Publication 1-2013 - Meeting Competition Exception to Sales Below Cost Law

TO: RETAIL SERVICE STATION REGISTRANTS

SUBJECT: MEETING COMPETITION EXCEPTION TO SALES BELOW COST LAW

This release revises the administrative interpretation of the "meeting competition" exception to the below cost sales law. Under Business Regulation Article, § 10-304.1(b)(1), Annotated Code of Maryland, a retail service station dealer may sell motor fuel below cost if the sale is made in good faith to meet competition.

In Motor Fuel Regulation Administrative Release No. 1 dated February 24, 2010, it was stated that in order to qualify under the "meeting competition" exception, a retail service station dealer may not match a competitor's lower price if that competitor was, in fact, selling below cost. The example provided was as follows:

Example

If the cost of motor fuel for retail service station "A" is determined to be $2.50 per gallon, and the selling price is $2.45 per gallon, then station "A" is selling below cost. If station "A" claims the "meeting competition" exception in Business Regulation Article, § 10-304.1(b)(1) by matching the selling price of station "B", this exception will apply only if station "B" is not illegally selling below cost. If station "B" is determined to be illegally selling below cost, both station "A" and station "B" are in violation of § 10-304.1(a). If station "B" is not illegally selling below cost, then station "A" has met the standard for the "meeting competition" exception.

Upon further review and consideration, the Comptroller's interpretation of the "meeting competition" exception has been revised.

"Meeting Competition" Exception - Revised Administrative Interpretation

In order to fall within the "meeting competition" exception, a retail service station dealer must show that its below cost selling price was established in good faith to match a selling price of a competitor. Written records or a log of a competitor's selling prices will be considered adequate evidence to show that a retail service station was acting in good faith to meet competition. If it is determined by the Comptroller that the competitor was selling below cost, then both retail service stations must raise the selling price so that it is equal to or greater than cost. The Comptroller will not consider it a violation of the sales below cost law if a retail service station acts in good faith to match a competitor's lower selling price even if that competitor is selling below cost. Using the same example, the revised interpretation applies as follows:

Example

If the cost of motor fuel for retail service station "A" is determined to be $2.50 per gallon, and the selling price is $2.45 per gallon, then station "A" is selling below cost. If, in good faith, station "A" claims the "meeting competition" exception in Business Regulation Article, § 10-304.1(b)(1) by matching the selling price of station "B", who is determined to be illegally selling below cost, station "A" will not be considered in violation of § 10-304.1(a), even though station "B" is and will be charged accordingly. Both station "A" and station "B" will be immediately required to raise their selling prices to cost based on documents required under Regulation 03.03.05.06(A)(1), or in the absence of such documents, OPIS plus freight charges at the rate of 3 cents per gallon plus federal and states taxes.