,000 or more in R&D costs was reviewed for reasonableness. All positive R&D cases were reviewed in industries with high rates of false-positive reports. Outside of the review for potential false-positive R&D cases, the editing of R&D data was performed similarly in 2020 and 2021. There have been no major changes to the edits from year to year.

Data collected in the innovation section of the ABS were edited similarly in 2018 and 2019, but the estimates for product innovation were tabulated differently. For 2017, a business must have responded positively to both the product innovation question and the subsequent business product innovation question (new to market or new to business) to be considered a product innovator. For 2021 and 2022, only a positive response to the question regarding new or improved goods or services was required to be tabulated as a product innovator.

Changes in imputation methods. In 2019, a change was made in how item nonresponse is treated in the ABS. Item nonresponse occurs when a company responds to the survey but leaves some items blank. In 2018, item nonresponse was treated using a combination of mode and donor imputation. For 2019 and future years (including 2021), no imputation was performed to treat item nonresponse, and missing items were included as no or zero in the estimates. For most of the estimates in 2019 (91%), this change in methods did not yield a change in the estimates. For an additional 9% of estimates, there was a difference in the estimate; the difference, however, was not statistically significant. In 2021, the imputation method was updated to exclude out-of-scope firms as donors and recipients. In previous ABS years, all sampled firms were included in imputation and out-of-scope firms were later removed.

Changes in collection methods. During the 2022 ABS collection period, a single letter was mailed to respondents using U.S. Postal Service Priority Mail. For the 2022 ABS, the third follow-up used First Class Mail.

• Affiliated (company or business). An entity that is owned 10% or more (based on voting interest or an equivalent interest) directly or indirectly by your company.
• Business processes. Business process includes the following: (1) methods for producing goods or providing services, (2) distribution and logistics, (3) marketing and sales, (4) information and communication systems, (5) administration and management activities, and (6) product and business process development (including activities to identify, develop, or adapt products or a firm’s processes).
• Core production activity. This term refers to your primary business activities. For manufacturing companies, core production typically involves production of physical goods. For service companies and other companies, core production refers to the main services or activities provided by your business, such as information and communications technology services, marketing services.
• Domestic or U.S.-located. Refers to a location in any of the U.S. 50 states and the District of Columbia.
• Employment. Paid employment consists of full- and part-time employees, including salaried officers and executives of corporations who were on the payroll in the pay period including March 12. Included are employees on sick leave, holidays, and vacations; not included are proprietors and partners of unincorporated businesses.
• Ethnicity. Based on OMB’s guidance, there are two minimum categories for ethnicity: Hispanic or Latino and Not Hispanic or Latino. OMB considers race and Hispanic origin to be two separate and distinct concepts. Hispanics and Latinos may be of any race.
• Exported goods. Value of goods, including the value of equipment, supplies, materials, etc. This should equal the amounts reported in the Automated Export System’s Electronic Export Information filed with U.S. Customs and Border Protection plus the cost of transporting the goods to customers located in foreign destinations (i.e., outside the United States).
• Exported services. An exported service is a service-related product (i.e., services performed, including digital service, license agreement) that is sold or transferred to, or performed for, customers (individual, government, business establishment, etc.) located in foreign destinations (i.e., outside the United States).
• Firm. A business organization or entity consisting of one or more domestic establishment locations under common ownership or control.
• Foreign affiliate. A foreign affiliate is an entity located outside the United States that is owned at least 10% (based on voting interest or an equivalent interest) directly or indirectly by the U.S. reporter.
• Foreign parent (of a U.S.-located business). The first entity outside the United States in an affiliate’s ownership chain that has a direct or indirect investment interest of more than 50% of the affiliate’s voting securities.
• Goods. Usually a tangible object (such as smartphone, furniture, or packaged software) but also includes digital goods (such as downloadable software, music, and film). Exclude the simple resale of new goods and changes of a solely aesthetic nature.
• Imported goods. The value of goods purchased from customers located in foreign destinations (i.e., outside the United States) as indicated in import declarations filed with the U.S. Customs and Border Protection.
• Imported services. An imported service is a service-related product (i.e., service performed, including digital service, license agreement) that is purchased from customers located in foreign destinations (i.e., outside the United States).
• Innovation. A business innovation is a new or improved product or business process (or combination thereof) that differs significantly from the firm’s previous products or business processes and that has been introduced on the market or brought into use by the firm.
• Intellectual property. Includes patents, processes, and trade secrets; books and music; trademarks; recorded performances and events, such as radio and television programs and motion pictures; broadcast and recorded live performances and events and their content; general use computer software; franchise fees; and other (e.g., digital media).
• Noise infusion. A method of disclosure avoidance in which values are perturbed prior to tabulation by applying a random noise multiplier to the magnitude data, such as the sales and receipts for all firms. Disclosure protection is accomplished in a manner that causes the vast majority of cell values to be perturbed by, at most, a few percentage points.
• North American Industry Classification System (NAICS). NAICS is the standard used by federal statistical agencies in classifying business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. business economy. This system is used by the United States, Canada, and Mexico.
• Race. The data on race were derived from answers to the race question. Race data are collected in accordance with the guidelines provided by OMB, and these data are based on self-identification. The racial categories included in the questionnaire generally reflect a social definition of race recognized in this country and are not an attempt to define race biologically, anthropologically, or genetically. In addition, it is recognized that the categories of the race question include race and national origin or sociocultural groups. OMB requires that race data be collected for a minimum of five groups: White, Black or African American, American Indian or Alaska Native, Asian, and Native Hawaiian or Other Pacific Islander. Respondents may report more than one race.
• Receipts. Includes the total sales, shipments, receipts, revenue, or grants for domestic operations, excluding foreign subsidiaries.
• Research and development (R&D). R&D is planned, creative work aimed at discovering new knowledge or devising new applications of available knowledge. This includes basic research, applied research, and development (see definitions below). R&D includes both direct costs, such as salaries of researchers, and administrative and overhead costs clearly associated with the company’s R&D. However, R&D does not include expenditures for routine product testing, quality control, and technical services unless they are an integral part of an R&D project. R&D also does not include market research; efficiency surveys or management studies; literary, artistic, or historical projects, such as films, music, or books and other publications; and prospecting or exploration for natural resources.
• Basic research. Activities aimed at acquiring new knowledge or understanding without specific immediate commercial applications or uses.
• Applied research. Activities aimed at solving a specific problem or meeting a specific commercial objective.
• Development. Systematic work, drawing on research and practical experience and resulting in additional knowledge, which is directed to producing new products or processes or to improving existing products or processes.
• R&D activity in software includes
• Software development or improvement activities that expand scientific or technological knowledge
• Construction of new theories and algorithms in the field of computer science
• R&D activity in software excludes
• Software development that does not depend on a scientific or technological advance, such as
• Supporting or adapting existing systems,
• Adding functionality to existing application programs,
• Routine debugging of existing systems and software, and
• Creation of new software based on known methods and applications.
• Conversion or translation of existing software and software languages; and
• Adaptation of a product to a specific client, unless knowledge that significantly improved the base program was added in that process.
• Services. Intangible activities, such as retailing, insurance, educational courses, air travel, consulting, etc.; also includes digital services. (Exclude the simple resale of new services.)
• Sex. For the purposes of the ABS, sex refers to a person’s biological sex. The sex question wording very specifically intends to capture a person’s biological sex and not gender.
• Unaffiliated (company or business). Entity that is owned less than 10%, directly or indirectly, by your company (i.e., independent contractors and suppliers).
• Worldwide sales. Worldwide and domestic sales and operating revenues, including grants.