HB3430 Reporting Requirements — Determining Potential Effects on Small Businesses

House Bill 3430 (HB3430), approved by the 80th Legislature in 2007, requires the Attorney General, in consultation with the Comptroller, to prepare guidelines to assist state agencies with determining whether proposed rules may have adverse economic effects on small businesses. This includes determining the number of small businesses subject to the proposed rules. The new law defines "small business," in part, as those having fewer than 100 employees or less than $6 million in annual gross receipts.

To help agencies make these determinations, the Comptroller's office is providing online information on the number of Texas small businesses, as defined in HB3430, in various industry categories, in addition to employment numbers in small businesses for industry categories.

To use the Comptroller's data, you must:

Determine the industry or industries a proposed rule will affect, according to the categories of the North American Industry Classification System (NAICS).

If you do not know the NAICS code or codes for the industries you believe will be affected, consult the NAICS Web page , which provides a keyword search function. Enter a word or words that generally describe the business in question. For example, entering "restaurant" will produce a complete listing of NAICS codes related to the restaurant industry.
Record the first four (4) digits of the 6-digit number associated with each industry.
Consult the Comptroller's NAICS table to find the number of Texas small businesses associated with each industry and their total number of employees.

Note: The data table provides business counts and employee numbers for all businesses defined by two-, three- and four-digit NAICS codes, which describe increasingly specific divisions of industry. Choose the level you believe appropriate. For instance, if you believe a proposed rule will affect only manufacturers of agricultural machinery, choose NAICS code 3331; if you believe it will affect all machinery manufacturers, choose NAICS code 333.

NAICS Table Sample

NAICS	NAICS Description	Number of Businesses in Industry	Number of Small Businesses as defined under HB3430*	Total Industry Employment	Total Employment in Small Businesses as defined under HB3430*
11	Agriculture/Forestry/Fishing/Hunting	9,962	9,616	319,736	142,253
111	Crop Production	4,464	4,346	95,930	55,245
1111	Oilseed and Grain Farming	572	566	7,059	5,900
1112	Vegetable and Melon Farming	150	132	7,717	2,559
1113	Fruit and Tree Nut Farming	169	162	4,147	2,961
1114	Greenhouse, Nursery, and Floriculture Production	412	341	38,881	8,689
1119	Other Crop Farming	3,161	3,145	38,126	35,136
112	Animal Production	3,405	3,289	128,960	49,192
1121	Cattle Ranching and Farming	2,624	2,533	56,821	39,047
1122	Hog and Pig Farming	21	18	2,800	235
1123	Poultry and Egg Production	113	100	59,408	1,626
1124	Sheep and Goat Farming	69	69	927	927
1125	Animal Aquaculture	49	47	1,034	692
1129	Other Animal Production	529	522	7,970	6,665
113	Forestry and Logging	365	356	22,866	6,972
1131	Timber Tract Operations	34	32	7,773	449

Methodology Used for the NAICS Table

To determine what constitutes a small business, the Texas Workforce Commission (TWC) provided the number of employees — by industry — for each business. The Comptroller's office then used the U.S. Census Bureau's 2002 Economic Census — at the 4-digit NAICS code level to determine:

the annual gross sales in each industry; and
the number of total employees in each industry.

If the average gross sales per 100 employees was greater than $6 million for a particular industry, the Comptroller's office used the TWC data to determine how many establishments actually had fewer than 100 employees.

Because it is possible for the typical business in some industries to need more than 100 employees to reach $6 million in sales, a higher employment level was used in some cases to determine the number of small businesses within that industry.

To estimate the number of small businesses in the agriculture industry, the Comptroller's office used Texas Cooperative Extension agricultural receipts data from 2002. The receipts data was matched with 4-digit NAICS codes to help determine which agricultural industries generate less than $6 million in receipts per 100 employees.

Extract of HB3430, Sections 2 and 3:

 	       SECTION 2.  Sections 2006.001(2) and (3), Government Code,
  	are amended to read as follows:
  	             (2)  "Small business" means a legal entity, including a
  	corporation, partnership, or sole proprietorship, that:
  	                   (A)  is formed for the purpose of making a profit;
  	                   (B)  is independently owned and operated; and
  	                   (C)  has fewer than 100 employees or less than $6 
  	[$1] million in annual gross receipts.
  	             (3)  "State agency" means a department, board, bureau,
  	commission, division, office, council, or other agency of the state
  	and includes an officer who is authorized by law to determine
  	contested cases.
  	       SECTION 3.  Section 2006.002, Government Code, is amended by
  	amending Subsections (c) and (d) and adding Subsections (c-1) and
  	(g) to read as follows:
  	       (c)  Before adopting a rule that may [would] have an adverse
  	economic effect on small businesses, a state agency shall prepare:
  	             (1)  an economic impact statement that estimates the
  	number of small businesses subject to the proposed rule, projects
  	the economic impact of the rule on small businesses, and describes
  	alternative methods of achieving the purpose of the proposed rule;
  	and
  	             (2)  a regulatory flexibility analysis that includes
  	the agency's consideration of alternative methods of achieving the
  	purpose of the proposed rule.
  	       (c-1)  The analysis under Subsection (c) shall consider, if
  	consistent with the health, safety, and environmental and economic
  	welfare of the state, using regulatory methods that will accomplish
  	the objectives of applicable rules while minimizing adverse impacts
  	on small businesses.  The state agency must include in the analysis
  	several proposed methods of reducing the adverse impact of a
  	proposed rule on a small business [a statement of the effect of the
  	rule on small businesses. The statement must include:
  	             [(1)     an analysis of the cost of compliance with the
  	rule for small businesses; and
  	             [(2)     a comparison of the cost of compliance for small
  	businesses with the cost of compliance for the largest businesses
  	affected by the rule, using at least one of the following standards:
  	                   [(A)  cost for each employee;
  	                   [(B)  cost for each hour of labor; or
  	                   [(C)  cost for each $100 of sales].
  	       (d)  The agency shall include the economic impact statement
  	and regulatory flexibility analysis [statement of effect] as part
  	of the notice of the proposed rule that the agency files with the
  	secretary of state for publication in the Texas Register and shall
  	provide copies to the standing committee of each house of the
  	legislature that is charged with reviewing the proposed rule.
  	       (g)  The attorney general, in consultation with the
  	comptroller, shall prepare guidelines to assist a state agency:
  	             (1)  in determining a proposed rule's potential adverse
  	economic effects on small businesses; and
  	             (2)  in identifying and evaluating alternative methods
  	of achieving the purpose of a proposed rule.