[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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  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.

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

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
----------------------------------------------------------------------------------------------------------------
                                                                                       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
 
                                                  * * * * * * *
----------------------------------------------------------------------------------------------------------------


[[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