[Federal Register Volume 64, Number 142 (Monday, July 26, 1999)]
[Proposed Rules]
[Pages 40314-40319]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-19022]


-----------------------------------------------------------------------

SMALL BUSINESS ADMINISTRATION

13 CFR Part 121


Small Business Size Standards; Arrangement of Transportation of 
Freight and Cargo

AGENCY: Small Business Administration.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The Small Business Administration (SBA) proposes to modify the 
way average annual receipts are calculated for firms in the Arrangement 
of Transportation of Freight and Cargo industry (Standard Industrial 
Classification (SIC) code 4731). This rule would exclude funds received 
in trust for unaffiliated third parties from calculation of a firm's 
receipts. The current size standard for this industry, $18.5 million, 
is based on gross billings and is equivalent to a firm size of $1.85 
million in income from commissions and fees. SBA also proposes a size 
standard of $5 million in average annual receipts (after excluding 
funds received in trust for unaffiliated third parties). The revisions 
are proposed to better define the size of business in this industry 
that SBA believes should be eligible for Federal small business 
assistance programs.

DATES: Submit comments on or before September 24, 1999.

ADDRESSES: Send comments to Gary M. Jackson, Assistant Administrator 
for Size Standards, 409 3rd Street, S.W., Mail Code 6880, Washington 
D.C. 20416.

FOR FURTHER INFORMATION CONTACT: Patricia B. Holden, Office of Size 
Standards, (202) 205-6618 or (202) 205-6385.

SUPPLEMENTARY INFORMATION: SBA received requests from the public to 
review the size standard for the Arrangement of Transportation of 
Freight and Cargo industry (SIC 4731). These requests express concern 
about the way average annual receipts are calculated for freight 
forwarders and customs brokers in this industry.
    Under SBA's Small Business Size Regulations (13 CFR 121.104), the 
size of a firm for a receipts-based size standard is 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 or sales from provision of goods or services. The 
requesters believe that receipts collected for payment of charges 
imposed by the actual transportation provider or shipper should not be 
included in the calculation of a freight forwarder and customs broker's 
average annual receipts for size determination purposes.
    SBA evaluated this issue and agrees that certain types of receipts 
should be excluded from the calculation of size for firms in this 
industry. Related to this issue is whether the current size standard is 
appropriate if a significant proportion of receipts is excluded from a 
firm's gross receipts. In reviewing the size standard for this 
industry, SBA believes the current $18.5 million size standard is not 
appropriate if size is not measured by gross receipts.
    Accordingly, SBA proposes a revision to the size standard for the 
Arrangement of Transportation of Freight and Cargo industry by 
excluding funds received in trust for unaffiliated third parties and by 
changing the size standard from $18.5 million in average annual 
receipts (gross receipts) to $5 million (excluding funds received in 
trust for unaffiliated third parties). The following discussion 
explains the reasons for these two proposed revisions.

Calculation of Average Annual Receipts

    Although SBA reviews requests to exclude receipts of certain 
business activities on a case-by-case basis, the structure of the 
reviews is consistent with past proposed rules on this issue (e.g., 
advertising agencies, 57 FR 38452, and conference management planners, 
60 FR 57982). The reviews identify and evaluate five industry 
characteristics under which it might be appropriate to exclude certain 
funds received and later transmitted to an unaffiliated third party:
    1. A broker or agent-like relationship exists between a firm and a 
third party provider which is a dominant or crucial activity of firms 
in the industry;
    2. The pass-through funds associated with the broker or agent-like 
relationship are a significant portion of the firm's total receipts;
    3. Consistent with the normal business practice of firms in the 
industry, a firm's income remaining after the pass-through funds are 
remitted to a third party is typically derived from a standard 
commission or fee;
    4. Firms in this industry do not usually consider billings that are 
reimbursed to other firms as their own income, preferring instead to 
count only

[[Page 40315]]

receipts that are retained for their own use; and,
    5. Federal government agencies which engage in the collection of 
statistics and other industry analysts typically represent receipts of 
the industry firms on an adjusted receipts basis.
    SBA's review of information obtained on the Arrangement of 
Transportation of Freight and Cargo industry finds that these 
characteristics exist in the industry. These characteristics support 
the proposal to exclude funds received in trust for unaffiliated third 
parties from the calculation of a freight forwarder's or customs 
broker's receipts-size. The following discussion summarizes these 
findings.

1. Agent-Like Relationship

    The Standard Industrial Classification Manual (1987) states that 
this industry encompasses ``establishments primarily engaged in 
furnishing shipping information and acting as agents in arranging 
transportation for freight and cargo'' (See SIC 4731, page 280). About 
half of the establishments in this industry are freight forwarders and 
customs brokers who advise customers on the options for transporting 
cargo and coordinate the actual shipment of cargo. These firms act as 
agents, ensuring that customs, shippers and others for whom the funds 
are collected get paid. The remaining establishments are other types of 
agents and brokers and establishments that provide shipping 
information. Therefore, the dominant activity in this industry is 
carried out in a broker or agent-like relationship.

2. Pass-Through Funds Are a Significant Portion of Total Receipts

    It is common practice in the industry, although not mandatory, for 
the client's bill from the freight forwarder and customs broker to 
include charges of transportation providers, duties, etc., which are 
temporarily held in trust by the firm for remittance to the 
transportation provider, government agency, or other parties. The 
charges by other providers are stated on the bill. Moreover, these 
remitted funds are typically much larger in magnitude than the firm's 
own earnings for arranging the transportation. It is not unusual for 
the remitted funds to be over 90% of the total billing.

3. Remaining Income Is Derived From Standard Commission or Fee

    The freight forwarder or customs broker earns income as a 
commission from the transportation provider or as a fee for services 
from their customers. Only six percent to ten percent of the billings 
are income from commissions and fees.

4. Firms in This Industry Only Count Receipts Retained for Their Own 
Use

    Firms in this industry do not consider funds collected for 
unaffiliated third parties as their own funds. As discussed above, the 
role of freight forwarders and customs brokers is to facilitate the 
transportation of goods, not to act as the actual shipper. Their income 
is largely derived from commissions and fees provided by the underlying 
transporter from the payment of shipping charges paid on behalf of the 
customer. This payment structure shows that charges for shipping costs 
are not those of the freight forwarder or customs broker. This point is 
also reinforced by the fifth and final characteristic.

5. Federal Agencies and Industry Analysts Typically Represent Receipts 
of These Firms on an Adjusted Receipts Basis

    Finally, data from the U.S. Bureau of the Census (Census Bureau) on 
this industry that SBA uses to evaluate size standards show firm 
receipts on a commission or fee basis. The survey form used by the 
Census Bureau (UT 4700) when surveying freight forwarders, customs 
brokers, shipping agents, and other freight brokers or arrangers 
specifically instructs them to only report ``Agency or brokerage 
commissions or fees for arranging transportation of freight and cargo'' 
and ``Freight Forwarding (net)'' (UT 4700, Page 2, items 1 and 2).
    Thus, the Census Bureau recognizes that the normal arrangement in 
this industry is to handle money for others, retaining a small fraction 
as commission or fee income. Similarly, the credit reporting firm of 
Dun and Bradstreet also reports receipts for firms in this industry by 
using income derived from commission and fees, not gross billings.
    Based on these findings, SBA believes it is appropriate to exclude 
amounts collected on behalf of a third party when calculating receipts 
for firms in the Arrangement of Transportation of Freight and Cargo 
industry, as it presently does for real estate agencies, travel 
agencies, conference planners and advertising agencies. More 
specifically, charges by the shipper for transporting cargo, customs 
duties, and other direct fees associated with the cost of shipping 
cargo which the firm holds in trust for an unaffiliated third party and 
to which it does not have a claim of right would be excluded from gross 
receipts. Receipts from fees, commissions, and income derived from 
other activities would be attributable to the firm.

Size Standard for the Arrangement of Transportation of Freight and 
Cargo

    The above proposal effectively increases the current $18.5 million 
size standard. A firm with receipts exclusive of pass-throughs to third 
parties of $18.5 million would be equivalent to a firm with gross 
billings between $185 million to $308 million.
    Accordingly, SBA believes it is appropriate to re-evaluate the size 
standard along with its proposal to allow exclusions for certain types 
of pass-through funds. Based on that evaluation, SBA proposes a $5 
million size standard for this industry--net of pass-through funds. The 
following discussion describes SBA's size standards methodology and the 
evaluation of data on the Arrangement of Transportation of Freight and 
Cargo industry supporting a revision to the current size standard.

Size Standards Methodology

    Congress granted SBA discretion to establish detailed size 
standards. SBA's Standard Operating Procedure (SOP) 90 01 3 ``Size 
Determination Program'' sets out four categories for establishing and 
evaluating size standards:
    (1) The structure of the industry and its various economic 
characteristics.
    (2) SBA program objectives and the impact of different size 
standards on these programs.
    (3) Whether a size standard successfully excludes those businesses 
which are dominant in the industry, and
    (4) Other factors, if applicable.
    Other factors may come to SBA's attention during the public comment 
period or from SBA's own research on the industry. The reason SBA has 
not adopted a general formula or uniform weighting system is to ensure 
that the factors will be evaluated in context of a specific industry. 
Below is a discussion of SBA's analysis of the economic characteristics 
of an industry, the impact of a size standard on SBA programs, and the 
evaluation of whether a firm at or below a size standard could be 
considered dominant in the industry.

Industry Analysis

    In 13 CFR part 121.102 (a) and (b), evaluation factors are listed 
which are the primary factors describing the structural characteristics 
of an industry--average firm size, distribution of firms by size, 
start-up costs and entry barriers, and degree of industry competition. 
While these evaluation factors are generally considered the most 
important indicators of industry structure, SBA will consider and 
evaluate all relevant information that

[[Page 40316]]

would assist it in assessing an industry's size standard. Below is a 
brief description of the industry structure evaluation factors.
    1. Average firm size is simply total industry revenues (or number 
of employees) divided by the total number of firms. If an industry has 
an average firm size significantly higher than the average firm size of 
a group of comparative industries (in this case, industries with the 
anchor size standard of $5 million in receipts), this fact may support 
establishing a higher size standard than the one in effect for the 
group of related industries. Conversely, data showing an industry with 
a significantly lower average firm size relative to the related group 
of industries tends to support a lower size standard.
    2. The distribution of firms by size examines the proportion of 
industry sales, employment, or other economic activity accounted for by 
firms of different sizes within an industry. If the preponderance of an 
industry's output is by large firms, this would tend to support a 
higher size standard than the anchor. The opposite is true for an 
industry in which the distribution of firms by size indicates that 
output is concentrated among the smaller firms in an industry.
    3. Start-up costs affect a firm's initial size because entrants 
into an industry must have sufficient capital to start a viable 
business. To the extent that firms in an industry have greater start-up 
capital requirements than firms in other industries, SBA is justified 
in considering a higher size standard. As a proxy measure for start-up 
costs, SBA examines the average level of assets for firms in an 
industry. An industry with a relatively high level of average assets 
per firm as compared with the average assets per firm of the group of 
comparative industries with a $5.0 million size standard is likely to 
be a capital intensive industry in which start-up costs tend to be 
higher for firms entering the industry. For those types of industries, 
that circumstance may support the need for a relatively higher size 
standard than the anchor size standard.
    4. SBA assesses the degree of industry competition by measuring the 
proportion or share of industry sales obtained by firms above a 
relatively large firm size. In this proposed rule, SBA analyzes the 
proportion of industry sales generated by the four largest firms in an 
industry--generally referred to as the ``four-firm concentration 
ratio.'' If a significant proportion of revenue from sales within an 
industry is concentrated among a few relatively large producers, SBA 
tends to set a higher size standard to assist a broader range of firms 
to compete with firms that are clearly dominant in the industry. If 
this factor shows the industry to be highly competitive, SBA tends to 
apply the anchor.
    5. Competition for Federal procurements and SBA financial 
assistance. SBA also evaluates the impact of a size standard on its 
programs and other applications of size standards to determine whether 
small businesses defined under the existing size standard are receiving 
a reasonable level of assistance. This assessment mainly focuses on the 
proportion or share of Federal contract dollars awarded to small 
businesses. In general, the lower the share of Federal contract dollars 
awarded to small businesses in an industry which receives significant 
Federal procurement revenues, the greater is the justification for a 
size standard higher than the existing one.
    As another factor to evaluate the impact of a proposed size 
standard on SBA programs, the volume of guaranteed loans within an 
industry and the size of firms in that industry obtaining loans in 
SBA's financial assistance programs is considered when determining 
whether or not the current size standard may inappropriately restrict 
the level of financial assistance to firms in that industry. If small 
businesses receive ample assistance through these programs, a change to 
the size standard (especially if it is already above the anchor size) 
may not be appropriate.
    SBA established a size standard of 500 employees for the 
manufacturing and mining industries at SBA's inception in 1953 and 
shortly thereafter established a $1 million size standard for the 
nonmanufacturing industries. These two size standards are generally 
referred to as ``a base or anchor size standards.'' The revenue-based 
size standards were adjusted for inflation so that, currently, the 
anchor size for the nonmanufacturing industries is $5 million.
    If the structural characteristics of an industry are significantly 
different from the average characteristics of industries with the 
anchor size standard, a size standard higher or, in rare cases, lower 
than the anchor size standard may be supportable. Only when all or most 
of the industry data are significantly smaller than the average 
characteristics of the anchor group industries, or other industry 
considerations suggest the anchor standard is an unreasonably high size 
standard, will SBA adopt a size standard below the anchor size 
standard.
    Excluding agriculture and subsistence categories which for the most 
part have size standards established by statute, only seven industries 
in the revenue-based size standards are below the $5.0 million anchor 
and none in the manufacturing or mining industries is below the 500 
employee-based size standards.
    For the Arrangement of Transportation of Freight and Cargo industry 
under review in this proposed rule, SBA begins by comparing the 
characteristics of the five evaluation factors for this industry to the 
average characteristics of the nonmanufacturing industries which have 
the anchor size standard of $5 million (hereafter referred to as the 
nonmanufacturing anchor group). If the characteristics of the industry 
are similar to the average characteristics of the nonmanufacturing 
anchor group, then the anchor size standard of $5 million is considered 
an appropriate size standard for that industry. If, however, the 
industry characteristics significantly differ from the average 
characteristics of the nonmanufacturing anchor group, then a size 
standard above or below $5 million may be appropriate.

Evaluation of Industry Size Standard

    SBA analyzed the size standard for the Arrangement of 
Transportation of Freight and Cargo industry by comparing the 
industry's characteristics with the average characteristics of the 
nonmanufacturing group discussed above. SBA examined economic data on 
the industry using:
     A special tabulation of the 1992 Economic Census prepared 
on contract by the U.S. Bureau of the Census (which for the Arrangement 
of Transportation of Freight and Cargo industry collects revenue data 
based on commissions and fees, not gross billings);
     Asset data from Dun and Bradstreet's 1998 Industry Norms 
and Key Business Ratios (revenue data are also reported based on 
commissions and fees); and
     Federal contract award data for fiscal years 1997 and 1998 
from the U.S. General Services Administration's Federal Procurement 
Data Center.
     7(a) Business Loans from SBA's database.
    The table below shows the characteristics for the Arrangement of 
Transportation of Freight and Cargo industry compared to the average 
characteristics for the nonmanufacturing anchor group. A review of 
these factors leads to a proposed size standard of $5 million for this 
industry.

[[Page 40317]]



                                   Industry Characteristics of SIC 4731 Compared to the Nonmanufacturing Anchor Group
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Percent of industry-sales by firms of                               Percent of
                                                                         ---------------------------------------   Average                      gov't
                                                               Average                                            assets per    Four-firm    procurement
                          Category                            firm size                                            firm  ($   concentration   dollars to
                                                               ($ mil.)     <$5mil.      <$10mil.     <$25mil.      mil.)         ration        small
                                                                                                                                               business
--------------------------------------------------------------------------------------------------------------------------------------------------------
Nonmanufacturing Anchor Group..............................        $0.85         51.0         61.0         67.0         $0.5          15.0          21.0
Arrangement of Transportation of Freight & Cargo...........         0.94         52.5         61.8         70.9          0.2           5.7          50.1
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The average firm size in the Arrangement of Transportation of 
Freight and Cargo industry is very close to the average firm size of 
the nonmanufacturing anchor group, and supports a size standard at the 
$5 million anchor size standard. Similarly, the distribution of sales 
by firm size also supports a size standard for this industry at the 
anchor size standard. Under this factor, the proportion of industry 
sales obtained by firms of $5 million and less in sales, $10 million 
and less in sales, and $25 million and less in sales, is nearly 
identical with that of firms of the same size class found for the 
anchor nonmanufacturing group.
    The average assets per firm and the four-firm concentration ratio 
support a size standard no higher than $5 million. The average assets 
for firms in the Arrangement of Transportation of Freight and Cargo 
industry is less than half the average assets of the comparable 
nonmanufacturing industries in the anchor group. This factor indicates 
that the industry is not as capital intensive as those in the anchor 
group, and thus, would support a size standard moderately below the 
anchor of $5 million.
    The four-firm concentration ratio shows that the four largest firms 
in the Arrangement of Transportation of Freight and Cargo industry 
account for only about one-third of the proportion accounted for by the 
four-firm concentration of the anchor group. This factor shows the 
industry is already highly competitive. If a few large firms were 
controlling a large portion of the industry revenues, then raising the 
size standard above the anchor size standard might help smaller firms 
compete. However, when the industry is already competitive, as this one 
is, nothing would be gained in competitiveness by lowering the size 
standard. Therefore, we conclude that the four-firm concentration ratio 
does not support a standard higher than the anchor, but do not make the 
parallel argument supporting a size standard lower than the anchor.

Purpose of and Impact on SBA Programs

    The percent of Federal contract dollars awarded to small firms in 
the Arrangement of Transportation of Freight and Cargo industry during 
fiscal years 1997 and 1998 is more than twice as large as the share of 
Federal contracting going to small firms within the nonmanufacturing 
anchor group and does not seem to support an increase to the current 
size standard. In fiscal years 1997 and 1998, of the 208 actions 
reported by the Federal Procurement Data System, 97 went to small 
firms. While the 97 actions were 46.6% of the total actions, they were 
50.1% of the total contract dollars awarded, when the two years are 
combined. Assuming small businesses used gross billings (as required 
under the current size standard) when they identify themselves as 
``small,'' they had obtained a reasonable share of Federal 
procurements.
    However, SBA's review of preliminary data reveals that there may 
have been inconsistencies on how firms were self-certifying as small 
business that significantly affects how this factor should be assessed 
and the conclusions regarding an appropriate size standard. An industry 
association informed us that there is no standard way for firms to 
report revenues to the Internal Revenue Service. Whether they report 
gross billings and deduct pass-through funds as ``cost-of goods sold'' 
to arrive at gross or total income, or whether they report commissions 
and fees as gross or total income, the tax consequences are the same.
    For SBA size standard purposes, the different methods have 
different results. SBA procedures changed effective March 1996 making 
the Federal tax returns forms the predominant documentation for 
determining annual receipts. Historically, SBA has interpreted the size 
standard for SIC 4731 to be based on $18.5 million in gross billings 
without any deductions for pass-through funds. The proportion of 
contracts reported to small businesses in this SIC has doubled since 
SBA started using Federal tax returns for self-certifying to a revenue-
based size. When the procurement data are reviewed before and after 
that procedural change, it shows a big difference in proportion of 
contract dollars going to small businesses. The 50% share reported 
above is a two-year average for FY 1997 and 1998. In FY 1994 small 
businesses in SIC 4731 obtained 26.3%, 21.6% in FY 1995, 39.9% in FY 
1996.
    The procurement data suggests that the proportion of contracts 
reported to small business may have been overstated over the last two 
years as compared to how SBA prefers to define a small business in this 
industry. When considering that there is some evidence that awards 
reported to small businesses were likely made to businesses exceeding 
$18.5 million in gross revenues, it leads to some uncertainty about how 
to suitably evaluate this factor. If the small business awards were 
made only to firms with $18.5 million in gross billings (equivalent to 
$1.85 million in commissions and fees), the current size standard would 
be appropriate.
    However, SBA believes that some of the reported small business 
awards have been made to firms exceeding $18.5 million in gross billing 
(although these firms earned commissions and fees less than $18.5 
million). If so, a size standard higher than $18.5 million in gross 
billings or $1.85 million in commissions and fees would be supportable. 
Based on these considerations, SBA believes that a $5 million size 
standard measured in adjusted gross receipts (i.e., adjusted to exclude 
funds held in trust for unaffiliated third-parties) indicated by most 
of the industry factors would be a reasonable size standard in terms of 
its impact on Federal procurement. That size standard would likely 
result in a small business share no higher than currently shown, but 
would not return to the lower 1994-1995 levels either.
    Also, an increase to the size standard for this industry appears 
reasonable based on the distribution of SBA guaranteed loans under the 
7(a) program. In fiscal years 1997 and 1998,

[[Page 40318]]

small businesses in the Arrangement of Transportation of Freight and 
Cargo industry received approximately $14.5 million in loans per year. 
About 92% of the loans went to firms with 50 or fewer employees 
(equivalent to firms with less than $4 million in receipts) and they 
received $12 million per year in loans, or 83% of the value of 7(a) 
loans made to all firms in this industry.
    The percentage of firms and 7(a) loans to firms in this industry 
with less than 50 employees is similar but somewhat below the 
comparable percentages for all industries combined (96% of firms and 
93% of loans made to firms with less than 50 employees). A size 
standard of $5 million (equivalent to approximately 60 employees) could 
moderately expand the level of financial assistance SBA is currently 
providing to firms in this industry. Almost all new loans would likely 
go to firms in the 20 to 50 employee range, thereby raising the share 
of loans to firms with less than 50 employees in this industry closer 
to the average percentage for all industries combined. As with the 
Federal procurement data, the same size reporting uncertainties as 
discussed above may exist here. However, only a very few loans could 
have been made to firms exceeding the current size standard. Thus, the 
potential increase in 7(a) loans in this industry is expected to be 
modest and would support a $5 million size standard as one providing a 
reasonable level of assistance to small businesses in this industry.
    Considering these industry structure factors and the impact on SBA 
programs in the aggregate, SBA believes that the $5 million anchor size 
standard is reasonable and would provide assistance to firms we believe 
should be eligible as small business for this industry. Three of the 
industry factors support a size standard in-line with the 
nonmanufacturing anchor group and one industry factor supports a size 
standard lower than the anchor size standard. As discussed above, there 
exists some uncertainly on how to fully assess the program factor, 
especially for the Federal procurement data. However, $5 million 
appears to be a reasonable size standard for SBA programs. Without more 
of the factors pointing to a size standard lower than the anchor 
standard, and with no factor pointing to a higher size standard, we 
believe the anchor standard is a reasonable standard for this industry.

Dominant in Field of Operation

    Section 3(a) of the Small Business Act defines a small concern as 
one that is independently owned and operated, not dominant in its field 
of operation, and within detailed definitions or standards established 
by the SBA Administrator. SBA considers as part of its evaluation of a 
size standard whether a business concern at or below a recommended size 
standard would be considered dominant in its field of operation. This 
assessment generally considers the market share of firms at a proposed 
size standard as well as other factors that may reveal if a firm can 
exercise a major controlling influence on a national basis in which 
significant numbers of business concerns are engaged.
    SBA has determined that at the recommended size standard of $5 
million for the Arrangement of Transportation of Freight and Cargo 
industry no firm at or below that level would be of a sufficient size 
to be dominant in its field of operation. A firm at the proposed size 
standard of $5 million accounts for less than 0.1% of industry total 
industry sales. This level of market share effectively precludes any 
firm from exerting a controlling effect on an industry. This is the 
third of four evaluations and all three support a size like the anchor. 
As for ``other factors'', everything we have obtained from the industry 
association or otherwise, has been considered in the first three 
evaluations, industry structure, dominance in the industry, or purpose 
of or impact on SBA programs. However, during the public comment 
period, we may obtain other information and will consider it before 
going forward with a final rule.

Alternative Size Standards

    SBA considered two alternative size standards for this industry. 
One alternative considered was modifying the average annual receipts 
method to allow for pass-through funds received in trust for third 
parties without adjusting the current $18.5 million size standard. 
Assuming that firms in this industry normally earn receipts of six 
percent to ten percent of gross billings, $18.5 million is equivalent 
to $185 million to $308 million in gross billings. Had SBA only 
modified the receipts calculation method and retained the current size 
standard, it would define all but 158 out of 9,631 firms in the 
industry as small. Further, small businesses with $18.5 million or less 
in commissions and fees cumulatively account for two-thirds of total 
industry sales. SBA considers a size standard that defines that large 
of a proportion of an industry as small businesses to be undesirable.
    A second alternative considered was to select a size standard 
between $1.1 million and $1.8 million to conform to the six percent to 
ten percent of gross billings that firms in the industry with gross 
billings of $18.5 million report as receipts. However, the industry 
characteristics of the Arrangement of Transportation of Freight and 
Cargo industry, as compared with the average characteristics of the 
nonmanufacturing anchor group, support a higher size standard than one 
simply based on an arithmetic conversion of the existing size standard.
    SBA welcomes public comments on the proposed size standards for the 
Arrangement of Transportation of Freight and Cargo industry. Comments 
addressing the basis for allowing an exclusion of funds held in trust 
for third parties from the calculation of average annual receipts, as 
well as the types of receipts held in trust for others would be 
especially helpful to SBA in making its final decision.
    Also, SBA solicits comments on;
    1. whether or not six percent to ten percent of gross billings 
typically represents the commissions and fees earned by firms in this 
industry, and
    2. whether a size standard between the anchor size of $5 million 
and the current effective size of $ 1.8 million would be more 
appropriate. In your comments on any of these alternatives, or 
alternatives not yet discussed, please present the reasons why it is 
preferable to the proposed size standard.

Compliance With Executive Orders 12612, 12988, and 12866, the 
Regulatory Flexibility Act (5 U.S.C. 601-612), and the Paperwork 
Reduction Act (44 U.S.C. 3501 et seq.)

    SBA certifies that this rule, if adopted, would not be a 
significant rule within the meaning of Executive Order 12866. The total 
amount of Federal procurement and SBA guaranteed loans combined is less 
than $50 million to this industry annually. It is unlikely that these 
programs would be significantly affected by a change to the size 
standard.
    For purposes of the Regulatory Flexibility Act, this rule would not 
have a substantial impact on a significant number of small entities. 
Although potentially 1,000 additional firms could gain small business 
status as a result of this rule, only a very small percentage of firms 
in the industry compete for Federal procurements or obtain guaranteed 
loans through SBA's financial assistance programs.
    For the purpose of the Paperwork Reduction Act, 44 U.S.C. 3501 et 
seq., SBA certifies that this rule would not impose new reporting or 
record-keeping requirements other than those already required of SBA.
    For purposes of Executive Order 12612, SBA certifies that this rule 
does

[[Page 40319]]

not have any federalism implications warranting the preparation of a 
Federalism Assessment.
    For purposes of Executive Order 12988, SBA certifies that this rule 
is drafted, to the extent practicable, in accordance with the standards 
set forth in that order.

List of Subjects in 13 CFR Part 121

    Government procurement, Government property, Grant programs-
business, Loan programs-business, Small business.

    For the reasons stated in the preamble, SBA proposes to amend 13 
CFR part 121 as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

    1. The authority citation of Part 121 continues to read as follows:

    Authority: Pub. L. 105-135 Sec. 601 et. seq., 111 Stat. 2592; 15 
U.S.C. 632(a), 634(b)(6), 637(a), and 644(c); and Pub. L. 102-486, 
106 Stat. 2776, 3133.

    2. Revise Sec. 121.104 (a) (1) to read as follows:


Sec. 121.104  How does SBA calculate annual receipts?

    (a) * * *
    Receipts means ``total income'' (or in the case of a sole 
proprietorship, ``gross income'') plus the ``cost of goods sold'' as 
these terms are defined or reported on Internal Revenue Service (IRS) 
Federal tax return forms (Form 1120 for corporations; Form 1120S for 
Subchapter S corporations; Form 1065 for partnerships; and Form 1040, 
Schedule F for farm or Schedule C for other sole proprietorships). 
However, the term receipts excludes net capital gains or losses, taxes 
collected for and remitted to a taxing authority if included in gross 
or total income, proceeds from the transactions between a concern and 
its domestic or foreign affiliates (if also excluded from gross or 
total income on a consolidated return filed with the IRS), and amounts 
collected for another by a travel agent, real estate agent, advertising 
agent, conference management service provider, freight forwarder or 
customs broker.
* * * * *


Sec. 121.201  [Amended]

    3. In Sec. 121.201, the table ``SIZE STANDARDS BY SIC INDUSTRY,'' 
is amended as follows:
    a. Under Division E-Transportation, Communications, Electric, Gas, 
and Sanitary Services, Major Group 42--Motor Freight Transportation and 
Warehousing, revise the entry 4731:
    b. Revise, in the table ``SIZE STANDARDS BY SIC INDUSTRY,''
    Footnote 6 to read as follows:

                     Size Standards by SIC Industry
------------------------------------------------------------------------
                                                                 Size
                                                              standards
                                                              in number
                  SIC code and description                        of
                                                              employees
                                                             or millions
                                                              of dollars
------------------------------------------------------------------------
 
                  *        *        *        *        *
 Division E--Transportation, Communications, Electric, Gas,
                   and Sanitary Services
 
                  *        *        *        *        *
4731  Arrangement of Transportation of Freight and Cargo...     \6\ $5.0
 
                  *        *        *        *        *
------------------------------------------------------------------------
\6\ SIC codes 4724, 4731, 6531, 7311, 7312, 7313, 7319, and 8741 (part):
  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 revenue.

    Dated: July 20, 1999.
Aida Alvarez,
Administrator.
[FR Doc. 99-19022 Filed 7-23-99; 8:45 am]
BILLING CODE 8025-01-P