October 22, 2001

CONGRESS DISRUPTED BY ANTHRAX; TRYING TO MOVE FORWARD

Last week, with a letter containing anthrax received in the office of Sen. Majority Leader Daschle (D-SD), Congressional offices were shut down for the first time in memory. House and Senate office buildings were closed on Thursday, and remained closed at least through today (Monday), with entry denied to the Capitol or the office buildings to most Congressional staffers and visitors (including lobbyists). The House left town a day earlier than planned, although the Senate did meet on Thursday in a show of bravado. Both the House and Senate were previously scheduled to be out of session Friday through Monday, and are scheduled to come back to work on Tuesday. However, with traces of anthrax found in a total of 4 congressional buildings by the end of the weekend, it is unclear when Congress will return to “normal”.

The House Energy and Commerce Oversight hearing on MTBE which was scheduled for last Thursday was postponed. It is now scheduled for this Wednesday, assuming that the anthrax situation is under control by that date. SIGMA’s First Vice President and Legislative Committee Chairman, Mike Ports, will testify at the rescheduled hearing (as he had been scheduled to do last Thursday) on behalf of both SIGMA and NACS. A copy of his testimony will be posted on our website, www.sigma.org, as soon as he has testified.

House action on an economic stimulus package, scheduled for action last Thursday, was postponed until Tuesday or Wednesday of this week. It contains about $100 billion in economic stimulus, much of it in spending. The President is following a dual track, supporting the House bill but having his OMB Director express “alarm” at spending levels so high; he wants something in the range of $45 to $60 billion instead. The House bill includes extensions of the Work Opportunity Tax Credit and the Welfare-to-Work Tax Credit by one year each, through 12/31/03, and delays the effective date of the terminal tax-or-dye mandate for kerosene by 2 years, until 1/1/04. It does not include repeal of the Special Occupational Tax (SOT) on beer and wine retailers as we had hoped. Senate action on economic stimulus will apparently begin next week rather than this week, and will be in the form of a leadership proposal, not something acted on by the Finance Committee. Efforts are underway to include SOT repeal in the Senate bill.

SECURITY CONCERNS RISING FOR PETROLEUM, TRANSPORT

Last Thursday, SIGMA participated in an energy-sector meeting dealing with anti-terrorism security issues for the energy industry, including oil, natural gas, and electricity. We will meet again this Tuesday, and into the future, with the group that is attempting to coordinate security responses. The goal is to ensure good communication among all sectors. One program already underway, and which the combined groups will be working to support, is an “Information Sharing and Analysis Center” or ISAC for the energy industry. This is patterned after a similar center set up by the banking industry for rapid alerts on electronic sabotage (such as computer viruses), and is expected to be up and running by November 1. We will be providing more information on how SIGMA members can join the ISAC over the coming weeks.

Most concern within the energy industry is on protecting the infrastructure – the pipelines, transmission lines, refineries, and gas stations. Marketers also need to address hazmat transport. Like an airplane, a gasoline tanker truck can be converted by a terrorist into a traveling bomb. Governmental actions in response to this concern include:

• The Bush Administration sent legislation to Congress on Oct. 10 to increase DOT’s inspection and enforcement authority over hazardous materials shipments.

• Sen. Snowe (R-ME) has introduced S. 1557 which would require background investigations of drivers of hazardous materials, including gasoline. Employers would have to get fingerprints and photos of job applicants and conduct criminal background checks. The bill would mandate procedures already recommended (but not required) by the Federal Motor Carrier Safety Administration.

• The Congressional Research Service issued a report on Oct. 15 saying hazmat shipments continue to provide many “soft targets” for terrorists, and listed options to reduce the risks to society.
  

FINCEN REPORTING

As part of a multi-faceted response to the September 11 terrorist attacks, the Department of the Treasury has ordered the Financial Crimes Enforcement Network (FinCEN) to review every aspect of its anti-money laundering efforts. The most immediate change has been the establishment of a 24-hour hotline that banks, financial institutions, and other money services businesses (MSBs) can use to report suspicious activity. It will operate seven days a week, 24-hours a day.

Under current regulations, banks and other financial institutions are required to file written "Suspicious Activity Reports" (SARs) with FinCEN if they suspect that transactions are suspicious in nature. Sometime in 2002, FinCEN plans to implement final regulations that will extend the SAR reporting requirement to a wider range of MSBs, including convenience stores that engage in check cashing or selling money orders. However, FinCEN encourages all financial institutions and MSBs to immediately report suspicious activity via the new hotline.

The number to the FinCEN hotline is 1-866-556-3974. SIGMA members are, of course, encouraged to contact local law enforcement or the local office of the FBI if suspicious behavior possibly related to terrorist activity is observed.


DEPRECIATION RELIEF

In response to the terrorist attacks, the IRS has issued Notice 2001-70 on Oct. 18, providing depreciation relief to taxpayers for property acquired in the final quarter of 2001. In general, depreciation rules treat all property placed in service during any taxable year as placed in service on the mid-point of the taxable year (the so-called “half-year” convention). To provide a disincentive to taxpayers who would acquire depreciable property at the end of the year expecting to benefit from the half-year convention, the tax code requires taxpayers to use a mid-quarter convention if more than 40% of new property is placed in service during the final quarter. (Non-residential real property and residential rental property are treated differently.)

The “relief”, allowing use of the half-year convention instead of the mid-quarter convention, applies to tax years for which the third quarter includes Sept. 11, 2001. Until regulations are issued, taxpayers electing to opt out of the mid-quarter convention should write “Election Pursuant to Notice 2001-70" across the tops of their 2001 Forms 4562, Depreciation and Amortization.

For more information, contact SIGMA tax attorney Doug Charnas at 202-857-1757.

PRICE SURVEY ON WEB

The survey of marketers about wholesale and retail price and availability on and after September 11, co-sponsored by SIGMA, has now been completed. The complete report is available on our website, www.sigma.org. Among the facts it discovered or confirmed:

• Retail demand was up as much as 500% for some retailers, comparing 9/10 sales to 9/11 sales. Average demand increases were highest in the Midwest, at 230%, and lowest in the Northeast, at only 15%.

• Wholesale price increases began within hours of the terrorist attacks, and some suppliers raised prices multiple times that day. In addition, many suppliers instituted allocations, severe penalties for overpulls, and in some cases cut off unbranded customers entirely.

• Marketers responses to this double-whammy ranged from maintaining prices (hoping it was temporary), passing on price increases, and (in a few limited cases) attempting to drive demand elsewhere with dramatic price increases.

• Despite some panicked behavior by some – consumers, marketers, and refiners – on Sept. 11, markets quickly returned to normal.  

NOMINATING COMMITTEE

The SIGMA Nominating Committee submits the following names for election as SIGMA officers and directors, to be elected during the Annual Meeting on Monday, Nov. 12, 2001::

For 1-year terms as Officers:

President - Mike Ports, Ports Petroleum Co., Inc.

First Vice President - Art DeBlois, DB Companies, Inc.

Second Vice President - Bill Shipley, Shipley Energy

Secretary-Treasurer - Paul Reid, Reid Petroleum Corp.

Immediate Past President - Tom Robinson, Robinson Oil Corp.

For 3-year terms as Directors:

Jon Day, Hometown Inc., Milwaukee, WI

Jon Stewart, Tri Star Marketing, Inc., Urbana, IL

Rick Crawford, Midjit Market, Inc., Las Vegas, NV

An additional Director nominee will be named prior to the meeting.