DATE: June 7, 2001
SUBJECT: Small Business Administration; Size Eligibility Requirements for Financial Assistance and Size Standards for Agriculture
SOURCE: Federal Register, June 7, 2001, Vol. 66, No. 110, page 30646
AGENCIES: Small Business Administration (SBA)
ACTION: Direct Final Rule
SYNOPSIS: SBA is revising its regulations to implements legislative changes to size eligibility requirements for assistance from Small Business Investment Companies (SBICs) and Certified Development Companies (CDCs), and the size standards for most of the agriculture industry.
EDITOR'S NOTE: The SBA's regulations are in Title 13 of the Code of Federal Regulations (CFR), Chapter 1, Small Business Administration. A business seeking financial assistance from an SBIC or an CDC must qualify as a small business concern as defined in Part 121, Small Business Size Regulations, Section 121.301, What size standards are applicable to financial assistance programs? A business applying for SBIC financial assistance may also need to qualify as a "smaller enterprise" under the requirement of Part 107, Small Business Investment Companies, Section 107.710, Requirement to Finance Smaller Enterprises. The SBA small business size regulations are in Part 121, Section 121.201, What size standards has SBA identified by North American Industry Classification System codes? The small business size regulations are available at http://www.sba.gov/size/Table-of-Small-Business-Size-Standards-from-final-rule.htm.
This rule is being published as a "direct final rule," which SBA reserves for rules it believes are noncontroversial. SBA believes this rule is noncontroversial because it is merely implements provisions of Public Laws 106-9 and 106-554 and, therefore, will elicit no significant adverse comment. However, if SBA receives any adverse comments, it will withdraw the rule, consider the comments, then possibly publish a proposed rule in a future edition of the Federal Register.
DATES: This rule will become effective on August 6, 2001, without further notice, unless SBA receives adverse comments by July 9, 2000.
ADDRESSES: Send written comments to Gary M. Jackson, Assistant Administrator for Size Standards, U.S. Small Business Administration, 409 Third Street, SW, Mail Code 6530, Washington, DC 20416; e-mail: firstname.lastname@example.org.
FOR FURTHER INFORMATION CONTACT: Diane Heal, Office of Size Standards, 202-205-6618.
SUPPLEMENTAL INFORMATION: SBICs/CDCs: A business seeking financial assistance from an SBIC or a CDC must qualify as a "small-business concern" as defined in 13 CFR 121.301(b) for CDCs and 13 CFR 121.301(c) for SBICs (for applicants to CDCs, a tangible net worth not in excess of $6 million, and average net income after federal income taxes for the preceding two completed fiscal years not in excess of $2 million; for applicants to SBICs, a tangible net worth not in excess of $18 million, and average net income after federal income taxes for the preceding two completed fiscal years not in excess of $6 million). For SBIC financial assistance, a business also may need to qualify as a "smaller enterprise" as defined in 13 CFR 107.710(a) (a tangible net worth not in excess of $6 million, and average net income after federal income taxes for the preceding two completed fiscal years no greater than $2 million). 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, the Small Business Investment Improvement Act of 1999 (Public Law 106-9) became effect. 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.
To implement this provision of Public Law 106-9, this direct final rule revises Sections 121.301(b), 121.301(c) and 107.710(a) to permit a business 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 computes this deduction by multiplying its net income 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: On December 21, 2000, the Small Business Reauthorization Act of 2000 (Public Law 106-554) went into effect. Section 806 of the 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 industries under the following 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). However, NAICS codes 112112, Cattle Feedlots, and 112310, Chicken Egg Production, are not affected by the legislation since their size standards are currently above $750,000. Those size standards remain at $1,500,000 and $9,000,000, respectively.
FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.
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