October 8, 2001

PETROLEUM MARKETING DRAWN INTO WAR ON TERRORISM

The petroleum marketing and convenience store industries are being asked to tighten procedures in two major areas as part of the domestic effort to prevent terrorist attacks.

The first area is hazardous materials transport. Over the next few weeks, the Federal Motor Carrier Safety Administration and related state agencies plan to perform security visits to all transporters of hazardous materials, including motor fuels. These visits will focus not on overall compliance, but on driver records. Given the devastation that can be caused by intentional misuse of fuels and the vehicles that transport them, plus indications that terrorists have tried to get Hazmat driver licenses, SIGMA joins with the government in urging all members to maintain a heightened level of alertness for anyone or anything that could pose a threat.

The second area is suspicious financial activity. Regulations under the Financial Crimes Enforcement Network (FinCEN) that would apply directly to our industry will not go into effect until sometime next spring. However, in response to the Sept. 11 attacks, FinCEN has set up a hotline for all types of money services businesses, including c-stores that engage in check-cashing or money order businesses, to make "Suspicious Activity Reports". The number to the FinCEN hotline is 1-866-556-3974. SIGMA members are also encouraged to contact local law enforcement or the local office of the FBI if suspicious behavior possibly related to terrorist activity is observed. (In a related development, the Senate Banking Committee last week passed new anti-terrorist legislation that includes provisions that will affect c-stores, if enacted into law.)

DIESEL SULFUR BRIEF FILED

SIGMA joined with NPRA, API, NACS, and a private company (Antek Instruments) in filing a brief with the Court of Appeals in an attempt to block EPA from implementing its diesel sulfur rule. That rule, as currently structured, would require massive reductions in diesel sulfur by 2006 and would include a phase-in period during which marketers would effectively be required to sell two segregated on-road diesel products. In the brief, the groups argued that EPA failed to address the costs imposed on marketers, in violation of the Small Business Regulatory Enforcement Fairness Act (SBREFA). We also argued that EPA failed in its duty to ensure adequate supplies of diesel during the transition. Oral arguments will be in February.

Meanwhile, EPA Administrator Whitman says that an independent review of whether industry will be able to comply with the rule won't begin until next May, and even then would not look at the option of changing the rule. Her message was in a Sept. 27 letter to Sen. Jeffords (I-VT).

TAX EVASION ISSUES

The U.S. Supreme Court has declined to review a case involving sales of motor fuel by a Michigan facility which claimed exemption from taxes because all customers leaving the facility were immediately crossing into Canada. The lower court had ruled that there was no exemption from the taxes; that ruling remains in force. Some time ago, SIGMA and others became aware of situations of this type, where at least one such outlet was trying to qualify as a bonded warehouse for imported goods, thereby allowing it to avoid payment of both Federal and state taxes. We called it to the attention of the IRS, which took action. With the Supreme Court decision not to intervene, this attempt to create a tax "loophole" has been closed.

There remains a significant area where some retailers have a significant competitive advantage due to unequal enforcement of tax laws: tribal enterprises in some states. SIGMA continues to work with the CASETE coalition in support of legislation sponsored by Rep. Young (R-AK). We have been meeting on Capitol Hill lining up co-sponsors and have met with the Bureau of Indian Affairs. Action is expected next year. Separately, NACS and others have appealed to the U.S. Supreme Court the decision by New York state to not collect cigarette and motor fuel taxes from Native American retailers.

ECONOMIC STIMULUS PACKAGE

The White House and Congress have agreed to seek a stimulus package to try to jump-start the lagging U.S. economy. However, they are still far apart on the details. Republicans are pushing for a program of significant business tax cuts, including a cut in capital gains rates, investment tax credits, and even repeal of the corporate alternative minimum tax. Democrats are pushing for a $1 per hour minimum wage increase, unemployment insurance and health insurance benefits for displaced workers, tax rebates for those who pay only payroll taxes, and other spending programs. There is talk of a 50/50 split between tax cuts and spending increases, but even that is subject to dispute of how to count various items (Was it already planned? Do you count only first-year costs or costs over the life of the provision?) Meetings are taking place behind-the-scenes in an attempt to work out a compromise that will not jeopardize the spirit of bipartisanship currently reigning in DC.

MTBE DEVELOPMENTS

A variety of developments related to MTBE:

• California, which has banned the use of MTBE in gasoline after the end of next year, may be moving to delay the ban by a year or two (or maybe not B there are conflicting reports). The reason: failure of EPA to grant a waiver from the oxygenate mandate might leave the state facing product shortages due to difficulties in obtaining enough ethanol.
   

• A study funded by the Methanol Institute claims that the problem of MTBE-contaminated water supplies in California has been greatly overstated and that cleanups are manageable. In 1998, it was projected that 60 to 340 drinking water wells would become contaminated, in addition to 35 already impacted. The new study suggests that new contamination will only affect about 16 new wells, and argues that early detection of leaking USTs is the answer B rather than banning MTBE.
   

• A federal court in New York has consolidated several class action lawsuits against several major oil companies over MTBE contamination. In the ruling, the court validated the standing of some claims, but narrowed the field of who can pursue claims.

ENERGY POLICY MOVING AGAIN

The Senate Energy and Natural Resources Committee will return to consideration of energy policy legislation the week of Oct. 15, according to Chairman Bingaman (D-NM). In addition, a markup will be held this Wednesday on a bill to address "urgent infrastructure security needs."

SIGMA CONVENTION SHAPES UP

Exciting things are happening as we re-shape the SIGMA Annual Meeting in Seattle to deal with the new realities. If you haven=t yet selected those from your company who will attend, we urge you to begin making plans right away!

• The Deputy Secretary of Energy, Francis Blake, has been confirmed as our featured speaker on Monday, Nov. 12. He is #2 in the department behind Secretary Abraham.
   

• A major educational session has been added on Saturday afternoon, dealing with "Lessons Learned" from Sept. 11 and the aftermath and making preparations for a future emergency.
   

• The Fuel Supplier Relations Committee meeting on Sunday is expanded to include an educational panel on fuel supply issues.
   

• A speaker on the revised economic outlook will be added to the General Session on Monday morning.
   

• The Marketer Operations Committee has an expanded time slot on Monday afternoon to deal with new marketing realities and security concerns.
   

• In order to accommodate these educational sessions, the motor fuel outlet tour has been cancelled.
   

• Instead of our separate buffet breakfast and prayer breakfast, we'll have a combined "God Bless America" breakfast on Sunday morning.
   

• The Sheraton Seattle has extended until October 19 the cutoff date for rooms.

Great airfares are currently available. Make plans now to attend, or send someone else from your company. You need to be represented at this important meeting!

MISCELLANEOUS TIDBITS

In a case involving United Dairy Farmers, the Sixth Circuit Court upheld a decision by the IRS that remediation of contaminated soil at a newly-purchased property is not deductible but must be capitalized. The key test was whether the costs merely restored the property to its pre-contamination value; the court held that its value was determined at the time of the purchase . . . IRS has issued Announcement 2001-98 to advise taxpayers who file Form 720 Quarterly Federal Excise Tax Return of revised filing and deposit requirements, effective with the current quarter that began Oct. 1. Various deadlines for making semimonthly deposits are consolidated to the 14th of each month (or the last preceding business day). A few other changes are also made . . . The Energy Department is projecting that fuel prices will be sharply lower this winter, compared to last year, based on strong inventories and sagging demand . . . A Senate committee is scheduled to vote Wednesday on the nomination of Eugene Scalia for the top legal post at the Labor Department. He is son of Supreme Court Justice Scalia.