Issue link: https://read.dmtmag.com/i/293496
26 Oil Prophets LEGAL CORNER I know we've had previous articles on our Motor Fuel Marketing Act, but as I write this, there have been some very difficult markets around the state for a number of months. I have had as many calls and e-mails regarding below cost pricing concerns in the last couple of months, again at least in certain markets, as I have ever had. One description would be, while they may not be everywhere, where there are below cost concerns, they are serious ones. I wanted to address several ongoing issues of confusion under the Act. I recently had several marketers reporting concerns of below cost sales say that they believed the marketers had to use the lowest available rack price at the nearest terminal to calculate their "Cost to Retailer" under the Act. When we don't know a retailer's supplier or the particulars of their contract pricing, we will initially use the lowest rack price at the nearest terminal when determining whether someone may or may not be below cost, particularly with unbranded locations. However, a marketer is entitled to use its actual or invoice cost to show its compliance with the law. Under the Act, "Cost to Retailer" is defined in part as: "As applied to retail sales, the invoice or replacement cost of the motor fuel within five days prior to the date of sale…, in the quantity last purchased, whichever is less, less all trade discounts except customary discounts for cash, to which shall be added all applicable state, federal and local taxes, inspection fees, freight costs, if paid by the retailer, plus the cost of doing business." As you can see, if a particular marketer has an actual cost – or invoice cost – that is less than available rack, they are entitled to use their actual or invoice cost in calculating their cost for compliance purposes under the law. Again, this remains a point of confusion. However, if the particular retailer also posts a rack price, then it's my position that seller is in fact "married" to its own rack price and must use it to determine its cost under the Act. Also remember which we've discussed before, that the Act as you can see in the definition of "Cost to Retailer" allows what amounts to a five-day pricing window for high volume, aggressive marketers. If there were one provision that we could remove from the Act, it would be that language above that says "within five days prior to the date of sale…" The drafters of this law in 1984 will tell you that that was not ever intended to provide high volume marketers a "free" five- day pricing window but was in fact intended for the complete opposite. If a low volume marketer was accused of selling below cost on Friday, the thought was he should be able to use the actual cost of that fuel which he purchased the previous Monday since he would still be selling the same fuel even if the wholesale cost had otherwise gone up in that five- day period. What has happened in reality, is the high volume marketers in periods of rising wholesale costs will watch that five days and price their fuel in an attempt to comply with the law using that five-day window when in fact they may be getting a load a day or more, and their actual cost of the fuel they are selling on that fifth day is dramatically higher than it was five days previous. At this point however, that provision is in the law, and I anticipate it will continue to be abused. Finally, I continue to have marketers call me and say such and such marketer is posting a price of $3.16 per gallon, and that's before "adding the six cents." Please know that there is no "six-cent" rule or cost of doing business standard in Alabama. I remain unsure as to the genesis of that belief, although it may stem Below Cost Issues Revisited H. Dean Mooty, Jr. Mooty & Associates, P.C.