### United States

Department of Agriculture Anim al and Plant Health Inspection Service April 2012 Regulatory Impact Analysis &

Initial Regulatory Flexibility Analysis Proposed Rule APHIS - 2011 - 0003 RIN 0579 -AD57 Revision of the Definition of Retail Pet Store

Policy & Program Development Policy Analysis & Developmenti



### Summary The current definition of retail pet store was established to ensure that the appropriate retail facilities were exempt from licensing requirements. Historicall y, such outlets included hobby breeders, as well as traditional “ retail pet stores” that are subject to a degree of oversight by persons who phy sically

enter their place of business to personall y observe the animals offered for sale prior to purchase and/or to take custody of the animals after purchase. With the increased use of the Internet in the 1990s, some retailers began to offer their animals for sale remotely over the Internet and sell ing and transport ing their animals nationwide. As a result,
c ustomers of these businesses are often unable to enter the retailer’s place of business to observe the animals before taking them home. Thus, APHIS believes that they lack sufficient public oversight to ensure the humane treatment and care of these animals. Because the current definition of “retail pet store” in cludes all retail outl ets, with the limited exceptions discussed above, retailers selling animals by an y means, including remote sales conducted over the Internet or by mail, telephone, or any

other means where the customers do not ph ys ically enter a ph ys ical storefront, qualif

y as retail pet stores and are exempt from the licensing requirements, even if they lack the public oversight

. To ensure that each animal sold at retail for use as pets are monitored for th eir health and humane treatment, the proposed rule would narrow the definition of “retail pet store” to onl y those places of business or residence that each buyer ph ys icall y enters in order to personally observe the animals available for sale prior to purchase and/or to take custody of the animals after purchase, and wher e only the following animals are sold or offered for s ale, at retail, for use as pets: Dogs, cats, rabbits, guinea pigs, hamsters, gerbils, rats, mice, gophers, chinchilla, domestic ferrets, domestic farm animals, birds, and coldblooded species. As a res ult of thisii

proposed change, entities that sell or intend to sell their animals remotel y would have to comply with the AWA regulations and standards and obtain an Animal Welfare Act (AWA) license , unless otherwise exempted from the regulations. The AWA pr ovisions to which regulated entities would become subject include identification of animals, recordkeeping, facility maintenance, periodic veterinary care, shelter construction, and sanitation , among others

. APHI S’ regulations in § 2.1(a)(3)(iii) currentl y provide an exemption from licensing requirements for persons who maintain a total of three or fewer breeding female dogs, cats, and/or small exotic or wild mammals and who sell only the offspring of these dogs, cats, or small exotic or wild mammals, whic h were born and raised on the premises, for pets or exhibition. The proposed rule would expand this exemption to persons who maintain a total of four or fewer breeding females , regardless if those animals are sold at retail or wholesale

. Persons who deri ve less than $500 gross income from the sale of animals, other than dogs, cats, and exotic or wild animals, would continue to be exempt from licensing requirements. Should this rule be adopted, persons who sell covered animals to an y buyer who do es not enter their facility

to observe the animals prior to purchase and/ or to take custody of the animals after purchase , such as remote sales conducted over the Internet where the customer does not enter a storefront at an y point in time , would need to obt ain a license in accordance with AWA regulations and would become subject to other AWA provisions as described below

. APHIS expects that this rule would primarily affect dog breeders that maintain more than four breeding females at their facilities. Whil e the scope of this rule applies to certain other animals, as a practical matter, most of retailers of animals other than dogs would meet the proposed definition of “retail pet store” and continue to be exempt from regulation. APHI S estimates that there m ay be around 1,5 00 dog breeders who are not currently subject to the AWA regulations but wouldiii

be required to be licensed as a result of this proposed rule. We base this estimate on the ratio of retail dog breeders to wholesale dog breeders, and the percentage of licensed wholesale breeders with more than four breeding females. There are currentl y about 1,020 retail breeders regulated by the States of Iowa, Kansas , and Missouri. 1 In 201 1, 48 percent of wholesale breeders regulated b y USDA were located in those three States. 2 We a ssum e a similar percentage for retail breeders to arrive at a nationwide total (1,020/0.48 = 2,125). Current USDA and State data cover breeders with more than three breeding females. Our inspection data suggests that about 69 percent of currentl y regulated wholesale breeders have more than four breeding females, based on a rough estimate of the average number of puppies across breeds at those facilities. Using these factors, we extrapolate that there are about 1,500 U.S. retail breeders who would be newly subject to regulation (2,125*0.69=1,466)

. This figure is likely overly inclusive, as it assumes that all retail breeders , except for traditional retail pet s tores and hobby breeders, would be regulated

. However, th o se retailers for which each buyer visit s their place of business prior to purchase or taking custody would continue to be exempt from regulation

. In addition to obtaining a license , regulated entit ies must comply with animal identification and recordkeeping requirements. Licensed entities are also subject to standards that address the following: Facilities and operations (including space, structure and construction, waste disposal, heating, ventil ation, lighting, and interior surface requirements for indoor and outdoor primary

enclosures and housing facilities); animal health and husbandry (including requirements for veterinary care, sanitation and feeding, watering, and separation of animals);

1 Internal APHIS communication. 2 2011 APHIS, Animal Care, data on licensed Class A breeders.iv

and transportation (including specifications for primary enclosures, primary

conveyances, terminal facilities, and feeding, watering, care, and handling of animals in transit). S ome affected entities may need to make infrastructural and/or operational changes in order to compl y with the standards. Based on our experience with regulating wholesale breeders, the most common areas of regulatory non - compliance at pre

- licensing inspections are veterinary care, facility

maintenance and construction, shelter constru ction, primary enclosure minimum space requirements, and cleaning and sanitation. Assuming patterns of non

- compliance b y retail breeders newl y regulated by this rule would be similar to those observed in pre - licensing inspection of wholesale breeders , we estimate that the total cost attributable to the propos ed rule may range from $ 2.2 million to $ 5.5 million. The majority of businesses that would be affected are likel y to be small entities. Expanding the licensing exemption from three or fewer breeding females to four or fewer breeding females could substantially reduce the number of C lass A licensees (breeders). APHIS inspection data suggest that the number of current Class A licensees , 2,064 , could be reduced b y about 638 facilities ( 31 percent) due to this increase in the exemption threshold. L icensing fees range from $40 to $760 annually , depending on a facility ’s ye arl y income from the sale of regulated animals

. In 2010, more than 85 percent of Class A licensees had gross income associated with l icense fees of between $70 and $235. Assuming that the entities no longer required to be licensed fall in this range, total cost savings b y these entities could range from about $45,000 to about $150,000 per ye ar . Although we have attempted to estimate the impact of this proposed rule, w e do not currentl y have enough information to fully assess it , particularly information on the number of entities that may

be affected or breadth of operational changes that may result. We encouragev

public comment on the number of entities that may be affected and the degree to which operations would be altered to comply with the rule. We believe that the benefits of this rule, primarily enhanced animal welfare, would justify the c osts. The rule would help ensure th at animals sold at retail , but lacking public oversight receive humane handling, care and treatment in keeping with the requirements of the AWA. It would also address the competitive disadvantage of retail breeders who adhere to the AWA regulations , when compared to those retailers who do not operate their facilities according to AWA standards and may therefore bear lower costs

. These benefits are not quantified

.vi



### Table of Contents Summary

................................ ................................ ................................ .............................. i Introduction

................................ ................................ ................................ ......................... 1 Affected Entities and Potential Effects of the Action

................................ ......................... 2 Initial Regulatory

Flexibility

Anal ys is

................................ ................................ .............. 13 Reasons Action is Being Considered

................................ ................................ ............ 14 Objectives of and Legal Basis for the Rule

................................ ................................ .. 15 Potentially

Affected Small Entities

................................ ................................ ............... 15 Projected Reporting, Recordkeeping, and Other Compliance Requirements

............... 16 Duplication, Overlap, or Conflict with Existing Rules and Regulations

...................... 18 Alternat ives to minimize Significant Economic Impacts of the Rule

........................... 181



### Introduction
APHI S is proposing to revise the definition of retail pet store and related regulations to bring more pet animals sold at retail under the protection of the Animal Welfare Act (AWA). The current definition of retail pet store was established to ensure that the appropriate retail facilities were exempt from licensing requirements. Historically , such outlets included hobby breeders, as well as traditional “ retail pet stores” that are subject to a degree of oversight by persons who phy sicall y enter their pla ce of business to personally observe the animals offered for sale prior to purchase and/or to take custody of the animals after purchase. With the increased use of the Internet in the 1990s, some retailers began to offer their animals for sale remotel y ov er the Internet and selling and transporting their animals nationwide. As a result, customers of these businesses are often unable to enter the retailer’s place of business to observe the animals before taking them home. Thus, APHI S believes that they lac k sufficient public oversight to ensure the humane treatment and care of these animals. Retail pet stores are exempt from the provisions of the Animal Welfare Act and are not required to obtain a licens e from APHIS

. Because the current definition of “ret ail pet store” in cludes all retail outlets, with the limited exceptions discussed above, retailers selling animals by an y m eans, including remote sales conducted over the Internet or by mail, telephone, or any

other means where the customers do not phy sicall y enter a physical storefront, qualify as retail pet stores and are exempt from the licensing requirements, even if they lack the public oversight. To ensure that animals at retail pet stores receive humane handling, care, and treatment, we are pr oposing to revise the definition of retail pet store so that it only includes those places of business or residence that each bu ye r ph ys icall y enters in order to personally observe the animals available for sale prior to purchase and/or to take custody of the animals after purchase, and2

where onl y certain animals are sold or offered for sale, at retail, for use as pets. Retail pet stores are not required to be licensed and inspected under the AWA. We are also proposing to increase from three to four the number of breeding female dogs, cats, and/or small exotic or wild mammals that a person may maintain on his or her premises and be exempt from licensing and inspection requirements, regardless if those animals are sold at retail or wholesale

. This proposed rule is necessary to ensure that animals sold at retail are monitored for their health and humane treatment and to concentrate our regulatory efforts on those facilities that present the greatest risk of noncompliance with the regulations. B enefits and co sts of the rule are examined in accordance with Executive Order s 12866 and 13563 , which direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary , to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexib ility. T he benefits of the rule are expected to justify the costs overall . Possible impacts on small entities are considered in accordance with the Regulatory Flexibility

Act. 

### Affected Entities and Potential Effects of the Action Currently , entities that qualify as “retail pet store , ” and are therefore exempt from regulation , include an y entity whose entire business consists of reselling pet animals to pet
owners , f or example, retail chain pet stores and virtual pet stores engaging in retail sales. In addition, any entity whose entire business consists of breeding and raising pet animals for direct retail sale to pet owners is also currentl y exempt , including b reeders of pet animals of any size, from hobby

to high volume , who sell their animals over the Internet
.3

The proposed rule would narrow the definition of “retail pet store” to only those places of business or residence that each bu ye r ph ys icall y enters in order to personally observe the animals available for sale prior to purchase and/or to take cu stody of the animals after purchase, and where onl y certain animals are sold or offered for sale, at retail, for use as pets. As a result of this proposed change, entities that sell or intend to sell their animals to buyers who do not enter their facility would have to obtain an Animal Welfare Act (AWA) license and comply with the AWA regulations , unless otherwise exempted from the regulations

. The AWA provisions to which regulated entities would become subject include identification of animals, recordkeeping, facility maintenance, periodic veterinary care, shelter construction, and sanitation, among others. APHI S’ regulations in § 2.1(a)(3)(iii) currentl y provide an exemption from licensing requirements for persons who maintain a total of three or fewer b reeding female dogs, cats, and/or small exotic or wild mammals and who sell only the offspring of these dogs, cats, or small exotic or wild mammals, which were born and raised on their premises, for pets or exhibition. The proposed rule would expand this exemption to persons who maintain a total of four or fewer breeding females. Persons who derive less than $500 gross income from the sale of animals, other than dogs, cats, and exotic or wild animals, would continue to be exempt from licensing requirement s. Although we have attempted to estimate the impact of this proposed rule, w e do not currentl y have enough information to fully assess it , particularly information on the number of entities that may

be affected, or the breadth of operational changes that may occur at affected entities as a result

. We encourage public comment on the number of entities that may be affected and the degree to which operations would be altered to comply with the rule.4

APHI S expects that this rule would primarily affect dog br eeders that maintain more than four breeding females at their facilities. While the scope of this rule applies to certain other animals, as a practical matter, most retailers of animals other than dogs would meet the proposed definition of “retail pet store” and continue to be exempt from regulation. APHI S estimates that there may be around 1,5 00 dog breeders who are not currentl y subject to the AWA regulations but would be required to be licensed as a resul t of this proposed rule. We base this estimate on the ratio of retail dog breeders to wholesale dog breeders, and the percentage of licensed wholesale breeders with more than four breeding females. There are currently about 1,020 retail breeders regulate d by

the States of Iowa, Kansas , and Missouri. 3 In2011, 48 percent of wholesale breeders regulated b y USDA were located in those three States. 4 We a ssum e a similar percentage for retail breeders to arrive at a nationwide total (1,020/0.48 = 2,125). Cur rent USDA and State data cover breeders with more than three breeding females. Our inspection data suggests that about 69 percent of currently regulated wholesale breeders have more than four breeding females, based on a rough estimate of the average numb er of puppies across breeds at those facilities. Using these factors, we extrapolate that there are about 1,500 U.S. retail breeders who would be newl y subject to regulation (2,125*0.69=1,466)

. This figure is likely overly inclusive, as it assumes that a ll retail breeders , except for traditional retail pet stores and hobby breeders, would be regulated . But th o se retailers for which each buyer visit s their place of business prior to taking the purchased animal home would continue to be exempt. Below , we describe potential costs attributable to the proposed rule that may be incurred by

newl y regulated retail breeders . The costs are summarized in a concluding table

.

3 Internal APHIS communication. 4 2011 APHIS, Animal Care, data on licensed Class A breeders.5

Should this rule be adopted, entities who sell pets to any buyer who do es not enter their facility to observe the animals prior to purchase and/ or to take custody of the animals after purchase , such as remote sales conducted over the Internet where the customer does not enter the storefront at an y point in time , would need to a cquire a license in accordance with AWA regulations and would become subject to other AWA provisions as described below

. An annual licens e costs between $40 and $760, depending on the licensee’s ye arly income from the sale of regulated animals. 5 T he cost of a license is based on 50 percent of gross sales during the preceding business ye ar for Class “A” dealers and on gross sales minus the amount paid for the animals during the preceding business ye ar for Class “ B ” dealers. 6 As an example, if 50 pe rcent of a Class “A” dealer’s gross sales, or gross sales minus the amount paid for the animals for a Class ``B'' dealer, totals more than $500 but not more than $2,000, the annual cost of a license is $70. For an initial license, there is a $10 applicati on fee in addition to the initial license fee. The license fees for each income category are shown in Table 1. Table 1 . License Fees for Class “A” and Class “B” Licensees

Income Categories (1 ) Initial License Fee Annual or Changed Class of License Fee Over But Not Over $0 $500 $30 $40 500 2,000 60 70 2,000 10,000 120 130 10,000 25,000 225 235 25,000 50,000 350 360 50,000 100,000 475 485 100,000

------ 750 760 ( 1 ) Fifty percent of gross sales for Class “A” dealers and gross sales minus the amount paid for the animals for Class “B” dealer s ,

5 Persons who maintain four or fewer breeding female dogs, cats, and/or small exotic or wild mammals, or derive less than $500 gross income from the sale of animals, other than dogs, cats, and exotic or wild animals, would be exempt from licensing requirements. 6 A Class “A” licensee is a person who breeds the animals that are sold. A Class “B” licensee is a person whose business includes the purchase and/or resale of any animal.6

as reported for the preceding business year

. In addition to obtaining a license, regulated entities must comply with animal id entification and recordkeeping requirements. Dealers must individually identify regulate d animals when those animals are delivered for transportation , transported, purchased, sold, or otherwise acquired or disposed of. The costs of complying with the ide ntification requirements
are relativel y small. While tattooing is an acceptable form of identification, tags are more commonly used

. Appropriate official identification tags cost from 30 to 50 cents apiece in small volumes, and in larger quantities for a s little as 12 cents each. 7 Inaddition, each dog needs a collar , which can be purchased at retail for as little as $1 to $2. 8 Thus, th e cost of a collar and tag range s from $1.12 to $2.50 per dog. We estimate that there are about 246 dogs at a ty pical breeder ’s facility

that require identification over the course of a ye ar. 9 D ealers also have to keep and maintain records or forms that disclose certain information concerning animals purchased or otherwise acquired, owned, held, leased, or othe rwise in their possession or under their control, or that are transported, sold, euthanized, or otherwise disposed of. In addition, the AWA regulations require a dealer that employ s a part
- time attending veterinarian or has a consultant arrangement with a veterinarian make formal arrangements that include a written program of veterinary care , and regularl y scheduled visits to the dealer’s premises . For carriers and intermediate handlers, such records include a copy of the consignor’s written guarantee of payment for transportation of C.O.D. shipments; a shipping document; and, if needed, an acclimation statement indicating that the animal being transported can withstand temperatures lower than those temperatures specified in the regulations. In addition, the AWA

7 Internet search of official USDA identification tag providers. 8 Internet seach of pet supply retailers. 9 In 2010, there were an average of 106 adults and 93 puppies at APHIS licensed wholesale breeders at one time. We assume, based on litter sizes, frequency of litters, and puppy sales, that there would be about 1.5 times this number of puppies at the average facility over the course of a year.7

regulations may

require that instructions for the administration of food and water be attached to the outside of the primary enclosure used in transportation. We estimate that it require s a licensed breeder about 10 hours annuall y to comply with the licensing paperwork and recordkeeping requirements

. At a rate of $ 13 .07 per hour, 10 this cost is estimated to total about $ 1 3 1 annually

. Licensed dealers are also subject to standards that address the following: Facilities and operations (including sp ace, structure and construction, waste disposal, heating, ventilation, lighting, and interior surface requirements for indoor and outdoor primary enclosures and housing facilities); animal health and husbandry (including requirements for veterinary care,
s anitation and feeding, watering, and separation of animals); and transportation (including specifications for primary enclosures, primary conveyances, terminal facilities, and feeding, watering, care, and handling of animals in transit). S ome affected entities may need to make infrastructural and/or operational changes in order to compl y with the standards. Neither the number of entities that would need to make changes, nor the extent of those changes is known. T herefore , the cost associated with any alterations is also unknown

. However, based on our experience with regulating wholesale breeders, the most common areas of regulatory non - compliance at pre

- licensing inspections are veterinary

care, facility

maintenance and co nstruction, shelter construction, primary enclosure minimum space requirements, and cleaning and sanitation. If newl y regulated entities were to exhibit similar patterns of non

- compliance, they could incur costs of coming into compliance as follows

.

10 May 20 11 National Industry

- Specific Occupational Employment and Wage Estimates, Bureau of Labor Statistics, 43

- 9061,Office Clerk, General , median hourly wage.8

In a dequate f

acility maintenance and construction was identified as a problem in about 16.5 percent of pre - licensing inspections of wholesale breeders in 2010. Housing facilities must be structurall y sound and kept in good repair; surfaces of housing faciliti es must be free of excessive rust, jagged edges or sharp points; floors, walls and other surfaces in housing facilities must be impervious to moisture; and floors have to be constructed in a manner that protects the dogs’ feet and legs from injury . We est imate that most repairs made to meet housing standards cost $50 to $100 or less in materials, and require 8 to 10 hours to complete

. At a rate of $ 9 .38 per hour, 11 this labor w ould cost a breeder about $ 7 5 to $9 5
. Ongoing , routine facilit y maintenance likel y takes from 2 to 8 hours per week. Again at a rate of $ 9 .38 per hour, this labor cost s about $ 9 80 to $ 3, 900 annually . Most breeders perform necessary repairs themselves, often with inexpensive and already available or easily obtainable materials. Insufficient v eterinary

care was identified as a problem at about 16 percent of pre licensing inspections of wholesale breeders in 2010

. L icensee s are required to establish, maintain and document a p rogram of v eterinary c are in collaboration with their veterinarian, if the veterinarian is not a full

- time employee of the licensee , or has a consultant agreement

. Establishing such a program involve s a site visit from the veterinarian. We estimate that such a site visit cost s between $50 and $150. In addition, any specific veterinary issues identified during the inspection must be addressed. Based on APHI S’ experience in regulating wholesale breeders, common veterinary care
concerns for adult dogs include ear issues, (injuri es, infections, foreign bodies, ticks) ; eye issues (discoloration of the cornea, discharge, injuries, “cherry eye”) ; skin issues (hair loss, severe

11 May 20 11 National Industry

- Specific Occupational Employment and Wage Estimates, Bureau of Labor Statistics, 39

- 2021, Nonf arm animal caretakers , m edian hourly wage.9

scratching, wounds, inflamed reddened skin, hair mats) ; toenail issues (overgrowth or injuries) ; dental iss ues (tooth infections, loose teeth, painful mouth, drooling) ; and expired medication and vaccines ( i mproper l abeling , i mproper s torage, etc.)

. Ty picall y, when veterinary care issues are identified on an inspection report, it involves a small number of do gs . We estimate that addressing such issues cost s from $75 to $300 per incident to resolve. One to three veterinary care issues therefore cost s between $75 and $900 to resolve. Puppies need to be vaccinated. T he American Animal Hospital Association (AAHA) and the American Veterinary

Medical Association (AVMA) recommend core and noncore vaccinations , with all dogs needing core vaccines, while noncore vaccines are situation dependent. Distemper, hepatitis, parvovirus, and rabies are among the core vac cines . Rabies vaccinations are not given until a dog reaches at least 3 months of age. The cost of vaccinations varies widel y in the United States depending on whether the vaccinations are done individually or in combination , and whether they are provide d through a public city or county shelter, at a private practice , or b y the breeders themselves

. There are regional cost differences as well. Distemper, hepatitis, and parvovirus vaccination s are often combined with vaccinations for leptospirosis and par ainfluenza (DHLPP). Prices for DHLPP vaccinations can range from $16 to $35. 12 DHLPP is given to puppies at 6

- 8 weeks of age as an initial stimulus of antibodies and is given two more times at 2

- 3 week intervals for a complete series of 3 injections. 13 Th e first vaccination in the series is ty picall y administered by the breeder. With an average of 140

12 A limited internet search for DHLPP prices included the following results: http://www.marvistavet.com/html/about_our_hospital.html ; http://www.luvmypet.com/prices.html ; www.buttecounty.net/publichealth/animal/Canine%20Distemper.pdf ; http://mtnvet.com/plans_and_packages.htm ; http://www.kaawsclinic.com/vaccinations

- 1539. 13 www.buttecounty.net/publichealth/animal/Canine%20 Distemper.pdf10

puppies 14 per ye ar at a facility , the annual cost of these vaccinations c ould be from $2,240 to $4,900. In adequate c leaning and sanitation was identified as a problem in about 13 percent of pre

licensing inspections of wholesale breeders in 2010. Excreta and food waste must be removed from primary

enclosures daily ; primary enclosures, food and water receptacles, and surfaces in contact with dogs must be cleaned and sanitized; an effective program for the control of insects, external parasites affecting dogs, and birds and mammals that are pests, must be established and maintained; and the interior of the animal cargo sp ace must be kept clean during transportation. We estimate that routine sanitation and cleaning for a ty pical breeder’s facility can be accomplished in 1 to 2 hours daily

. At a rate of $9 .38 per hour, 15 this labor cost totals about $ 3, 420 to $ 6, 85 0 annuall y. Man y breeders perform necessary sanitation and cleaning themselves. In adequate s helter construction was identified as a problem in about 4 percent of the pre

licensing inspections of wholesale breeders in 2010. Breeders must provide adequate shelter from the elements for all dogs under care . This may be accomplished in a variet y of way s, including through the provision of dog houses. We estimate that there are 20 to 30 shelters on a ty pical facility , and a facility with a problem in this area could require 1 to 20 new shelters. An igloo style dog house retails for $80 to $120. 16 Based on this unit cost range , breeder s needing from 1 to 20 new shelters to come into compliance could incur costs from $80 to $2,400. D og houses can also be constructed at a lower cost from less expensive materials such as ply wood.

14 See footnote 5. 15 May 2011 National Industry

- Specific Occupational Employment and Wage Estimates, Bureau of Labor Statistics, 39

- 2021, Nonfarm animal caretakers, median hourly wage. 16 Internet seach of pet supply retailers.11

Problems with the primary enclosures for the dogs were identified in about 1 percent of pre - licensing inspection s of wholesale breeders in 2010. The primary enclosures need to be in good r epair and must meet a minimum space requirement that depend s on the ty pe (size) of dog. We estimate that the ty

pical breeder has 30 to 40 primary enclosures, and a breeder with a problem in this area may require 1 to 30 new enclosures. A commerciall y manufactured kennel can cost from $220 to $ 26 0 for a 3

- foot by 6

- foot run. 17 Based on these estimates, a breeder needing new enclosures to come into compliance could spend from $220 to $7,800. However, these enclosures vary

widely in construction, materials, and size. Some are made of basic construction materials , and c ould cost much less if the breeder were to make them himself. Table 2 summarizes the costs as described above that may incurred by

newly regulated breed ers and other dealers of dogs. Table 2

. Costs attributable to the proposed rule that may be incurred b y newly regulated breeders and other dealers of dogs. Area of Possible Non
- com pliance Unit Cost (1) Number of Affected Facilities (2) Total Cost Range($1,000) Licensing fees $10 application fee

$30

- $750 licensing fee (assume $70 to $235) ( 3 ) 1,500 $ 105 $ 353 Identification $1.12

- $2.50 for collars &

tags (246 dogs per facility need identification) ( 4 ) 1,500 $413 $923 Recordkeeping 10 hrs annually *

$13.07/hour (BLS 43

- 9061) 1,500 $196 $196 Facility Maintenance 8

- 10 hrs (preliminary) *

$9.38/hr (BLS 39

- 2021) $50 to $100 (materials) 2

- 8 hrs per week (ongoing) * $9.38/hr (BLS 39

- 2021) 248 $19 $12 $242 $23

$25 $968 Veterinary care $50 to $150 (site visit) 237 $12 $36

17 I nternet search of pet supply retailers.12 $75 to 300 (1 to 3 veterinary care issues) $16 to $35 for puppy vaccinations $18 $531 $213

$1,161 Shelter Construction $80

- $120 for a

commercial igloo style dog house (1 to 20 new shelters) 65 $5 $156 Primary Enclosures $220

- $260 for a

commercial 3’x6’ kennel (1 to 30 new enclosures) 21 $5 $164 Daily Sanitation & Cleaning per Year 1

- 2 hrs daily * $9.38/hr

(BLS 39

- 2021) 194 $664 $1,328 **Total $2,**  **222 $**  **5,545** (1) These costs may be overestimate d. In general, they do not account for volume discounts, do

- it

- yourself labor or construction out of inexpensive materials that may be more likely in some cases. (2) We estimate that there may be about 1,500 dog breeders that could be affected by this r ule. The number of facilities for each area of possible non

- compliance is based on 1,500 multiplied by the percentage of wholesale breeders found to be non

- compliant for that category in pre - licensing inspections in 2010

. (3 ) In 2010, more than 85 percent of Class A licensees ha d gross income associated with license fees of between $70 and $235

. Therefore, we assume that newly regulated entities would fall in this range

. (4 ) In 2010, there were an average of 106 adults and 93 puppies at licensed wholesale breeders at one time. We assume, based on litter sizes, frequency of litters, and puppy sales, that there would be about 1.5 times this number of puppies at the averag e faci lity over the course of a year. The proposed rule would also potentially affect current Class A licensees (wholesale breeders). Expanding the licensing exemption from three or fewer breeding females to four or fewer breeding females could substantially reduce the number of these licensees. APHIS inspection data suggest that the number of current Class A licensees, 2,064 , could be reduced b y about 638 facilities ( 31 percent) due to this increase in the exemption threshold. L icensing fees range from $40 to $760 annually , depending on a facility ’s ye arl y income from the sale of regulated animals

. In 2010, more than 85 percent of Class A licensees had gross income associated with license fees of between $70 and $235. Assuming that the entities no longer required to be licensed fall in this range, total cost savings b y these entities could range from about $45,000 to about $150,000 per ye ar .13

We believe that the benefits of this proposed rule, especiall y enhanced animal welfare, woul d justify the costs. A benefit of the rule is in assuring that animals sold at retail receive humane handling, care and treatment in keeping with the requirements of the AWA. Without public oversight or licensing and inspection by APHI S, there is no assurance that animals sold at retail for use as pets are monitored for their health and humane treatment nationwide. In fact, in recent ye ars, APHI S has noted a number of reports and complaints concerning the welfare of such animals. During a program audit that was completed in 2010 , USDA's Office of Inspector General found consumers who purchased dogs over the Internet had encountered health problems with their dogs. 18 Inaddition, APHI S has received complaints directly from members of the public concerning the welfare of dogs and other pet animals sold at retail. Members of Congress have also introduced legislation intended to address the issue of dogs raised by high

volume breeders that sell directly to the public, including sales over the Internet. 19 The proposed rule would also address the competitive disadvantage of retail breeders who adhere to the AWA regulations , when compared to those retailers who do not operate their facilities according to AWA standards and may therefore bear lower costs

. These benefits are not quantified. 

### Initial Regulatory Flexibility Analysis The Regulatory

Flexibility

Act requires agencies to evaluate the potential effects of their proposed and final rules on small businesses, small organizations and small governmental jurisdictions. Section 603 of the Act requires agencies to prepare and make available for public

18 USDA, Office of Inspector General, "Animal and Plant Health Inspection Service, Animal Care Program, Inspections of Problematic Dealers" (Report No: 33002

- 4

- SF, Issued May 2010), p. 37. 19 See, for example, H.R. 835/S. 707, the Puppy Uniform Protection and Safety (PUPS) Act, http://thomas.loc.gov/cgi

bin/bdquery/z?d112:h.r.835:14

comment an initial regulatory flexibility

analy sis that describes expected impacts of a proposed rule on small entities. Reasons Action is Being Considered The current definition of retail pet store was established to ensure that the appropriate retail facilities were exempt from licensing requirements. Historicall y, such outlets included hobby breeders, as well as traditional “stores” that are subject to a degree of oversight b y persons who phy sically

enter their place of business to personally observe the animals offered for sale prior to purchase and/or to take custody of the animals after purchase. With the increased use of the Internet in the 1990s, many r etailers who traditionally sold their animals to local customers began to offer their animals for sale remotel y over the Internet and sell and transport their animals nationwide. As a result, today ’s customers are often unable to enter the retailer’s plac e of business to observe the animals before taking them home. Because the current definition of “retail pet store” in cludes all retail outlets, with the limited exceptions discussed above, retailers selling animals b y an y m eans, including remote sales con ducted over the Internet or b y mail, telephone, or an y other means where the customers do not phy sically enter a phy sical storefront, qualify as retail pet stores and are exempt from the licensing requirements, even if they lack the public oversight. There fore, APHI S is proposing to revise the definition of retail pet store so that it only includes those places of business or residence that each buyer phy sicall y enters in order to personall y observe the animals available for sale prior to purchase and/or to take custody of the animals after purchase, and where onl y certain animals are sold or offered for sale, at retail, for use as pets. Retail pet stores are not required to be licensed and inspected under the AWA. H obby breeders and other persons who enga ge in the de minimis activities involving such15

animals would continue to be exempt from licensing requirements regardless of their status or lack of status as a retail pet store

. Objectives of and Legal Basis for the Rule The Animal Welfare Act authorizes the Secretary of Agriculture to promulgate standards and other requirements governing the humane handling, care, treatment, and transportation of certain animals b y dealers, research facilities, exhibitors, operators of au ction sales, and carriers and intermediate handlers. The Secretary has delegated responsibility for administering the AWA to the Animal and Plant Health Inspection Service. This proposed rule is necessary to ensure that animals at retail pet stores are m onitored for their overall health, humane handling, care and treatment. Potentially Affected Small Entities The entities affected b y the proposed rule are likely to be considered small. They are persons who sell their animals to any buyer who do es not e nter their facility to observe the animals prior to purchase and/ or to take custody of the animals after purchase , such as sales conducted exclusively

over the Internet
. Persons who maintain four or fewer breeding female dogs, cats, or small exotic or wil d mammals, or derive less than $500 gross income from the sale of animals , other than dogs, cats, and exotic or wild animals, would be exempt from the proposed
new licensing requirements. Inaddition, some current licensees would no longer be required to be licensed due to the increase of the exemption threshold from three to four breeding females. The Small Business Administration (SBA) has established guidelines for determining which enti ties are to be considered small. Pet stores are identified in the North American Industry Classification Sy stem (NAICS) category 453910, Pet and Pet Supplies Stores . This industry comprises establishments primarily engaged in retailing pets, pet foods, and pet16

supplies. The small

- entity standard for this industry is annual sales of not more than $19 million. In 2007, there were about 8,880 pet and pet supply stores in the United States. Establishments primarily engaged in retailing pets, pet foods, and pet supplies via electronic home shopping, mail

- order, or direct sale are classified within NAI CS s ubsector 454, Nonstore Retailers , and s pecificall y, within NAICS category 4541112, Electronic S ho pping, S pecialized M erchandise. An entity in this category is considered small if it generates not more than $30 million in annual sales. In 2007 , there were about 13,500 establishments in NAI CS category 4541112 , with average sales of $5.4 million

. 20 The Economic Census does not report the number of entities

w ith more than $30 million in annual sales, but l ess than 3 percent of the establishments in this category had more than $10 million in annual sales in 2007

. Because this category includes many other enterprises besides those that sell pet s to buyers who do not enter their facility to observe the animals prior to purchase and/ or to take custody of the animals after purchase , we do not have a precise e stimate of the number or size of entities that would b e affected b y this proposed rule. However, based on the above , the majority of establishments affected are likel y to be considered small entities

. Projected Reporting, Recordkeeping, and Other Compliance Requirement s Should this rule be adopted, some sellers of pets may need to become licensed and comply with animal identification and recordkeeping requirements , as well as meet standards of AWA regulations that address the following: Facilities and operations (including space, structure and construction, waste disposal, heating, ventilation, lighting, and interior surface

20 U.S. Department of Comm erce. Bureau of the Census. 2007 Economic Census
.17

requirements for indoor and outdoor primary enclosures and housing facilities); anima l health and husbandry

(including requirements for veterinary care, sanitation and feeding, watering, and separation of animals); and transportation (including specifications for primary enclosures, primary conveyances, terminal facilities, and feeding, watering, care, and handling of animals in transit). S ome affected entities may need to make infrastructural and/or operational changes in order to compl y with the standards. Based on our experience with regulating wholesale breeders, the most common areas of non

- compliance with the regulations at pre

- licensing inspecti ons are veterinary

care, facility

maintenance and construction, shelter construction, primary enclosure minimum space requirements, and cleaning and sanitation. I f entities newly regulated un der the proposed rule were to exhibit similar patterns of non

- compliance, we estimate that they could incur costs that would total from $ 2.2 million to $ 5.5 million. The proposed rule would also potentially affect current Class A licensees (wholesale breed ers). Expanding the licensing exemption from three or fewer breeding females to four or fewer breeding females could substantially reduce the number of these licensees. APHIS inspection data suggest that the number of current Class A licensees, 2,064 , co uld be reduced b y about 638 facilities ( 31 percent) due to this increase in the exemption threshold. L icensing fees range from $40 to $760 annually , depending on a facility ’s ye arl y income from the sale of regulated animals

. In 2010, more than 85 percent of Class A licensees had gross income associated with license fees of between $70 and $235. Assuming that the entities no longer required to be licensed fall in this range, total cost savings b y these entities could range from about $45,000 to about $150 ,000 per ye ar .18

We do not currentl y have enough information to fully assess the potential impact of this proposed rule , particularly information on the number of entities that may be affected or the breadth of operational changes that may occur at affe cted entities

. We encourage public comment on the number of small entities that may be affected and the degree to which operations at those entities would be altered to compl y with the rule. Duplication, Overlap , or Conflict with Existing Rules and Regulations APHI S has not identified any duplication, overlap, or conflict of the proposed rule with other Federal rules. Alternatives to minimize Significant Economic Impacts of the Rule In developing the proposed rule, A PHIS considered several alternatives to this proposed action. For the reasons discussed below, we believe the changes proposed in this document represented the best alternative option that would satisfactoril y accomplish the stated objectives and minimize impacts on small entities

. As written, some dealers would no longer qualify as retail pet stores under our proposed definition if they

sold covered animals at retail to a buyer who did not phy sically enter the seller's place of business or residence, unl ess otherwise exempted under the regulations. This would mean that if a person sold some pets to walk

- in customers from a physical storefront and some pets via remote sales, including over the Internet or b y mail, telephone, or other non

- face

to
- face mean s, then that person would be considered a dealer under the AWA and subject to regulation under the Act unless otherwise exempted under the regulations. We recognize that retailers who sell some animals to walk

- in customers and some animals remotel y ma y b e subject to a certain degree of oversight b y the customers who enter their place of business or residence. As a result, we considered establishing a regulatory threshold based on the percentage of such a retailer’s remote sales. However, we did not include19

this alternative in our proposed change for two reasons. First, we do not have the authorit y to require that retail pet stores make and retain sales records under the AWA, which are necessary to verify the retailer is operating within the established threshold, whatever that percentage might be. Second, it would also be difficult to confirm that all the animals that the entity sells at retail were available to be observed b y its walk

- in customers. If the animals sold to walk

- ins were kept in one location or part of a location where they could be seen b y the public and the animals sold remotely were kept at another location, then those latter animals would not receive the public oversight that forms the basis for the retail pet store exemption. For th ese reasons, we do not believe that it is possible to craft a threshold based on a percentage of a retailer’s remote sales that, if met, would enable a hy brid operation such as we have described to continue to be considered a retail pet store and thus rema in exempt from the licensing and requirements under the Act. A second alternative we considered in preparing this proposed rule was to add an exception from licensing for retailers that are subject to oversight b y State or local agencies or b y breed and re gistry

organizations that enforce standards of welfare comparable to those standards established under the AWA. However, to our knowledge, o nl y 27 S tates and the District of Columbia have enacted laws that establish some form of humane welfare standards f or animals kept at pet stores and sold at retail. While the S tate laws concerning the welfare of animals in retail pet stores vary

by S tate, few S tates actuall y address all categories of welfare required under the AWA , including veterinary care, food and water, proper sanitation , and housing. Similarly , few breed and registry

organizations have welfare standards that they require their members to meet that are comparable to those required under the AWA , and few of those organizations conduct regular, unannounced inspections or have an adequatel y sized inspectorate to evaluate20

compliance with such welfare standards. However, APHI S is continuing to look for way s to better collaborate with its State counterparts and other organizations. For example, APHI S

w orks with State or local authorities in jurisdictions that have laws regarding animal cruelty. We are also working in collaboration with State regulatory groups to develop better educational tools and requirements for licensure under the AWA. With these considerations in mind, APHI S concluded that it would be premature to consider establishing an exemption from the licensing requirements for retailers that are subject to oversight by State or local agencies or breed and registry organizations. A third alt ernative we considered during the development of this proposed rule was to amend the definition of “ retail pet store ” so that only high

- volume breeders would be subject to the AWA regulations and standards. While an objective standard for what constitutes a high

volume breeder has not bee n established, we note that the PUPS Act21 would amend the AWA to define a “ high volume retail breeder ” as a person who, in commerce, for compensation or profit: (1) H as an ownership interest in or custody of one or more b reeding female dogs; and (2) sells or offers for sale , via any

means of conveyance (including the Internet, telephone, or newspaper) , more than 50 of the offspring of such dogs for use as pets in any 1

- ye ar period

. To compare our proposed exemption for persons who maintain four or fewer breeding females to the standard of 50 dogs sold that is provided in the PUPS Act, we note that the number of puppies that could be produced b y 3 breeding female dogs varies according to the breed of the dog. For example , as noted in the Fall 2009 edition of the AKC Breeder, 22 Labrador retrievers had a t ypical range of 5 to 10 puppies per litter, with an average of 7.6, while

21 See footnote 15. 22 http://www.akc.org/enewsletter/akc_breeder/2009/fall/handbook.cfm

.21

Yorkshire t erriers show ed a range of 2 to 5 pups , with an averag e of 3.3. The number of litters p er year varies as well, but we are aware of estimates of an average of 1.5 liters per dog per ye ar. With that, 3 Yorkshire terriers could produce as many as 22 puppies in a y ear, while 3 Labrador retrievers might produce as many as 45 puppies over the sam e period. Adding a fourth breeding female as proposed above would bring that average to 30 to 60 puppies in a y ear, which is a figure that brings our exemption into closer alignment with the standard of 50 dogs sold per ye ar provided in the PUPS Act. We have elected in this proposed rule to retain an exemption based on the number of breeding females, and not to propose a different exemption based on the number of animals sold in a given period, largel y because of enforceability concerns. When an inspect or visits a facility under the current regulations, he or she can quickly ascertain, through direct observation and discussion with the operator of that facilit y, if the number of breeding female animals that are present falls within the exemption. In contrast, if there were an exemption based on the number of animals sold in a given period, it would be necessary for the inspector to review sales records and/ or other documentation . However, as noted above, we do not have the authority to require retail pe t stores to make or retain the records that would be necessary to verify the number of animals sold. Finally , we note that the exemption in § 2.1(a)(3)(iii) applies to persons who maintain breeding female dogs, cats, and/or small exotic or wild mammals and who sell only the offspring of these dogs, cats, or small exotic or wild mammals, which were born and raised on his or her premises, for pets or exhibition. Given that our proposed change in the number of breeding females was motivated by primarily dog

- specific considerations, we contemplated a fourth alternative option, which was to propose to increase the number of breeding females for dogs22

only and leaving the threshold for cats and small exotic or wild mammals at three breeding females. We ultimate ly

decided that as a matter of fairness and consistency , the increase in the number of breeding females should be applied to all three categories of animals covered b y the exemption.