Concepts in Staffing, Inc., No. 4547 (April 9, 2003) Docket No. SIZ-2003-01-02-02 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. ) ) Docket No. SIZ-2003-01-02-02 SIZE APPEAL OF: ) ) Concepts in Staffing, Inc. ) Decided: April 9, 2003 ) Appellant ) ) SBA Disaster Loan Application ) No. 9M49-01157 ) ) APPEARANCE Sydney Nurse, Controller Concepts in Staffing, Inc. for Appellant DIGEST When one individual is President and sole shareholder of four firms, the firms are affiliated through common ownership and common management, and their annual receipts must be aggregated when determining their size. SBA must not deduct from a firm's receipts its commissions paid to recruiters when determining its annual receipts. SBA must use a firm's last three completed fiscal years when determining its annual receipts, and may not take account of a recent drop in revenues. DECISION HOLLEMAN, Administrative Judge: Jurisdiction This appeal is decided under the Small Business Act of 1958, 15 U.S.C. Section 631 et seq., and 13 C.F.R. Parts 121 and 134. [1] Issues Whether, when one individual is President and sole shareholder of four firms, the firms are affiliated through common ownership and common management, and their annual receipts must be aggregated when determining their size. Whether SBA must deduct from a firm's receipts its commissions paid to recruiters when determining its annual receipts. Whether SBA may take account of a recent drop in a firm's revenues in determining its annual receipts. I. BACKGROUND On October 9, 2001, Concepts in Staffing, Inc. (Appellant) applied for financial assistance from the Small Business Administration (SBA), under the Expanded Economic Injury Disaster Loan (EIDL) program and the disaster declaration for the September 11, 2001 terrorist attacks. On October 24, 2001, SBA declined Appellant's loan application because it was not a small business. On September 9, 2002, Appellant requested reconsideration of its application. On September 17, 2002, SBA's Disaster Assistance Office -- Area 1, in Niagara Falls, New York (Area Office) informed Appellant it must submit copies of its tax returns and certain other information. On September 24, 2002, Appellant submitted the requested information. On December 20, 2002, the Area Office issued a size determination finding Appellant other than small. The effective date for the size determination was March 15, 2002. [2] The Area Office designated North American Industry Classification System (NAICS) code 561310, Employment Placement Agencies, with a corresponding annual receipts size standard of $7.5 million, as the appropriate NAICS code for Appellant. [3] According to Appellant's SBA Form 355, Mona Abrams is its President and sole shareholder. Ms. Abrams is also President and sole shareholder of the three other firms; Corporate Management Associates, Inc., Computer Information Contractors, Inc., and Concepts in Temps, Inc. The Area Office found Appellant was affiliated with Corporate Management Associates, Inc., Computer Information Contractors, Inc., and Concepts in Temps, Inc. Appellant had maintained to the Area Office that the amount which it paid in commissions to recruiters should not be included in its annual receipts. The Area Office rejected this contention, reviewed Appellant's annual receipts for the years 1999 - 2001, together with those of its affiliates for the same years, and concluded their combined annual receipts exceeded the applicable size standard, and that Appellant was thus other than small. On January 2, 2003, Appellant filed the instant appeal. Appellant asserts that 50% to 60% of its gross receipts are paid in commissions to its recruiters, and that its income is thus 50% to 60% less than that indicated on its tax returns. Appellant also asserts that its sales have declined while its expenses remain the same, forcing it to operate at a loss. Appellant requests that its size be determined by taking the amount of its "Sales, Less the Cost of Sales." On January 13, 2003, Appellant filed a supplemental pleading, arguing that because there are several separate companies, each in a different line of business with its own employer tax identification number, the Area Office should not have aggregated the companies' annual receipts in making its size determination. Appellant admits that Mona Abrams is the President and owner of Appellant, Computer Information Contractors, and Corporate Management Associates. II. DISCUSSION Appellant filed the instant appeal within 30 days of receiving the size determination, and thus the appeal is timely. 13 C.F.R. Section 134.304(a)(2). Appellant has the burden of proving, by a preponderance of the evidence, all elements of its appeal. Specifically, it must prove the Area Office size determination is based on a clear error of fact or law. Size Appeal of Rebmar, Inc., SBA No. SIZ-4173, at 4 (1996); 13 C.F.R. Section 134.314. In determining size, SBA must combine the receipts of the concern whose size status is at issue with those of all its affiliates. 13 C.F.R. Section 121.103(a)(4). Concerns are affiliates of each other when one concern controls or has the power to control the other, or a third party controls or has the power to control both. 13 C.F.R. Section 121.103(a)(1). SBA considers factors such as common ownership and common management in determining affiliation. 13 C.F.R. Section 121.103(a)(2). SBA treats individuals or firms which have identical or substantially identical business or economic interests as one party. 13 C.F.R. Section 121.103(a)(3). Here, Appellant and the other three firms all have the same sole shareholder and President, and thus they are clearly affiliated. Size Appeal of Rochester Hospitality Company, SBA No. SIZ-4495, at 4 (2002). The fact that the firms may be in different lines of business is irrelevant to the issue of whether they are affiliated, if there is common ownership and management. Size Appeal of Ridge Instrument Co., Inc., SBA No. SIZ-4207, at 5-6 (1996). Thus, it clear that the four firms were affiliated, and that the Area Office properly aggregated their annual receipts in making the size determination The Area Office properly relied on Appellant's tax returns in calculating its annual receipts. A concern's receipts are determined by "total income" and "cost of goods sold" as those terms are defined by the Internal Revenue Service. 13 C.F.R. Section 121.104(a)(1). SBA must use these figures to calculate a firm's receipts, unless it has reason to believe the returns are false. Size Appeal of Phillips National, Inc., SBA No. SIZ-4332, at 8 (1998). The Area Office clearly did this. Appellant's receipts, even without affiliates, exceeds the applicable size standard. Appellant seeks to exclude its commissions paid to recruiters, but the regulation explicitly lists those items which may be excluded from a firm's receipts, and commissions paid to recruiters are not among them. 13 C.F.R. Sections 121.104(a)(1); 121.201, n.10. Accordingly, the Area Office was correct in not excluding these items when calculating Appellant's receipts. Size Appeal of Feola, Inc., d/b/a F +A Architects. SBA No. SIZ-4528, at 4 (2003). The fact that Appellant's receipts have recently declined is irrelevant in calculating the amount of its annual receipts. The regulations require that annual receipts be calculated by adding together the receipts of the last three completed fiscal years of Appellant and its affiliates, and dividing the resulting sum by three. 13 C.F.R. Section 121.104(b)(1). A review of the record establishes that the Area Office did just that in calculating Appellant's annual receipts. Accordingly, the Administrative Judge must reject Appellant's request to consider its recent reverses in determining its size. Appellant has thus failed to establish that there is any clear error of fact or law in the Area Office's size determination, and this Office must deny its appeal. III. CONCLUSION For the above reasons, the Administrative Judge AFFIRMS the Area Office's size determination and DENIES the instant appeal. This is the final decision of the Small Business Administration. 13 C.F.R. Section 134.316(b). CHRISTOPHER HOLLEMAN Administrative Judge _________________________ 1 The Small Business Administration (SBA) has revised its regulations governing the small business size determination program and appeal procedures. 67 Fed. Reg. 47244 (July 18, 2002) (Final Rule). Because the size determination, which is the subject of this appeal, was issued after the effective date of this rule (September 16, 2002), the amended regulations apply to this appeal. See Final Rule at 47244. The amended regulations are available in codified form through this Office's home page at www.sba.gov/oha. 2 Under the Expanded EIDL program and disaster declarations for the September 11, 2001 terrorist attacks, the applications of firms which were submitted before March 15, 2002, and denied because of size status are deemed resubmitted on March 15, 2002, and their size is determined as of that date. 67 Fed. Reg. 11874, 11880 (March 15, 2002) (to be codified at 13 C.F.R. Sections 121.302(c), 123.300(b), and 123.601(b)). 3 Effective February 22, 2002, the SBA changed the size standard for NAICS code 561310 to $6 million. 67 Fed. Reg. 3041, 3053 (Jan. 23, 2002). Because Appellant will operate within a Labor Surplus Area, the size standard is increased by 25%. 13 C.F.R. Section 121.301(e). Posted: May, 2003