[Federal Register Volume 66, Number 110 (Thursday, June 7, 2001)]
[Rules and Regulations]
[Pages 30646-30649]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-14222]
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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 107 and 121
Size Eligibility Requirements for SBA Financial Assistance and
Size Standards for Agriculture
AGENCY: Small Business Administration.
ACTION: Direct final rule.
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SUMMARY: This final rule implements legislative changes to size
eligibility requirements for assistance from Small Business Investment
Companies (SBICs) and Certified Development Companies (CDCs), and for
the Agriculture industry.
The Small Business Investment Improvement Act of 1999, codified in
sections 103(5) and 103(12) of the Small Business Investment Act of
1958, as amended, established a method for determining the eligibility
of a business that is not required to pay Federal income tax at the
corporate level, but that is required to pass income through to its
shareholders or partners. The new method treats ``pass-through''
enterprises the same as firms that pay Federal taxes for the purpose of
size standard determinations.
The Small Business Reauthorization Act of 2000, codified in section
3(a)(1) of the Small Business Act, increases the size standards used
for Agriculture from $500,000 to $750,000 in average annual receipts.
DATES: The rule will become effective August 6, 2001, unless adverse
comment is received prior to July 9, 2001. If an adverse comment is
received, SBA will publish a timely withdrawal of the rule in the
Federal Register. The Agency may proceed to publish a proposed rule
following notice and comment procedures.
ADDRESSES: Send written comments to Gary M. Jackson, Assistant
Administrator for Size Standards, U.S. Small Business Administration,
409 Third St., SW., Mail Code 6530, Washington, DC 20416; or via e-mail
to [email protected].
FOR FURTHER INFORMATION CONTACT: Diane Heal, Office of Size Standards,
(202) 205-6618.
SUPPLEMENTARY INFORMATION:
SBIC/CDC
A business seeking financial assistance from an SBIC or a CDC must
qualify as a ``small-business concern'' as defined in section 103(5) of
the Small Business Investment Act of 1958, as amended (the Act), and as
implemented by 13 CFR 121.301(b) for CDCs and 13 CFR 121.301(c) for
SBICs. For SBIC financial assistance, a business also may need to
qualify as a ``smaller enterprise'' as defined in section 103(12) of
the Act, and as implemented by 13 CFR 107.710(a). Each of these
definitions requires a firm to meet either the size standard for its
primary industry or certain net worth and net income tests. The net
income tests measure the firm's average net income after Federal income
taxes for the preceding 2 years.
On April 5, 1999, Public Law 106-9, the ``Small Business Investment
Improvement Act of 1999'' which expands opportunities for small
businesses to receive investment capital from banks and traditional
investment sources, became effective. This legislation established a
new method for applying the net income test to a business that is not
required to pay Federal income tax at the enterprise level, but that is
required to pass income through to its shareholders, partners, or other
owners. This new method permits such businesses to use a specified
formula to impute a tax to the business and to compute ``after-tax''
net income. The intent is to permit ``pass-through'' enterprises to be
treated the same as concerns that pay Federal income taxes for purposes
of SBA size standard determinations.
As authorized by Public Law 106-9, this final rule revises
121.301(b), 121.301(c) and 107.710(a) to permit a business concern that
does not pay Federal income taxes at the enterprise level to deduct an
imputed Federal income tax expense from its net income. The business
concern computes this deduction by multiplying its net income
[[Page 30647]]
by the marginal Federal income tax rate that would have applied if the
concern were a taxable corporation. If the business concern is also
treated as a pass-through entity for State and local income tax
purposes, it can compute an additional deduction equal to its net
income multiplied by the State income tax rate (or combined State and
local income tax rate, if applicable) that would have applied if it
were a taxable corporation. In this case, the State/local tax deduction
must be computed first and then subtracted from net income before
computing the deduction for Federal income taxes.
Agriculture Industry
On December 21, 2000, Public Law 106-554, the ``Small Business
Reauthorization Act of 2000'' became effective. Section 806(b) of this
legislation increases the size standard for small businesses in the
Agriculture industry from $500,000 in average annual receipts to
$750,000 in average annual receipts. This change affects Agriculture
industries under North American Industry Classification System (NAICS)
codes, Sector 11, ``Agriculture, Forestry, Fishing and Hunting,''
Subsector 111 ``Crop Production'' (NAICS Codes 111110 through 111998)
and Subsector 112, ``Animal Production'' (NAICS Codes 112111 through
112990). Not affected by this legislative change are NAICS codes
112112, ``Cattle Feedlots'' and 112310, ``Chicken Egg Production'' as
their size standard is currently above $750,000. Those size standards
remain at $1.5 million and $9.0 million, respectively.
The SBA is publishing this regulation as a direct final rule
because the SBA believes the rule is non-controversial. It is merely
implementing provisions of Public Laws 106-9 and 106-554. As such, SBA
believes that this rule will elicit no significant adverse comment.
Compliance With Executive Orders 12866, 12988, and 13132, the
Regulatory Flexibility Act (5 U.S.C. 601-612), and the Paperwork
Reduction Act (44 U.S.C. Ch. 35)
This final rule is not a ``significant'' regulatory action for
purposes of Executive Order 12866 and therefore was not reviewed by the
Office of Management and Budget.
SBA has determined that this final rule will not have a significant
economic impact on a substantial number of small entities within the
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601-612. This rule
is merely implementing provisions of Pub. L. 106-9 and 106-554. This
rule does not impose costs upon the businesses that might be affected
by it. The rule will have no effect on the amount or dollar value of
any contract requirement or on the number of requirements reserved for
the small business set-aside program. Therefore, it will not have an
annual economic effect of $100 million or more, result in a major
increase in costs or prices, or have a significant adverse effect on
competition or the United States economy.
For purposes of Executive Order 12988, SBA has determined that this
final rule is drafted, to the extent practicable, in accordance with
the standards set forth in Section 3 of that Order.
For purposes of Executive Order 13132, SBA has determined that this
final rule will have no federalism implications.
For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35,
SBA has determined that this final rule contains no new reporting or
recordkeeping requirements.
List of Subjects in 13 CFR Parts 107 and 121
Investment companies, Loan programs--business, Reporting and
recordkeeping requirements, Small businesses.
For the reasons stated forth above, SBA amends 13 CFR parts 107 and
121 as follows:
PART 107--SMALL BUSINESS INVESTMENT COMPANIES
1. The authority citation for 13 CFR Part 107 continues to read as
follows:
Authority: 15 U.S.C. 662, 681 et seq., 683, 687(c), 687b, 687d,
687g and 687m.
2. In Sec. 107.710, revise paragraph (a) to read as follows:
Sec. 107.710 Requirement to finance smaller enterprises.
* * * * *
(a) Definition of Smaller Enterprise. A Smaller Enterprise means
any small business concern that:
(1) Both together with its Affiliates, and by itself, meets the
size standard of Sec. 121.201 of this chapter at the time of Financing
for the industry in which it is then primarily engaged; or
(2) Together with its affiliates has a net worth of not more than
$6 million and average net income after Federal income taxes (excluding
any carry-over losses) for the preceding two years no greater than $2
million. If the applicant is not required by law to pay Federal income
taxes at the enterprise level, but is required to pass income through
to its shareholders, partners, beneficiaries, or other equitable
owners, the applicant's ``net income after Federal income taxes'' will
be its net income reduced by an amount computed as follows:
(i) If the applicant is not required by law to pay State (and
local, if any) income taxes at the enterprise level, multiply its net
income by the marginal State income tax rate (or by the combined State
and local income tax rates, as applicable) that would have applied if
it were a taxable corporation.
(ii) Multiply the applicant's net income, less any deduction for
State and local income taxes calculated under paragraph (a)(2)(i) of
this section, by the marginal Federal income tax rate that would have
applied if the applicant were a taxable corporation.
(iii) Add the results obtained in paragraphs (a)(2)(i) and
(a)(2)(ii) of this section.
* * * * *
PART 121--SMALL BUSINESS SIZE REGULATIONS
1. The authority citation for 13 CFR Part 121 continues to read as
follows:
Authority: 15 U.S.C. 632(a), 634(b)(6), 637(a), 644(c), and
662(5).
2. In Sec. 121.201, revise the referenced NAICS Codes and size
standards in the table ``SMALL BUSINESS SIZE STANDARDS BY NAICS
INDUSTRY,'' under the heading Sector 11--Agriculture, Forestry, and
Fishing--Subsector 111--Crop Production, and Subsector 112--Animal
Production, to read as follows:
Sec. 121.201 What size standards has SBA identified by North American
Industry Classification System codes?
* * * * *
[[Page 30648]]
Small Business Size Standard by NAICS Industry
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Size standard
in number of
NAICS code Description (N.E.C.=not elsewhere employees or
classified) millions of
dollars
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Sector 11--Agriculture, Forestry, and Fishing
Subsector 111--Crop Production
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111110............................................... Soybean Farming........................ $0.75
111120............................................... Oilseed (except Soybean) Farming....... 0.75
111130............................................... Dry Pea and Bean Farming............... 0.75
111140............................................... Wheat Farming.......................... 0.75
111150............................................... Corn Farming........................... 0.75
111160............................................... Rice Farming........................... 0.75
111191............................................... Oilseed and Grain Combination Farming.. 0.75
111199............................................... All Other Grain Farming................ 0.75
111211............................................... Potato Farming......................... 0.75
111219............................................... Other Vegetable (except Potato) and 0.75
Melon Farming.
111310............................................... Orange Groves.......................... 0.75
111320............................................... Citrus (except Orange) Groves.......... 0.75
111331............................................... Apple Orchards......................... 0.75
111332............................................... Grape Vineyards........................ 0.75
111333............................................... Strawberry Farming..................... 0.75
111334............................................... Berry (except Strawberry) Farming...... 0.75
111335............................................... Tree Nut Farming....................... 0.75
111336............................................... Fruit and Tree Nut Combination Farming. 0.75
111339............................................... Other Noncitrus Fruit Farming.......... 0.75
111411............................................... Mushroom Production.................... 0.75
111419............................................... Other Food Crops Grown Under Cover..... 0.75
111421............................................... Nursery and Tree Production............ 0.75
111422............................................... Floriculture Production................ 0.75
111910............................................... Tobacco Farming........................ 0.75
111920............................................... Cotton Farming......................... 0.75
111930............................................... Sugarcane Farming...................... 0.75
111940............................................... Hay Farming............................ 0.75
111991............................................... Sugar Beet Farming..................... 0.75
111992............................................... Peanut Farming......................... 0.75
111998............................................... All Other Miscellaneous Crop Farming... 0.75
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Subsector 112--Animal Production
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112111............................................... Beef Cattle Ranching and Farming....... 0.75
112112............................................... Cattle Feedlots........................ 1.50
112120............................................... Dairy Cattle and Milk Production....... 0.75
112210............................................... Hog and Pig Farming.................... 0.75
112310............................................... Chicken Egg Production................. 9.00
112320............................................... Broilers and Other Meat Type Chicken 0.75
Production.
112330............................................... Turkey Production...................... 0.75
112340............................................... Poultry Hatcheries..................... 0.75
112390............................................... Other Poultry Production............... 0.75
112410............................................... Sheep Farming.......................... 0.75
112420............................................... Goat Farming........................... 0.75
112511............................................... Finfish Farming and Fish Hatcheries.... 0.75
112512............................................... Shellfish Farming...................... 0.75
112519............................................... Other Animal Aquaculture............... 0.75
112910............................................... Apiculture............................. 0.75
112920............................................... Horse and Other Equine Production...... 0.75
112930............................................... Fur-Bearing Animal and Rabbit 0.75
Production.
112990............................................... All Other Animal Production............ 0.75
* * * * * *
*
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3. In Sec. 121.301, revise paragraphs (b) and (c) to read as
follows:
Sec. 121.301 What size standards are applicable to financial
assistance programs?
* * * * *
(b) For Development Company programs, an applicant must meet one of
the following standards:
(1) The same standards applicable under paragraph (a) of this
section; or
(2) Including its affiliates, tangible net worth not in excess of
$6 million, and average net income after Federal income taxes
(excluding any carry-over losses) for the preceding two completed
fiscal years not in excess of $2 million. If the applicant is not
required by law to pay Federal income taxes at the enterprise level,
but is required to pass income through to its shareholders, partners,
beneficiaries, or other equitable owners,
[[Page 30649]]
the applicant's ``net income after Federal income taxes'' will be its
net income reduced by an amount computed as follows:
(i) If the applicant is not required by law to pay State (and
local, if any) income taxes at the enterprise level, multiply its net
income by the marginal State income tax rate (or by the combined State
and local income tax rates, as applicable) that would have applied if
it were a taxable corporation.
(ii) Multiply the applicant's net income, less any deduction for
State and local income taxes calculated under paragraph (b)(2)(i) of
this section, by the marginal Federal income tax rate that would have
applied if the applicant were a taxable corporation.
(iii) Sum the results obtained in paragraphs (b)(2)(i) and
(b)(2)(ii) of this section.
(c) For the Small Business Investment Company (SBIC) program, an
applicant must meet one of the following standards:
(1) The same standards applicable under paragraph (a) of this
section; or
(2) Including its affiliates, tangible net worth not in excess of
$18 million, and average net income after Federal income taxes
(excluding any carry-over losses) for the preceding two completed
fiscal years not in excess of $6 million. If the applicant is not
required by law to pay Federal income taxes at the enterprise level,
but is required to pass income through to its shareholders, partners,
beneficiaries, or other equitable owners, the applicant's ``net income
after Federal income taxes'' will be its net income reduced by an
amount computed as follows:
(i) If the applicant is not required by law to pay State (and
local, if any) income taxes at the enterprise level, multiply its net
income by the marginal State income tax rate (or by the combined State
and local income tax rates, as applicable) that would have applied if
it were a taxable corporation.
(ii) Multiply the applicant's net income, less any deduction for
State and local income taxes calculated under paragraph (c)(2)(i) of
this section, by the marginal Federal income tax rate that would have
applied if the applicant were a taxable corporation.
(iii) Add the results obtained in paragraphs (c)(2)(i) and
(c)(2)(ii) of this section.
* * * * *
Dated: May 30, 2001.
John Whitmore,
Acting Administrator.
[FR Doc. 01-14222 Filed 6-6-01; 8:45 am]
BILLING CODE 8025-01-P