Federal Register, Volume 68 Issue 65 (Friday, April 4, 2003)

[Federal Register Volume 68, Number 65 (Friday, April 4, 2003)]
[Rules and Regulations]
[Pages 16405-16409]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-8169]

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Rules and Regulations
Federal Register
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Federal Register / Vol. 68, No. 65 / Friday, April 4, 2003 / Rules
and Regulations

[[Page 16405]]

SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN: 3245-AE98

Small Business Size Standards; Tour Operators

AGENCY: U.S. Small Business Administration (SBA).

ACTION: Final rule.

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SUMMARY: The U.S. Small Business Administration (SBA) is adopting its
proposed modification to the way average annual receipts are calculated
for firms in the Tour Operators industry (North American Industry
Classification System 561520). This change excludes funds received in
trust for unaffiliated third parties from the calculation of a tour
operator's receipts. The SBA is retaining the current size standard of
$6 million in average annual receipts, as proposed.

DATES: This rule is effective May 5, 2003.

FOR FURTHER INFORMATION CONTACT: Robert N. Ray, Economist, Office of
Size Standards, (202) 205-6618.

SUPPLEMENTARY INFORMATION: On October 2, 2002, in response to industry
requests, the SBA issued a proposed rule that would modify the way
average annual receipts are calculated for firms in the Tour Operators
industry (North American Industry Classification System (NAICS)
561520), while retaining the size standard of $6 million (67 FR 61829).
Under the SBA's Small Business Size Regulations (13 CFR 121.104), the
receipts of a firm are based on information reported on a firm's
Federal tax returns. Generally, receipts reported to the Internal
Revenue Service (IRS) include a firm's gross receipts from the sale of
goods and services and all other sources of income. The SBA proposed to
exclude from the calculation of average annual receipts, those receipts
that are collected for other parties (primarily to the actual
transportation and lodging providers) for purposes of determining the
size and eligibility of a tour operator for the SBA's assistance. Based
on a review of industry practices, the SBA agreed with industry
commentators that certain types of receipts should be excluded from the
calculation of size for firms in this industry.
Related to this issue, the SBA also considered whether the current
size standard continues to be appropriate if receipts collected for
third party reimbursement are excluded from a firm's gross receipts.
Based on a review of industry data discussed in the proposed rule, the
SBA believes the current size standard is appropriate even if size is
measured on an adjusted basis rather than by gross receipts. For more
information on the size standard analysis of the Tour Operators
industry, and the justification for excluding receipts held in trust
for payment to transportation and lodging providers, see the October 2,
2002, proposed rule.
Comments on the proposed rule all supported the revised method of
calculating the average annual receipts of a tour operator and
retaining the $6 million size standard. Accordingly, the SBA is
revising its size standard measure for the Tour Operators industry by
excluding funds received in trust for unaffiliated third parties, while
retaining the size standard of $6 million.

Discussion of Comments on the Proposed Rule

The SBA received six comments to the proposed rule. Four comments
were from firms in the industry, one comment was from a travel agency,
and one was from members of Congress (six U.S. Representatives co-
signed a single comment letter).
In summary, all six commentators supported the change to $6 million
in adjusted annual receipts. They all, however, had the following two
additional recommendations:
(1) The SBA should extend the application period for its Economic
Injury Disaster Loan (EIDL) Program for 60 days after the size standard
is revised; and
(2) The SBA should clarify that trust receipts do not refer to
formal legal trusts.

Response to Issues Raised by the Comments

The comments expressed the concern that many tour operators
continue to need assistance as a result of the September 11, 2001,
terrorist attacks, but had not applied for EIDL assistance because they
exceeded the gross receipts size standard. The EIDL program provides
assistance to businesses that have suffered substantial economic
injury, regardless of physical damage, and is located in a declared
disaster area. The SBA extended the deadline for submitting an
application for EIDL assistance for the September 11, 2001, terrorist
attacks until January 31, 2003, for businesses located in the
presidentially designated disaster areas of New York and Northern
Virginia. However, for areas outside of the area of the physical
declaration, the SBA's extension period expired on September 30, 2002.
With a revision to the size standard, the commentators recommended that
the SBA extend the EIDL application deadline for 60 days after the
implementation of the size standard, to afford the newly eligible tour
operators an opportunity to apply for EIDL assistance.
The SBA will not grant an extension of the EIDL deadline for tour
operators. The SBA carefully considered the reasons presented by the
commentators to extend the application deadline, but has elected not to
adopt that recommendation.
The comments also recommended that the SBA clarify that ``trust
receipts'' do not require the creation of a formal legal trust. In
determining the receipts of a tour operator and other specifically
identified activities, footnote 10 of the size standards table allows
for the exclusion of ``funds received in trusts for an unaffiliated
third party, such as books subject to commissions'' (13 CFR 121.201).
The language of this provision does not require the creation of a legal
trust. The SBA follows the ``law of agency'' in determining whether
receipts may be excluded. If money is received under a claim of right,
it must be included as the firm's receipts. If, on the other hand, it
is received as an agent for another, the money is excluded (see Size
Appeal of Mid-Columbia Engineering, SBA No. 4134, (1996)). Thus, the
current provision does not require that the excludable funds be passed
through a legal trust.

[[Page 16406]]

Compliance With Executive Orders 12866, 12988, and 13132, the Paperwork
Reduction Act (44 U.S.C. Ch. 35), and the Regulatory Flexibility Act (5
U.S.C. 601-612)
The Office of Management and Budget (OMB) has determined that this
final rule is a ``significant'' regulatory action for purposes of
Executive Order 12866. Size standards determine which businesses are
eligible for Federal small business programs. This is not a major rule,
however, under the Congressional Review Act, 5 U.S.C. 800. For the
purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA has
determined that this rule would not impose new reporting or record
keeping requirements. For purposes of Executive Order 13132, the SBA
has determined that this rule does not have any federalism implications
warranting the preparation of a Federalism Assessment. For purposes of
Executive Order 12988, the SBA has determined that this rule is
drafted, to the extent practicable, in accordance with the standards
set forth in that order. Our Regulatory Impact Analysis follows.

Regulatory Impact Analysis

1. Is There a Need for the Regulatory Action?

The SBA is chartered to aid and assist small businesses through a
variety of financial, procurement, business development, and advocacy
programs. To effectively assist intended beneficiaries of these
programs, the SBA must establish distinct definitions of which
businesses are deemed small businesses. The Small Business Act (15
U.S.C. 632(a)) delegates to the SBA Administrator the responsibility
for establishing small business definitions. It also requires that
small business definitions vary to reflect industry differences. The
preamble of the proposed rule explained the approach the SBA follows
when analyzing a size standard for a particular industry as well as the
criteria used to determine whether to use adjusted receipts. Based on
that analysis, the SBA believes that a change in the way receipts are
measured for businesses in the Tour Operators industry is needed to
better reflect their size and activities.

2. What Are the Potential Benefits and Costs of This Regulatory Action?

The most significant benefit to businesses obtaining small business
status as a result of this rule is eligibility for Federal small
business assistance programs. Under this rule, 238 additional firms
generating 21 percent of sales in the industry will obtain small
business status and become eligible for these programs. These include
the SBA's financial assistance programs, economic injury disaster loans
and Federal procurement preference programs for small businesses, 8(a)
firms, small disadvantaged businesses, and small businesses located in
Historically Underutilized Business Zones (HUBZone), as well as those
awarded through full and open competition after application of the
HUBZone or small disadvantaged business price evaluation preference or
adjustment. Through the assistance of these programs, small businesses
may benefit by becoming more knowledgeable, stable, and competitive
businesses.
Other Federal agencies also use the SBA size standards for a
variety of regulatory and program purposes. However, discussions with
industry representatives identified no other uses of the SBA's tour
operators size standard. If such a case exists where the SBA's size
standard is not appropriate, an agency may establish its own size
standards with the approval of the SBA Administrator (see 13 CFR
121.902).
The benefits of a size standard change to a more appropriate level
would accrue to three groups: (1) Businesses that benefit by gaining
small business status from the higher size standards that also use
small business assistance programs; (2) growing small businesses that
may exceed the current size standards in the near future and who will
retain small business status from the higher size standard; and (3)
Federal agencies that award contracts under procurement programs that
require small business status. Although there may be some procurements
that are awarded to tour operators, the SBA's research was unable to
find any Federal contracting awards reported during the last 3 fiscal
years.
Newly defined small businesses could benefit from the SBA's 7(a)
Guarantee Loan Program. The SBA estimates that three additional loans
totaling approximately $0.6 million in new Federal loan guarantees
would be made to these newly defined small businesses. This represents
21 percent (the percentage increase in coverage of sales in the
industry by firms under the higher ``real'' size standard) of the $2.9
million yearly average in loans that were guaranteed by the SBA in this
industry under these two financial programs from fiscal years 1999 to
2001. These additional loan guarantees, because of their limited
magnitude, will have virtually no impact on the overall availability of
loans for the SBA's loan programs, which have averaged about 50,000
loans totaling more than $12 billion per year in recent years.
The newly defined small businesses would also benefit from the
SBA's EIDL program. Since this program is contingent upon the
occurrence and severity of a disaster, no meaningful estimate of
benefits can be projected from future disasters. However, for the
terrorist attacks of September 11, 2001, the SBA has declined 11
applicants based on size. Many of these companies would likely qualify
if pass-through receipts were excluded from a firm's measure of size in
this industry. In addition, out of the newly eligible tour operators,
six more loans would likely be approved. Based on an analysis of the
September 11, 2001, EIDL assistance, this rule may result in $607,000
in additional loans.
Federal agencies may benefit from the higher size standards if the
newly defined and expanding small businesses compete for more set-aside
procurements. However, no Federal contracting has been reported for
fiscal years 1999-2001 in the Tour Operators industry and there will be
no procurement gains from a higher size standard in this industry for
Federal agencies if this pattern continues.
To the extent that up to 238 additional firms could become active
in Federal small business programs, this may entail some additional
administrative costs to the Federal Government associated with
additional bidders for Federal small business procurement programs,
additional firms seeking SBA guaranteed lending programs, and
additional firms eligible for enrollment in SBA's PRO-Net data base
program. Among businesses in this group seeking SBA assistance, there
could be some additional costs associated with compliance and
verification of small business status and protests of small business
status. These costs are likely to generate minimal incremental
administrative costs since mechanisms are currently in place to handle
these administrative requirements.
The costs to the Federal Government may be higher on some Federal
contracts as a result of this rule. However, any analysis of costs is
dependent on contracting in this industry and the last three fiscal
years have had no Federal contracting in this industry. The SBA is
assuming that this trend will continue and there will be no contracting
activity in this industry in the near future.
The SBA believes that there will be no distributional effects among
large and small businesses, nor will there be any equity or uncertainty
considerations as

[[Page 16407]]

a result of this rule. With the small amount of lending to tour
operators discussed above, it is unlikely that they would be denied SBA
financial assistance due to a larger pool of eligible small businesses.
Also, there is little or no Federal contracting in this industry to
have an effect on another business.
The revision to the current size standard for tour operators is
consistent with the SBA's statutory mandate to assist small business.
This regulatory action promotes the Administrator's objectives. One of
the SBA's goals in support of the Administrator's objectives is to help
individual small businesses succeed through fair and equitable access
to capital and credit, Government contracts, and management and
technical assistance. Reviewing and modifying size standards, when
appropriate, ensures that intended beneficiaries have access to small
business programs designed to assist them. Size standards do not
interfere with State, local, and tribal governments in the exercise of
their government functions. In a few cases, state and local governments
have voluntarily adopted the SBA's size standards for their programs to
eliminate the need to establish an administrative mechanism to develop
their own size standards.

Final Regulatory Flexibility Analysis

Under the Regulatory Flexibility Act (RFA), this rule may have a
significant impact on a substantial number of small entities engaged in
the Tour Operators industry. As described in the Regulatory Impact
Analysis, this rule may impact small entities seeking SBA (7a)
Guaranteed Loans or EIDL loans, but it is unlikely to affect SBA's
procurement preference programs because of the absence of Federal
contracting in this industry. Newly defined small businesses would
benefit from the SBA's 7(a) Guaranteed Loan Program. The SBA estimates
that three additional loans totaling approximately $0.6 million in new
Federal loan guarantees could be made to these newly defined small
businesses. This represents 21 percent (the percentage increase in
coverage of sales in the industry by firms under the higher ``real''
size standard) of the $2.9 million yearly average in loans that were
guaranteed by the SBA in this industry under these two financial
programs in fiscal years 1999-2001. These additional loan guarantees,
because of their limited magnitude, will have virtually no impact on
the overall availability of loans for SBA's loan programs, which have
averaged about 50,000 loans totaling more than $12 billion per year in
recent years.
The size standard may also affect small businesses participating in
programs of other agencies that use the SBA size standards. As a
practical matter, however, the SBA cannot estimate the impact of a size
standard change on each and every Federal program that uses its size
standards. However, discussions with a major tour operators association
indicate that there are no Federal laws or regulations using SBA's size
standards for defining small tour operators. In cases where an SBA size
standard is not appropriate, the Small Business Act and SBA's
regulations allow Federal agencies to develop different size standards
with the approval of the SBA Administrator (13 CFR 121.902). For
purposes of a regulatory flexibility analysis, agencies must consult
with SBA's Office of Advocacy when developing different size standards
for their programs. (13 CFR 121.902(b)(4)).
Immediately below, SBA sets forth a final regulatory flexibility
analysis (RFA) of this rule on the Tour Operators industry addressing
the reasons and objectives of the rule; the SBA's description and
estimate of small entities to which the rule will apply; the projected
reporting, record keeping, and other compliance requirements of the
rule; the relevant Federal rules which may duplicate, overlap or
conflict with the rule; and alternatives to the final rule considered
by the SBA that minimize the impact on small businesses.

(1) What Is the Need for and Objective of the Rule?

The revision to the size standard for tour operators to exclude
third party reimbursements more accurately measures the magnitude of
operations of a tour operator. The SBA has developed five criteria to
assess whether businesses in an industry should be allowed to exclude
funds held in trust for third parties. These five criteria were
discussed in detail in the October 2, 2002, proposed rule. Tour
Operators met the test for each criterion. The SBA found that tour
operators consistently act as agents for their clients by arranging
travel and related activities provided by third parties. Well over a
majority of a tour operator's receipts collected from clients are
provided to third party providers. Therefore, a size standard allowing
for the exclusion of third party reimbursements is considered a better
measure of a tour operator's size than gross receipts.

(2) What Significant Issues Were Raised by the Public Comments in
Response to the Initial Regulatory Flexibility Act (IRFA)?

All of the commentators suggested that the SBA should extend the
application period for its EIDL program for 60 days after this size
standard is revised. The SBA is considering this suggestion. However,
this decision is not related to this rule which focuses on the measure
of size and the appropriate size standard for the Tour Operators
industry. All of the commentators also recommended that the SBA clarify
that ``trust receipts'' do not require the creation of a formal legal
trust. However, there is no reference in the SBA's regulations
requiring a formal legal trust, and the SBA follows the law of agency
in determining whether receipts are excluded. Thus, the current
provision does not require that excludable funds be passed through a
legal trust.

(3) What Is SBA's Description and Estimate of the Number of Small
Entities to Which the Rule Will Apply?

Within the Tour Operators industry, 2,722 businesses out of 3,222
(84.5 percent) have been defined as small using unadjusted annual
receipts. The SBA estimates 238 additional tour operators would be
considered small as a result of this rule based on the U.S. Census
Bureau's special tabulation of the 1997 Economic Census for SBA's
Office of Size Standards. These businesses would be eligible to seek
available SBA assistance provided that they meet other program
requirements. Firms becoming eligible for SBA assistance as a result of
this rule cumulatively generate $600 million in this industry, out of a
total of $2.8 billion in annual receipts. The small business coverage
in this industry would increase by 21 percent of total industry
receipts and by 7.4 percent of the total number of tour operators. Only
a small proportion of these newly eligible businesses are likely to
utilize SBA programs, however, almost exclusively in the area of
financial assistance. For fiscal years 1999--2001, only 63 loans
totaling $8.7 million were made under SBA's 7(a) program. As a result
of the terrorist attacks of September 11, 2001, the SBA made 121 EIDL
loans totaling $12.3 million.

(4) Will This Rule Impose Any Additional Reporting or Record Keeping,
or Other Compliance Requirements on Small Business?

A new size standard does not impose any additional reporting,
record keeping

[[Page 16408]]

or other compliance requirements on small entities for SBA programs. A
change in a size standard would not create additional costs on a
business to determine whether or not it qualifies as a small business.
A business needs to only examine existing information to determine its
size, such as Federal tax returns, payroll records, and accounting
records. Size standards determines ``voluntary'' access to the SBA and
other Federal programs that assist small businesses, but does not
impose a regulatory burden as they neither regulate nor control
business behavior. In addition, this rule does not impose any new
information collecting requirements from the SBA which requires
approval by OMB under the Paperwork Reduction Act of 1980, U.S.C. 3501-
3520.

(5) What Are the Steps the SBA Has Taken To Minimize the Significant
Economic Impact on Small Business?

Most of the economic impact on small businesses will be positive.
The most significant benefits to businesses that will obtain small
business status as a result of this rule are eligibility for SBA's
financial assistance programs such as 7(a) business loans, 504 business
loans, and EIDL assistance. Normally, firms gain from eligibility for
the Federal Government's procurement preference programs for small
businesses. In this case, however, the SBA anticipates no impact based
on the fact that there has been no Federal contracting in this industry
over the last three completed fiscal years. In addition, the projected
increase in 7(a) business loans of three additional loans totaling
approximately $0.6 million in new Federal loan guarantees will have
virtually no impact on the overall availability of loans for SBA's loan
programs, which have averaged about 50,000 loans totaling more than $12
billion per year in recent years.

(6) What Alternatives Were Considered by the SBA To Accomplish Its
Regulatory Objectives While Minimizing the Impact on Small Entities?

The SBA initially considered two alternatives in its proposed rule
(67 FR 61829, dated October 2, 2002). First, it considered the $3
million size standard proposed for the Travel Agencies industry that
the SBA also measures on an adjusted receipts basis. The SBA also
considered retaining gross receipts to measure the size of a tour
operator and adjusting the size standard to a higher level. These two
alternatives were discussed in the proposed rule.
The SBA decided not to adopt either of these alternatives in this
final rule. The industry characteristics of the Tour Operators industry
clearly show that a $3 million size standard is too low. Also, an
appropriate size standard based on gross receipts may harm small
businesses. The SBA calculates the size of a tour operator from its
Federal tax returns. Some tour operators may report receipts
differently for tax purposes, which could result in two tour operators
doing the same amount of business being treated differently for small
business status. No comments were received, however, in favor of these
alternatives, and all of the commentators supported the change in
receipts definition.

List of Subjects in 13 CFR Part 121

Administrative practice and procedure, Government procurement,
Government property, Grant programs--business. Loan programs'business,
Small businesses.

0
For the reasons set forth in the preamble, the U.S. Small Business
Administration amends part 121 of title 13 of the Code of Federal
Regulations as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

0
1. The authority citation for part 121 continues to read as follows:

Authority: 15 U.S.C. 632(a), 634(b)(6), 637(a), 644(c) and
662(5) and Sec. 304, Pub.L. 103-403, 108 Stat.4175, 4188.
0
2. In Sec. 121.201, in the table under ``Small Business Size Standards
by NAICS Industry'':
a. Under the heading Subsector 561--Administrative and Support
Services, revise entry 561520 to read as follows; and
b. Revise footnote 10 to read as follows:

Sec. 121.201 What size standards has SBA identified by North American
Industry Classification System codes?

* * * * *

Small Business Size Standards by NAICS Industry
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Size Size
standards in standards in
NAICS codes NAICS U.S. industry title millions of number of
dollars employees
----------------------------------------------------------------------------------------------------------------

* * * * * * *
Subsector 561--Administrative and Support Services
----------------------------------------------------------------------------------------------------------------

* * * * * * *
561520..................................... Tour Operators\10\................. ......\10\ ..............
$6.0

* * * * * * *
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[[Page 16409]]

* * * * *

Footnotes

* * * * *
10. NAICS codes 488510 (part) 531210, 541810, 561510, 561520,
and 561920--As measured by total revenues, but excluding funds
received in trust for an unaffiliated third party, such as bookings
or sales subject to commissions. The commissions received are
included as revenues.

* * * * *

Dated: March 6, 2003.
Hector V. Barreto,
Administrator.
[FR Doc. 03-8169 Filed 4-3-03; 8:45 am]
BILLING CODE 8025-01-P