My Dog is afraid to go Outside

Question
We adopted a sheltie puppy from a couple that lived way up in the mountains of PA.  The puppy was living outside in a small caged in area just on the outskirts of the woods.  He was 7 months old when we adopted him.  He has been with us now for about 5 months and we are experiencing problems with him going outside.  He is very timid and often times piddles either in the kitchen or in the garage BEFORE we can pick him up and physically take him outside.  He is frightened of loud noises and will run laps around the house until we let him back in the house.  Once he is back inside, he is a very, happy and playful little guy.  He has even peed on our bed when we go to pick him up to go outside.  Please help!  We really love him, but his bathroom etiquette is making us crazy!

Thanks!

Answer
Your dog is urinating out of fear of BEING PICKED UP.  STOP DOING IT.  He has very little socialization to human interaction (from your description of his origins) and also appears to have a very soft temperament (submissive.)  Instead of picking him up, put a body harness on him and a very short, lightweight nylon leash.  When approaching him, DO NOT bend over him (that's a very dominant posture); instead, scoot down to his level and use the handle of the short house tab to attach his normal leash and then take him outdoors.  He's not having "accidents", he's reacting out of fear and demonstrating submissive urination.  Happily for HIM, you seem to be a marvelous home and you've been able to habituate him to your household and turn him into a happy little guy.  The next step is to stop all overt dominance (picking him up, bending over him, making direct eye contact when walking toward him); learn about how to give (and observe) body signals to your dog to calm him by reading Turid Rugaas' excellent book, "On Talking Terms with Dogs: Calming Signals"; this book will help you enormously to deal with this dog in a manner that will completely extinguish any persistent insecurity and fear he may have.  You will also want to work with him, in short daily intervals, in some basic training.  Use positive reinforcement or play training (but don't use a clicker, he may be afraid of the sound: instead, put your finger to the tip of your nose as your cue).  Check out this site:
http://www.dogplay.com/Activities/obedience.html

The sheltie is a natural herding dog (and herd guarding dog) and LOVES to "work"; they make excellent agility dogs as well and that's a sport you can train at home and is fun for the entire family.  Check out this link:
http://www.agilityability.com/agility_training.htm

You can build your own agility course in your backyard or acquire some items fairly inexpensively:
http://www.affordableagility.com/

This gives your dog an entirely new perspective on himself, either basic training or agility will do it; it boots his confidence and increases the bond of trust between the dog and family members.  Have fun teaching him and he will reward you by being the adult dog you really want.