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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: April 4, 2003

SUBJECT: Small Business Administration; Small Business Size Standard for Tour Operators

SOURCE: Federal Register, March 28, 2003, Vol. 68, No. 65, page 16405

AGENCIES: Small Business Administration (SBA)

ACTION: Final Rule

SYNOPSIS: SBA is modifying the way average annual receipts are calculated for firms in North American Industry Classification System (NAICS) 561520, Tour Operators. The revised method excludes funds received in trust for unaffiliated third parties from the calculation of a tour operator's receipts. SBA retains the size standard of $6.0 million.

EDITOR'S NOTE: For more on the proposed rule, see the October 2, 2002, FEDERAL CONTRACTS DISPATCH "Small Business Administration; Small Business Size Standard for Tour Operators."

The SBA's regulations are in Title 13 of the Code of Federal Regulations (CFR). The SBA small business size regulations are in Chapter 1, Small Business Administration; Part 121, Small Business Size Regulations; Subpart A, Size Eligibility Provisions and Standards; Section 121.201, What size standards has SBA identified by North American Industry Classification System codes?

EFFECTIVE DATE: May 5, 2003.

FOR FURTHER INFORMATION CONTACT: Robert Ray, Office of Size Standards, 202-205-6618.

SUPPLEMENTAL INFORMATION: In response to industry requests, SBA published on October 2, 2002, a proposed rule that would modify the way average annual receipts are calculated for firms in North American Industry Classification System (NAICS) 561520, Tour Operators, while retaining the size standard of $6 million. Members of the tour operators industry requested that SBA exclude monies passed through to suppliers of travel components (that is, meals, transportation, lodging, and sightseeing and entertainment) from the calculation of a tour operator's average annual receipts. These monies typically account for 80% to 95% of a tour operator's receipts.

Section 121.104, How does SBA calculate annual receipts?, provides that the receipts of a firm are based 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. However, tour operators argued that receipts collected for payment to the actual transportation and lodging providers that are reimbursed by a tour operator should not be included in the calculation of average annual receipts for purposes of determining the size of a tour operator. After evaluating the tour operators industry, SBA agreed and published the proposed rule.

SBA received six comments on 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). All six commentators supported the revised method of calculating the average annual receipts of a tour operator and retaining the $6 million size standard. Therefore, SBA is adopting the proposed rule as final without change.

The final rule revises footnote 10 of the small business size standards table in Section 121.201 to read as follows:

"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."

With this change, 2,960 out of 3,222 tour operators are now considered small, an increase of 238. These additional 238 tour operators generate 21% of sales in the industry.

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

Copyright 2003 by Panoptic Enterprises. All Rights Reserved.

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