[Federal Register Volume 66, Number 9 (Friday, January 12, 2001)]
[Rules and Regulations]
[Pages 2795-2800]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-957]



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  Federal Register / Vol. 66, No. 9 / Friday, January 12, 2001 / Rules 
and Regulations  

[[Page 2795]]



DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 271 and 278

[Amdt. 391]
RIN 0584-AB90


Food Stamp Program: Revisions to the Retail Food Store Definition 
and Program Authorization Guidance

AGENCY: Food and Nutrition Service, USDA.

ACTION: Final rule.

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

SUMMARY: This final rule implements provisions of the Food Stamp 
Program Improvements Act of 1994 to revise the criteria for eligibility 
of firms to participate in the Food Stamp Program as retail food 
stores, and to provide for notification to such firms of eligibility 
criteria for participation in the Food Stamp Program. The intended 
effect of this rule is to ensure that food stamp recipients continue to 
have adequate access to retail food stores where they can purchase a 
wide variety of nutritious food items, intended for home preparation 
and consumption, that meet their daily food needs, and to clarify 
procedures and eligibility requirements for authorizing firms to 
participate in the Food Stamp Program as retail food stores.
    This rule also reinserts part of a sentence inadvertently removed 
from the regulations by an earlier rule, and replaces references to the 
Secretary of Health and Human Services with references to the 
Commissioner of the Social Security Administration. In addition, a 
technical, non-substantive correction is being made to three citations 
in this final rule.

DATES: Provisions in this rule are effective and will be implemented 
February 12, 2001.

FOR FURTHER INFORMATION CONTACT: Questions regarding this final rule 
should be addressed to Karen Walker, Chief, Redemption Management 
Branch, Benefit Redemption Division, Food and Nutrition Service, 3101 
Park Center Drive, Alexandria, Virginia 22302-1594, or by telephone to 
(703) 305-2418. A regulatory impact analysis has been prepared for this 
rule. You may request a copy of the analysis by contacting us at the 
above address.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This final rule has been determined to be significant and therefore 
was reviewed by the Office of Management and Budget under Executive 
Order 12866.

Executive Order 12372

    The Food Stamp Program is listed in the Catalog of Federal Domestic 
Assistance under No. 10.551. For the reasons set forth in the final 
rule and related Notice to 7 CFR part 3015 subpart V (48 FR 29115, June 
24, 1983), this Program is excluded from the scope of the Executive 
Order 12372 which requires inter-governmental consultation with State 
and local officials.

Regulatory Flexibility Act

    This rule has been reviewed with regard to the requirements of the 
Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612). Shirley R. 
Watkins, the Administrator of the Food and Nutrition Service (FNS), has 
certified that this rule will not have a significant economic impact on 
a substantial number of small businesses. Based on FNS data, less than 
92,000 of the 157,000 (58%) firms not corporately owned or operated 
that are participating in the Food Stamp Program are estimated to be 
small businesses based on the Small Business Administration's (SBA) 
guidelines. Just over 13,400 (8.5%) are considered to be specialty 
stores that have self declared annual gross sales of $5 million or 
less. Slightly more than 78,000 are grocery stores and convenience 
stores that have self declared annual gross sales of $20 million or 
less. In applying the requisite SBA definition of these small stores, 
it is apparent that a large number of small businesses will be affected 
by this regulation. Although a large number of small businesses will be 
affected, the agency does not anticipate that the impact will be 
significant for reasons explained below. Throughout the development of 
this rule special consideration was given to its impact on small 
businesses; primarily small and medium grocery stores, convenience type 
stores, farmers' markets, rolling stores, and specialty stores. A 
requirement in the proposed rule that a firm have a minimum amount of 
wholesale purchases was not included in this final rule, because it 
might have unfairly impacted small rural businesses.
    The final rule will allow the vast majority of small businesses 
interested in participating in the Food Stamp Program (FSP) to do so. 
It may, however, have a negative impact on a small number of firms that 
do not effectuate the purposes of the FSP or that do not meet the 
eligibility requirements. The final rule fully implements the statutory 
eligibility requirements. Criterion A requires that a firm must offer 
for sale on a continuous basis a variety of food items in each of four 
statutorily defined staple food groups, with perishable foods in at 
least two of those food groups. The rule defines several terms included 
in the statute--``continuous basis'', ``perishable'' and ``variety''. 
The rule defines ``continuous basis'' as ``* * * on any given day of 
operation''. It defines ``perishable'' as the term was described in the 
House Report accompanying the statute, except that it allows frozen 
foods to qualify as a perishable item specifically to help small 
businesses meet that requirement. And, although FNS initially 
considered requiring a number greater than three, the final rule 
defines ``variety'' as only three different types of food items in each 
of the four staple food categories. The rule implements Criterion B as 
the statute defines it.
    The law has been in effect since late 1994. Firms may fail to be 
eligible to participate in the FSP for a variety of reasons. Some firms 
fail to be reauthorized because they are no longer open for business or 
have changed the nature of their business; it is not always due to 
failure to meet one part of the eligibility criteria. FSP authorization 
data covering Fiscal Years 1994-1998, illustrates that only 2,866 firms 
of the 168,078 firms evaluated, or 1.7%, failed to be eligible for 
program participation

[[Page 2796]]

under Criterion A or B. During Fiscal Year 2000, only 166 or 0.7% of 
the 23,088 firms being reauthorized failed to meet either Criterion A 
or B. Moreover, once the final regulations go into effect, the number 
of firms that fail to be authorized or reauthorized may decline further 
since FNS field reviewers may have applied the current standards 
somewhat inconsistently. That is, some field reviewers may have 
interpreted the requirements for ``variety of foods'' in different ways 
than the regulation proposed here.
    Before firms will be denied authorization under this rule for 
failing to meet the eligibility criteria, they will have the 
opportunity to provide documentation to prove they are eligible. Firms 
that are denied authorization by FNS have the right to appeal that 
determination through an administrative review and a judicial review. 
Authorized firms are allowed to continue participating in the FSP 
throughout the appeals process. A new store that is denied 
authorization by FNS also has the right to appeal, and should the 
appeals process overturn FNS' eligibility determination, the store is 
authorized immediately.

Executive Order 12988

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. This rule is intended to have preemptive effect with 
respect to any State or local laws, regulations or policies which 
conflict with its provisions, or which would otherwise impede its full 
implementation. This rule is not intended to have retroactive effect 
unless so specified in the Effective Date paragraph of this preamble. 
Prior to any judicial challenge to the provisions of this rule or the 
application of its provisions, all applicable administrative procedures 
must be exhausted. In the FSP, the administrative procedures are as 
follows: (1) For Program benefit recipients--State administrative 
procedures issued under to 7 U.S.C. 2020(e)(1) and 7 CFR 273.15; (2) 
for State agencies--administrative procedures issued pursuant to 7 
U.S.C. 2023 set out at 7 CFR 276.7 for rules related to non-quality 
control (QC) liabilities or 7 CFR part 283 for rules related to QC 
liabilities; (3) for Program retailers and wholesalers--administrative 
procedures issued pursuant to 7 U.S.C. 2023 set out at 7 CFR 278.8.

Unfunded Mandate Reform Act of 1995

    Title II of the Unfunded Mandate Reform Act of 1995 (UMRA), Pub.L. 
104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local and tribal 
governments and the private sector. Under section 202 of the UMRA, FNS 
generally must prepare a written statement, including a cost-benefit 
analysis, for proposed and final rules with ``Federal mandates'' that 
may result in expenditures to State, local or tribal governments, in 
the aggregate, or to the private sector, of $100 million or more in any 
one year. When such a statement is needed for a rule, section 205 of 
the UMRA generally requires FNS to identify and consider a reasonable 
number of regulatory alternatives and adopt the least costly, more 
cost-effective or least burdensome alternative that achieves the 
objectives of the rule. This rule contains no Federal mandates under 
the regulatory provision of Title II of the UMRA for State, local and 
tribal governments or the private sector of $100 million or more in any 
one year. Thus, this rule is not subject to the requirements of 
sections 202 and 205 of the UMRA.

Executive Order 13132

    FNS has analyzed this final rule in accordance with the principles 
set forth in Executive Order 13132. As such, FNS has determined that 
the rule does not contain policies that have federalism implications as 
defined in the order and, consequently, a federalism summary impact 
statement is not required.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995, this final 
rule includes information collection burdens imposed on retailers 
applying for participation in the FSP.
    There are currently 3 forms approved under OMB No. 0584-0008. 
Together these forms are used by retailers, wholesalers, meal services, 
certain types of group homes, shelters, and state-contracted 
restaurants, to apply to FNS for authorization to accept and redeem 
food stamp benefits. Form FNS-252, Food Stamp application For Stores; 
Form FNS-252-2, Application to Participate in the Food Stamp Program 
for Communal Dining Facility/Others; and, Form FNS-252R, Food Stamp 
Program Application For Stores-Reauthorization. Section 9(c) of the 
Food Stamp Act of 1977 (FSA), as amended, 7 U.S.C. 2011-2036, provides 
the necessary authorization(s) to collect the information contained in 
these forms. (7 U.S.C. 2018(c)).
    A provision in Sec. 278.1(b)(1)(ii) of the proposed rule requiring 
certain stores to have at least $30,000 in annual staple food wholesale 
purchases in order to qualify for participation in the program is not 
included in the final rule. This requirement was intended to help 
measure whether or not a store offered a variety of staple foods on a 
continuous basis, as required by law, and would have been captured 
through a Yes/No check-box on the application. Under the proposed rule, 
most applicants would have simply checked the appropriate box which 
would not have increased burden time. However, a few stores would need 
to check their records to document sales or wholesale purchase 
information if their eligibility was not clear, and this would increase 
the hour burden estimates approved under OMB No. 0584-0008. Even though 
the $30,000 wholesale threshold requirement is not included in this 
final rule, a small number of stores will still need to document their 
sales or wholesale purchases in order to prove their eligibility. The 
burden estimates for this that were included in the proposed rule and 
approved by the Office of Management and Budget under OMB No. 0584-008, 
have not been changed in the final rule.
    An estimated 5% of stores using Form FNS-252 and FNS-252R will 
incur an additional 10 minutes of completion time if required to 
provide documentation. Thus, it is estimated that the average 
completion time for the affected stores using Form FNS-252 will 
increase from 12 to 12.5 minutes. The average completion time for 
affected stores using Form FNS-252R will increase from 7 to 7.5 
minutes. We estimated that the total burden for this will be an 
additional 766 hours annually. Interested parties should refer to the 
preamble of the proposed rule for details on the methodologies used to 
determine the averages.
    The amount of the net decrease as approved by OMB is less than was 
proposed in the June 30 notice because the June 30 estimates were based 
on 1997 data. The estimates approved by OMB through June 30, 2002 are 
based on 1999 data and reflect a net decrease in overall burden hours 
from 15,777 to 14,812 hours; a decrease of 965 hours annually.
    Comments were solicited for 60 days on the proposed decrease in 
burden hours. No comments were received on the information collection 
proposal and the estimates were submitted to OMB for approval. The 
burden estimates as currently approved by OMB under OMB No. 0584-0008 
through June 30, 2002 are shown on the following chart:
    Affected Public: Food Retail and Wholesale Firms, Meal Services 
Programs, certain types of Group

[[Page 2797]]

Homes, Shelters, and state-contracted Restaurants.
    Estimated Number of Respondents: 62,621.
    Estimated Number of Responses per respondent: 1.
    Estimated Time per Response: .236536.
    Estimated Total Annual Burden: 14,812.

----------------------------------------------------------------------------------------------------------------
                                     Number of     Responses per   Total annual    Burden hours    Total annual
              Title                 respondents     respondent       responses     per response    burden hours
----------------------------------------------------------------------------------------------------------------
Form FNS-252....................          20,580               1          20,580          .4,583           9,432
Form FNS-252-2..................           1,673               1           1,673          .2,000             334
Form FNS-252R...................          40,368               1          40,368          .1,250           5,046
                                 -------------------------------------------------------------------------------
      Totals....................          62,621  ..............          62,621  ..............          14,812
----------------------------------------------------------------------------------------------------------------

Background

    On June 30, 1999, the Department published a proposed rule (64 FR 
35082) to implement sections 201 and 202 of the Food Stamp Program 
Improvements Act of 1994, Pub. L. 103-225, (hereinafter Pub. L. 103-
225), enacted on March 25, 1994. We proposed to revise the eligibility 
requirements in sections 3(k)(1) and (u)(1) of the FSA for retail food 
store participation in the FSP. (7 U.S.C. 2012(k)(1) and 2012(u)(1)).
    Under current regulations found at 7 CFR 271.2, a ``retail food 
store'' is defined as having more than 50 percent of its total eligible 
food sales in staple foods intended for home preparation and 
consumption. Provisions of Pub. L. 103-225 require that establishments: 
(1) Sell food intended for home preparation and consumption; and (2) 
meet one of two eligibility criteria (Criterion A or B) in order to 
participate in the FSP as a retail food store. A firm that meets the 
eligibility requirements of Criterion A (assuming compliance with other 
restrictions) is not required to also meet those of Criterion B, and 
vice versa.
    This rule revises the definition of ``retail food store'' and 
``staple foods'' to conform to the statutory changes. It also defines 
three new terms--``continuous basis,'' ``perishable,'' and ``variety of 
foods,'' as well as clarifies the meaning of the term ``total retail 
sales volume''--used in the revised statutory definition of a ``retail 
food store.''

Technical Amendments

    This rule reinserts language to 278.1(q) that was inadvertently 
dropped in a regulation published in the Federal Register at 61 FR 
68119 on December 27, 1996, titled ``Revisions in Use and Disclosure 
Rules Involving the Sharing of Information Provided by Retail and 
Wholesale Concerns with Other Federal and State Agencies.'' It also 
makes technical changes, replacing two references to the Secretary of 
Health and Human Services in 278.1(q)(3)(iii) with references to the 
Commissioner of the Social Security Administration.
    In addition, in Sec. 278.6, a change is being made to correct a 
technical error in current regulations that does not result in a 
substantive program change. The amendment made here corrects two 
incomplete citations in Sec. 278.6(a) and, correspondingly, 
Sec. 278.6(g)(3).
    The Department encouraged all interested parties to comment on the 
provisions set forth in the proposed rule published. Comments were 
received from two retail trade/interest groups, one State government 
agency, and one Federal government agency. The major concerns raised by 
the commentors are discussed below. Revisions in Definitions and 
Eligibility Criteria Involving Retail Food Stores (7 CFR 271.2 and 7 
CFR 278.1)

Eligibility Requirements Under Criterion A

    Section 3(k)(1)(A) of the FSA requires that to be eligible to 
accept food stamp benefits, an establishment or house-to-house trade 
route must sell food intended for home preparation and consumption and 
offer for sale on a continuous basis, a variety of staple foods in each 
of the four staple food categories, as specified in section 3(u)(1) of 
the FSA, including perishable foods in at least two of the four 
categories. The four staple food categories are: (1) Meat, poultry, or 
fish; (2) bread or cereals; (3) vegetables or fruits; and (4) dairy 
products. To implement this requirement, the proposed rule defined 
three new terms not defined by statute--``continuous basis,'' 
``perishable'' and ``variety of foods''--that are used in the revised 
statutory definition of a retail food store under Criterion A. Comments 
were received on all three of these proposed definitions.

Continuous Basis

    The law requires stores authorized to participate in the FSP under 
Criterion A to offer staple foods in the four required categories on a 
continuous basis. Because the Department cannot be expected to visit 
each authorized store on a regular basis to enforce this provision, an 
alternative way of measuring this, based on a store's annual wholesale 
purchases, was developed. The proposed rule established a minimum 
threshold of $30,000 in annual wholesale purchases which could be used 
to determine that a store offered a variety of staple foods on a 
continuous basis.
    Comments were received from all four commentors on this provision, 
one in support of it, one recommending a much larger minimum 
requirement, and two in opposition to it. The commentor supporting this 
provision said the proposed threshold of $30,000 would ensure that 
participating stores have a sufficient depth of stock to achieve the 
goals of the FSP without eliminating legitimate grocers from program 
participation. However, this commentor did not believe all firms 
participating or applying to participate in the FSP should be routinely 
required to document annual wholesale purchases.
    Another commentor suggested the threshold be increased to a minimum 
of $100,000 in annual wholesale purchases. The Department considered 
requiring a higher threshold and concluded that increasing the minimum 
threshold by such a large amount would have a negative impact on some 
small stores that provide food stamp recipients access to nutritious 
foods.
    Two commentors opposed the proposed definition of ``continuous 
basis.'' One commentor said recipients might be hurt if stores are 
forced out of the FSP, and said Congress changed the law to expand the 
accessibility of food supplies. This commentor also said that 
``continuous basis'' should be defined simply as uninterrupted or 
constant. The Department agrees that ``continuous basis'' should mean 
constant or uninterrupted. Accordingly, we have changed the proposal to 
require stores to have the required amount of staple foods ``on any 
given day.''
    The other commentor opposing the new threshold said the Department 
did

[[Page 2798]]

not adequately address the impact of this threshold on small stores in 
the proposed rule and expressed concern that some small convenience-
type stores would not be able to meet this requirement. The Department 
did analyze the impact of the proposed rule, and referred to the impact 
in the preamble of the proposed rule.
    The law allows store eligibility determinations to be based on a 
variety of measures, including a review of sales and purchase records 
when necessary. Determining whether or not a store is able to offer the 
required foods on a continuous basis can be based on this information 
as well as on store visits. Meeting a minimum threshold is not an 
accurate measure of continuous basis. Therefore, the requirement under 
Criterion A that authorized stores have a minimum of $30,000 in annual 
wholesale purchases was removed from the final rule.

Perishable Foods

    The statute requires stores eligible to participate in the FSP 
under Criterion A to stock perishable foods in at least two defined 
staple food categories. The Department did not establish a minimum 
number of perishable foods required. We proposed to define ``perishable 
foods'' as frozen, refrigerated or fresh foods that will spoil or 
deteriorate in quality within two to three weeks. This definition was 
based on language in H. Rep. No. 103-352, in the section titled 
``Purpose and Need'' that stated ``* * * most fresh foods spoil or 
suffer a significant deterioration in quality within two to three 
weeks.'' The Department included frozen foods in its definition of 
perishable foods, even though they are typically not considered to be 
fresh, because some small stores with limited customers may not be able 
to afford to offer fresh or refrigerated foods that will spoil within a 
few days or weeks.
    One comment opposing the definition of ``perishable foods'' was 
received by the Department. The commentor generally opposed the 
definitions of all new statutory terms that were not defined in the 
statute. The Department believes minimum regulatory standards are 
necessary to ensure that stores understand the program eligibility 
requirements and that eligibility determinations are evaluated in a 
uniform manner throughout the country. The Department believes the 
definition set forth in the rule is fair and reasonable; therefore, the 
proposed definition of perishable foods was not changed.

Variety of Foods

    To be eligible to participate in the FSP under Criterion A, the law 
requires stores to have a variety of food items in each of the four 
staple food categories. H. Rep. No. 103-352 in the section titled 
``Purpose and Need'' stated that authorized stores should ``carry an 
ample supply of items in each category'' to ensure that food stamp 
recipients can purchase an ``ample selection of foods in each of the 
four (staple food) categories.'' The rule defines ``variety of foods'' 
in such a way that will ensure that stores offer for sale a minimum 
selection of foods. The definition stipulates that a minimum of three 
different varieties of foods in each of the four defined staple food 
categories would be required to meet FSP eligibility guidelines under 
Criterion A.
    One commentor opposed this minimum requirement because the proposed 
rule did not appear to explain or was unclear with regard to how it was 
derived. Another commentor opposing this requirement said it was 
arbitrary and will ``* * * lead to bizarre and most likely unintended 
results.'' The Department proposed the lowest number that could 
reasonably be considered to meet the requirement that a ``variety'' of 
food items be available to FSP recipients. The Department believes this 
reflects the intent of the law which is to ensure that food stamp 
recipients continue to have adequate access to an supply of nutritious 
foods.
    The definition of ``variety'' also includes two additional 
clarifications to ensure that food stamp recipients would be able to 
select from an ample variety of staple foods. One clarification would 
not allow similar type foods to be counted as different varieties. For 
example, skim milk, whole milk and chocolate milk would not meet the 
definition of ``variety'' under the dairy category; however, milk, 
cheese and butter would meet the proposed definition of variety. The 
Department received three comments on this provision, one supporting 
and two opposing it. The commentor supporting this clarification noted 
that the proposed rule provides examples of what would not be 
considered ``variety,'' but did not provide examples of what 
``variety'' would be and suggested the final rule include such 
examples. The Department agrees with this and has included examples of 
variety under this provision in the final rule.
    The Department received two comments opposing this clarification of 
``variety.'' One of the commentors suggested that ``variety'' should 
simply mean ``having different forms or types.'' The Department is 
concerned that such a definition would not allow FNS to make uniform 
eligibility determinations throughout the country, and would not 
provide stores a clear understanding of FSP eligibility requirements. 
The Department believes this clarification is reasonable and should not 
be difficult for stores to meet; therefore, the definition was not 
changed.
    The rule also clarifies that different brands and packaging cannot 
be considered ``variety'' for the same reasons stated above. The 
Department received one comment opposing this provision. The Department 
believes this clarification is necessary because, without it, a store 
could, for example, meet the fruit or vegetable category requirements 
with canned peaches, frozen peaches, and fresh peaches, or it could 
satisfy the dairy category with three different brands of ice cream. 
The Department believes that judging variety based on packaging and 
brands could limit the selection of food stamp households to only one 
type of food item in each category, and that would not constitute an 
ample variety as envisioned in the law.
    The Department proposed to further clarify that processed food 
items with multi-ingredients cannot qualify in more than one staple 
food category. Such foods will generally be counted in a staple food 
category based on their main ingredient. For example, when determining 
store eligibility, the Department will consider macaroni and cheese to 
be a pasta and, as such, will be included in the bread or cereals 
category; it will not be also counted in the dairy category.
    One comment opposing this provision was received by the Department, 
which expressed the view that this clarification was a 
misinterpretation of the statute. The commentor suggested that it 
should be possible for a pepperoni pizza to count toward meeting all 
four staple food categories. The Department believes that without this 
clarification, a store having only three different food items could 
qualify under Criterion A, and such a small number of food items would 
not provide an ample variety as envisioned in the law. Therefore, the 
proposed clarifications were not changed.

Eligibility Requirements Under Criterion B

    The eligibility requirements under this criterion are found in 
section 3(k)(1)(B) of the FSA and require a store to sell food for home 
preparation and consumption and have more than 50 percent of its total 
sales volume in

[[Page 2799]]

staple food sales. This is similar to current rules. However, rather 
than requiring a firm to have more than 50 percent of its total 
eligible food sales in staple foods, the new statutory provision 
requires that more than 50 percent of the firm's total sales be in 
staple food sales. The proposed rule made this change clear by defining 
total sales as ``total gross retail sales,'' which means all retail 
sales of the firm, including food and non-food merchandise, as well as 
services such as rental fees and entertainment income.
    Two comments were received on this provision. Both commentors 
opposed the change from ``total eligible food sales'' to ``total gross 
retail sales.'' The Department believes the commentors are confused 
about the total sales requirement under Criterion B. This was a 
statutory change, not a regulatory change; therefore, this provision in 
the rule was not changed.

List of Subjects

7 CFR Part 271

    Administrative practice and procedure, Food stamps, Grant 
programs--social programs.

7 CFR Part 278

    Administrative practice and procedure, Banks, Banking, Claims, Food 
stamps, Groceries--retail, Groceries, General line--wholesaler, 
Penalties.

    Accordingly, 7 CFR parts 271 and 278 are amended as follows:
    1. The authority citation for parts 271 and 278 continues to read 
as follows:

    Authority: 7 U.S.C. 2011-2036.

PART 271--GENERAL INFORMATION AND DEFINITIONS

    2. In Sec. 271.2:
    a. Paragraph (1) of the definition of ``Retail food store'' and the 
definition of ``Staple food'' are revised to read as follows:


Sec. 271.2  Definitions.

* * * * *
    Retail food store means: (1) An establishment or house-to-house 
trade route that sells food for home preparation and consumption 
normally displayed in a public area, and either offers for sale, on a 
continuous basis, a variety of foods in sufficient quantities in each 
of the four categories of staple foods including perishable foods in at 
least two such categories (Criterion A) as set forth in 
Sec. 278.1(b)(1) of this chapter, or has more than 50 percent of its 
total gross retail sales in staple foods (Criterion B) as set forth in 
Sec. 278.1(b)(1) of this chapter as determined by visual inspection, 
marketing structure, business licenses, accessibility of food items 
offered for sale, purchase and sales records, counting of stockkeeping 
units, or other inventory or accounting recordkeeping methods that are 
customary or reasonable in the retail food industry as set forth in 
Sec. 278.1(b)(1) of this chapter. Entities that have more than 50 
percent of their total gross retail sales in hot and/or cold prepared, 
ready-to-eat foods that are intended for immediate consumption either 
for carry-out or on-premises consumption, and require no additional 
preparation, are not eligible for FSP participation as retail food 
stores under Sec. 278.1(b)(1) of this chapter.
* * * * *
    Staple food means those food items intended for home preparation 
and consumption in each of the following food categories: meat, 
poultry, or fish; bread or cereals; vegetables or fruits; and dairy 
products. Commercially processed foods and prepared mixtures with 
multiple ingredients shall only be counted in one staple food category. 
For example, foods such as cold pizza, macaroni and cheese, multi-
ingredient soup, or frozen dinners, shall only be counted as one staple 
food item and will normally be included in the staple food category of 
the main ingredient as determined by FNS. Hot foods are not eligible 
for purchase with food stamps and, therefore, do not qualify as staple 
foods for the purpose of determining eligibility under Sec. 278.1(b)(1) 
of this chapter. Accessory food items including, but not limited to, 
coffee, tea, cocoa, carbonated and uncarbonated drinks, candy, 
condiments, and spices shall not be considered staple foods for the 
purpose of determining eligibility of any firm. However, accessory 
foods that are offered for sale in authorized retail food stores are 
eligible food items which may be purchased with food stamp benefits.
* * * * *

PART 278--PARTICIPATION OF RETAIL FOOD STORES, WHOLESALE FOOD 
CONCERNS AND INSURED FINANCIAL INSTITUTIONS

    3. In Sec. 278.1:
    a. Paragraphs (b)(1)(i) and (b)(1)(ii) are revised;
    b. Paragraph (b)(1)(iii) is redesignated as paragraph (b)(1)(v) and 
revised;
    c. Paragraph (b)(1)(iv) is redesignated as paragraph (b)(1)(vi) and 
a heading is added;
    d. New paragraphs (b)(1)(iii) and (b)(1)(iv) are added;
    e. The first sentence of paragraph (q)introductory text is revised 
and a new sentence is added after the first sentence.
    f. Paragraph (q)(3)(iii) is amended by removing the words 
``Secretary of Health and Human Services'' wherever they appear, and 
adding in their place the words ``Commissioner of the Social Security 
Administration''; and,
    g. A new paragraph (t) is added.
    The revisions and additions read as follows:


Sec. 278.1  Approval of retail food stores and wholesale food concerns.

* * * * *
    (b) * * *
    (1) * * * (i) Retail food store. (A) An establishment or house-to-
house trade route shall normally be considered to have food business of 
a nature and extent that will effectuate the purposes of the program if 
it sells food for home preparation and consumption and meets one of the 
following criteria: Offer for sale, on a continuous basis, a variety of 
qualifying foods in each of the four categories of staple foods as 
defined in Sec. 271.2 of this chapter, including perishable foods in at 
least two of the categories (Criterion A); or have more than 50 percent 
of the total gross retail sales of the establishment or route in staple 
foods (Criterion B).
    (B) A retail food store must meet eligibility determination factors 
which may be based on, but not limited to, visual inspection, sales 
records, purchase records, counting of stockkeeping units, or other 
inventory or accounting recordkeeping methods that are customary or 
reasonable in the retail food industry. In determining eligibility, 
such information may be requested for verification purposes, and 
failure to provide such documentation may result in denial or 
withdrawal from the program.
    (ii) Application of Criterion A. In order to qualify under this 
criterion, firms shall:
    (A) Offer for sale and normally display in a public area, 
qualifying staple food items on a continuous basis, evidenced by 
having, on any given day of operation, no fewer than three different 
varieties of food items in each of the four staple food categories. 
Documentation to determine if a firm stocks a sufficient amount of 
required staple foods to offer them for sale on a continuous basis may 
be required in cases where it is not clear that the requirement has 
been met. Such documentation can be achieved through store visits and/
or verifying information when requested. Failure to provide verifying 
information when requested or

[[Page 2800]]

to cooperate with store visits shall result in the denial or withdrawal 
of authorization.
    (B) Offer for sale perishable staple food items in at least two 
staple food categories. Perishable foods are items which are either 
frozen staple food items or fresh, unrefrigerated or refrigerated 
staple food items that will spoil or suffer significant deterioration 
in quality within 2-3 weeks; and
    (C) Offer a variety of staple foods which means different types of 
foods, such as apples, cabbage, tomatoes, and squash in the fruit or 
vegetable staple food category, or milk, cheese, butter and yogurt in 
the dairy category. Variety of foods is not to be interpreted as 
different brands, different nutrient values, different varieties of 
packaging, or different package sizes. Similar processed food items 
with varying ingredients such as, but not limited to, sausages, 
breakfast cereals, milk, sliced breads, and cheeses, and similar 
unprocessed food items, such as, but not limited to, different 
varieties of apples, cabbage, tomatoes, or squash shall not each be 
considered as more than one staple food variety for the purpose of 
determining variety. Multiple ingredient food items intended for home 
preparation and consumption, such as, but not limited to, cold pizza, 
macaroni and cheese, soup, or frozen dinners, shall only be counted as 
one staple food variety each and will normally be included in the 
staple food category of the main ingredient as determined by the FNS.
    (iii) Application of Criterion B. In order to qualify under this 
criterion, firms must have more than 50 percent of their total gross 
retail sales in staple food sales. Total gross retail sales must 
include all retail sales of a firm, including food and non-food 
merchandise, as well as services, such as rental fees, professional 
fees, and entertainment/sports/games income. However, a fee directly 
connected to the processing of staple foods, such as raw meat, poultry, 
or fish by the service provider, may be calculated as staple food sales 
under Criterion B.
    (iv) Ineligible firms. Firms that do not meet the eligibility 
requirements in this section or that do not effectuate the purpose of 
the Food Stamp Program shall not be eligible for program participation. 
New applicant firms that are found to be ineligible will be denied 
authorization to participate in the program, and authorized retail food 
stores found to be ineligible will be withdrawn from program 
participation. Ineligible firms under this paragraph include, but are 
not limited to, stores selling only accessory foods, including spices, 
candy, soft drinks, tea, or coffee; ice cream vendors selling solely 
ice cream; and specialty doughnut shops or bakeries not selling bread. 
In addition, firms that are considered to be restaurants, that is, 
firms that have more than 50 percent of their total gross retail sales 
in hot and/or cold prepared foods not intended for home preparation and 
consumption, shall not qualify for participation as retail food stores 
under Criterion A or B. This includes firms that primarily sell 
prepared foods that are consumed on the premises or sold for carryout. 
Such firms may qualify, however, under the special restaurant programs 
that serve the elderly, disabled, and homeless populations, as set 
forth in paragraph (d) of this section.
    (v) Wholesale food concerns. Wholesale food concerns, the primary 
business of which is the sale of eligible food at wholesale, and which 
meet the staple food requirements in paragraph (b) of this section, 
shall normally be considered to have adequate food business for the 
purposes of the program, provided such concerns meet the criteria 
specified in paragraph (c) of this section.
    (vi) Co-located wholesale food concerns. * * *
* * * * *
    (q) * * * With the exception of EINs and SSNs, any information 
collected from retail food stores and wholesale food concerns, such as 
ownership information and sales and redemption data, may be disclosed 
for purposes directly connected with the administration and enforcement 
of the Food Stamp Act and these regulations, and can be disclosed to 
and used by State agencies that administer the Special Supplemental 
Nutrition Program for Women, Infants and Children (WIC). Such 
information may also be disclosed to and used by Federal and State law 
enforcement and investigative agencies for the purpose of administering 
or enforcing other Federal or State law, and the regulations issued 
under such other law.* * *
* * * * *
    (t) Periodic notification. The FNS will issue periodic notification 
to participating retail stores and wholesale food concerns to clarify 
program eligibility criteria, including the definitions of ``Retail 
food store'', ``Staple foods'', ``Eligible foods'', and ``Perishable 
foods''. At a minimum, such information will be provided to stores at 
the time of authorization, reauthorization and upon request.


Sec. 278.6   [Amended]

    4. In Sec. 278.6:
    a. Paragraph (a) is amended by removing the reference to 
``$10,000'' and adding in its place the words ``an amount specified in 
Sec. 3.91(b)(3)(i) of this title'' and removing the reference to 
``$20,000'' and adding in its place the words ``an amount specified in 
Sec. 3.91(b)(3)(ii) of this title''; and
    b. Paragraph (g)(3) is amended by removing the reference to 
``$10,000'' in the last sentence and adding in its place the words ``an 
amount specified in Sec. 3.91(b)(3)(i) of this title''.

    Dated: January 5, 2001.
Shirley R. Watkins,
Under Secretary, Food, Nutrition and Consumer Services.
[FR Doc. 01-957 Filed 1-11-01; 8:45 am]
BILLING CODE 3410-30-U