ALCOHOL LAW ADVISOR
ALCOHOL LAW ADVISOR
Regulatory and Distribution Law Updates for the Alcohol Industry
ALCOHOL LAW ADVISOR
Regulatory and Distribution Law Updates for the Alcohol Industry
Alcohol and Tobacco Tax and Trade Bureau
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Tied House Laws and Category Management: A Continuing Quandary

by | Mar 18, 2016 | , ,

On March 16, the federal Alcohol and Tobacco Tax and Trade Bureau (TTB) published a list of frequently asked questions expanding further on a ruling issued in February on application of the federal “tied house law” to industry promotional activities, specifically category management practices employed by retailers.

TTB claims that a formal rulemaking to revise its tied house regulations is not necessary: “TTB Ruling 2016-1 merely provides guidance as to the plain meaning of the existing regulation under 27 CFR 6.99(b). It does not change TTB’s longstanding position, nor does it change the meaning of the plain language of this regulatory exception.” So let’s look at the plain language:

The act by an industry member [supplier or wholesaler] of providing a recommended shelf plan or shelf schematic for distilled spirits, wine, or malt beverages does not constitute a means to induce within the meaning of section 105(b)(3) of the [Federal Alcohol Administration (FAA)] Act.

That statement on its face is an open-ended authorization to provide shelf schematics. It says nothing about the products of other industry members or whether the plan is written on a napkin or in a sophisticated IT system that is used for inventory management at hundreds of stores.  (more…)



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Recent Revisions to Internal Revenue Code Affecting Alcohol Beverages

by | Feb 11, 2016 |

In December 2015, President Obama signed into law the Protecting Americans from Tax Hikes Act of 2015 (PATH Act).  The PATH Act amends several provisions of the Internal Revenue Code of 1986 (IRC) administered by the Alcohol and Tobacco Tax and Trade Bureau (TTB).  Those amendments relate to alcohol excise tax due dates and bond requirements, the definition of wine eligible for treatment as “hard cider” for tax purposes, and cover over of rum excise taxes imported from Puerto Rico and the US Virgin Islands.  In January 2016, TTB issued an announcement concerning the IRC amendments.

Starting with the first calendar quarter of 2017, taxpayers who anticipate being liable for no more than $1,000 in alcohol excise taxes (for sales of distilled spirits, beer and wine) for the calendar year, and who were not liable for more than $1,000 in such excise taxes the prior year, may make excise tax payments annually (rather than the current quarterly payment requirement).  Further, beginning the first calendar quarter of 2017, taxpayers eligible to pay taxes annually under the new provisions, as well as taxpayers currently eligible for quarterly payments of alcohol excise taxes (i.e., taxpayers anticipating being liable for no more than $50,000 in alcohol excise taxes, and who were not liable for more than $50,000 in such excise taxes the prior year), need not file a bond.

The PATH Act also modifies the definition of wine eligible for the tax rate applicable to “hard cider” by (1) increasing the allowable alcohol content from 0.5 percent to less than 7 percent alcohol by volume (ABV) to 0.5 percent to less than 8.5 percent ABV; (2) increasing the allowable carbonation level from 0.392 grams of carbon dioxide per 100 milliliters of wine to 0.64 grams; and (3) expanding the definition by allowing the use of pears, pear juice concentrate and pear products and flavorings in hard cider.  These changes apply to hard cider removed after December 31, 2016.  The hard cider definition changes do not affect other requirements applicable to ciders above 7 percent ABV under the Federal Alcohol Administration Act, including requirements relating to labeling, advertising and permits.

Another section of the PATH Act extends the temporary increase in the limit on cover over of rum excise taxes to Puerto Rico and the US Virgin Islands from January 1, 2015 to January 1, 2017.  This amendment applies to distilled spirits brought into the US after December 31, 2014.



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TTB Publishes Projected Regulatory Agenda as Part of Government’s Unified Agenda

by | Jan 4, 2016 | , , ,

As it does twice per year, the Alcohol and Tobacco Tax and Trade Bureau (TTB) recently published its projected Regulatory Agenda as part of the federal government’s “Unified Agenda.”  Links to the U.S. Department of Treasury’s portions of the Unified Agenda appear below.

TTB’s latest contribution to the Unified Agenda lists six priority projects that it hopes to publish rulemaking notices on in 2016:

  1. Revise TTB’s import and export regulations to make them compatible with the International Trade Data System (ITDS).  ITDS aims to create a single electronic exchange portal for all import and export activities.  TTB expects to propose these new regulations by March 2016.
  2. Revise TTB’s labeling regulations for wine, distilled spirits, and malt beverages (beer) to eliminate outmoded, ineffective and excessively burdensome regulations.  TTB plans to propose these revised regulations for industry and public comment sometime before the end of 2016.
  3. Finalize new regulations on specially denatured and completely denatured alcohols.  Most notably, the new regulations would re-classify many specially denatured alcohol products as completely denatured alcohols – greatly reducing the amount of regulatory oversight over such products.  The final regulations would build off a Notice of Proposed Rulemaking published in June of 2013, and TTB expects to finalize these regulations shortly.
  4. Propose new regulations to permit the self-certification of flavors and other non-beverage articles as eligible for “drawback.”  By permitting industry self-certification, TTB would greatly reduce the number of regulatory filings required of the flavor, extract and fragrance industries.  TTB expects to publish proposed regulations before June 2016, coupled with a “Temporary Rule” permitting industry members to begin self-certification immediately.
  5. Revise the Distilled Spirits Plant (DSP) regulations to reduce the TTB-mandated monthly reports required by DSP operators from four to two.  $11,000 to $16,000.Already subject to a Notice of Proposed Rulemaking in 2011, TTB plans to press ahead with a “Supplemental” Notice by March 2016.
  6. Make an inflation-adjustment to the civil penalties for violations of the Alcohol Beverage Labeling Act of 1988, which mandated the now-familiar Government Warning on all alcohol beverage labels.  TTB plans to publish a Final Rule in 2016 to raise the maximum penalty for violations from $11,000 to $16,000.

In addition to the six priority items above, TTB’s portion of the Unified Agenda includes dozens of other rulemaking projects, from those completed in the most recent fiscal year to issues expected to be first raised in a rulemaking notice during the following year.  As with prior years, the industry must view TTB’s expected publication and completion dates with a great degree of caution, as resource challenges, political pressure and other factors often delay the rulemaking process.

Click here to view the Statement of Priorities.

Click here to view the All Treasury Agenda.



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Product Recalls

by | Dec 31, 2015 | , , ,

Potential product recall situations rank among the most stressful that a producer can face. Things move fast and decisions must be made with less-than-perfect information. While no preparation will render such situations easy or routine, a producer can reduce the stress level and help navigate this “worst-case” scenario by understanding the process and taking certain steps to prepare. The article linked below aims to familiarize producers with the recall processes and situations while suggesting areas where preparation can help.

Read the full article, originally published in the Winter 2015-16 issue of Artisan Spirit Magazine.



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TTB Publishes List of Exempt Ingredients

by | Dec 18, 2015 |

Yesterday, the Alcohol and Tobacco Tax and Trade Bureau (TTB) published Ruling 2015-1. It re-states and supersedes Ruling 2014-4, notably by adding more than 50 new ingredients that a brewer can use in beer without the need to obtain an approved formula (or a pre-import approval for imported beer) from TTB.

With this new Ruling, TTB has exempted the vast majority of flavoring materials added to beer, including many fruits and spices, sugars, chocolate, tea and coffee. It does not (and cannot due to the language of existing regulations) exempt flavorings and extracts, however, which continue to require formula approval prior to use. In other words, while a brewer can add watermelon, watermelon juice, watermelon puree or watermelon concentrate to a beer without obtaining formula approval, adding a watermelon flavor still requires formula approval.



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False Advertising Claims

by | May 26, 2015 | ,

Industry members should take note of several false advertising lawsuits against brewers and distillers. Several industry members are grappling with class action lawsuits, including at least three craft distillers. Compared to national ad campaigns from larger competitors, most small producer advertising is limited. But do not make the mistake of believing that modest advertising efforts eliminate the risk of enforcement actions or other liability. Thousands of industry websites and social media pages make tens of thousands of advertising claims. As companies achieve success, its brands gain visibility and the company will draw more scrutiny from class action plaintiffs’ lawyers, competitors and regulatory bodies.

Read the full article, originally published in the May/June 2015 issue of The New Brewer.



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Supreme Court to Decide Important Administrative Law Issue

by | Nov 13, 2014 | , , ,

On December 1, 2014, the United States Supreme Court will hear oral argument in a case that will have significant implications for federal regulatory agencies like the U.S. Food and Drug Administration (FDA) and the Alcohol and Tobacco Tax and Trade Bureau (TTB).

The case is Mortgage Bankers Ass’n v. Harris, 720 F.3d 966 (D.C. Cir. 2013).  In that decision, the United States Court of Appeals for the D.C. Circuit refined a line of cases involving the Administrative Procedures Act (APA).  The APA governs the activities of federal agencies and, among other things, generally requires notice-and-comment rulemaking procedures, including publication in the Federal Register and a period of time for industry and the public to comment on proposed regulations, in order for a federal agency to adopt a new “rule.”  These procedural requirements aim to ensure transparency in governmental operations and a public “vetting” process before an agency adopts new regulatory requirements.

Beginning in the 1990s, the D.C. Circuit – which hears a large percentage of the cases involving challenges to federal agency actions – has held that the notice-and-comment rulemaking requirement extends to agency attempts to change a settled agency interpretation of a regulation.  In other words, once an agency establishes a position on a particular issue, the D.C. Circuit has required that an agency proceed through notice-and-comment procedures to change its earlier position.

In Mortgage Bankers, the D.C. Circuit held that a person challenging an agency change in policy need not show any reliance on that policy in order to claim that an agency had violated that requirement.  The court held that nothing in its prior cases required a showing of reliance.

The Supreme Court has agreed to review the case, see Perez v. Mortgage Bankers Ass’n, No. 13-1041, cert. granted 6/16/14, but on a broader issue than whether a person claiming that an agency changing its interpretation of a regulation must show reliance.  Instead, the court agreed to examine whether a federal agency must engage in notice-and-comment rulemaking before it can significantly alter an interpretive rule that articulates an interpretation of an agency regulation.  The court will hear oral argument on December 1, 2014.  Thus, the court may be poised to overrule the entire line of D.C. Circuit cases holding that an agency must engage in notice-and-comment rulemaking before changing definitive but un-codified interpretations of regulations.

A reversal of current D.C. Circuit precedent has troubling implications for the alcohol beverage industry.  Many policies of the federal agencies that regulate the industry become established through informal decisions never reduced to formal regulations.  To take one example, TTB’s policies towards the documentation of exports without payment of tax depart significantly from TTB’s published regulations, and instead rely on well-recognized and followed policies published only in informal Industry Circulars and private letter “variances” from regulations.  Consider, too, the dozens of unpublished “policies” TTB applies in the review of alcohol beverage labels, some of which go back decades and have formed the basis of entire brand propositions by the industry.  Should [...]

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TTB Issues Expanded List of Allowable Changes to Approved Labels

by | Sep 29, 2014 |

On Monday, September 29 2014, the Alcohol and Tobacco Tax and Trade Bureau (TTB) issued Industry Circular 2014-2, which expands the list of Allowable Revisions to Approved Alcohol Beverage Labels.

Industry Circular 2014-2 permits the following changes to already-approved malt beverage, wine and distilled spirits labels without the need for a new certificate of label approval (COLA):

  1. Deletion or revision of sponsorship themed graphics, logos, artwork, events, etc. and/or sponsorship information
  2. Addition, deletion or revision of awards, ratings or recognitions (i.e., “rated as the best 2012 wine by x association”)
  3. Deletion of organic claims (Note: The deletion of a single organic claim is not permitted.  All organic claims must be removed from the label or a new COLA is required to delete individual references.)
  4. Revision of an approved sulfite/sulphite statement according to the formats prescribed in the Industry Circular (“Contains Sulfites/Sulphites,” “Contains (a) Sulfiting//Sulphiting Agent(s),” “Contains [name of specific sulfating/sulphating agent],” “Contains Naturally Occurring and Added Sulfites/Sulphites” or “Contains Naturally Occurring Sulfites/Sulphites”)
  5. Addition, deletion or revision of information regarding the number of bottles made, produced, distilled or brewed in a batch
  6. Addition of instructional statements vis-à-vis how to best consume and/or serve the product specified in the Industry Circular (“Refrigerate After Opening,” “Do Not Store In Direct Sunlight,” “Best If Frozen For ___ to ___ Hours,” “Shake Well,” “Pour Over Ice,” “Best When Chilled,” “Best Served Chilled,” “Serve Chilled,” “Serve at Room Temperature”)


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Join Marc Sorini and Art DeCelle at the Wine, Beer & Spirits Law Conference – September 18-19, 2014

by | Jul 21, 2014 | , , , , , , ,

Wine, Beer & Spirits Law 19th Annual National Conference
The Mayflower Renaissance Hotel
Washington, D.C.
September 18-19, 2014
Click here to register.
View the conference brochure.

McDermott Speakers
Marc E. Sorini, Partner, Program Co-chair
Arthur J. DeCelle, Counsel

Please join McDermott partner and program co-chair, Marc Sorini, at the Wine, Beer & Spirits Law 19th Annual National Conference on September 18-19, 2014.  This year’s program will bring direct access to experts in the alcohol beverage industry, including speakers from the Alcohol and Tobacco Tax and Trade Bureau, Beam Suntory, BLDS, the California Department of Alcohol Beverage Control, Diago North America, Dogfish Head Craft Brewery, E&J Gallo Winery, the Federal Trade Commission, Ippolito Christon & Co., New Belgium Brewing Company, New Jersey Office of the Attorney General, Department of Law and Public, Safety, Division of Alcoholic Beverage Control, Precision Economics, Virginia Department of Alcoholic Beverage Control, Washington State Liquor Control Board, and the Wine Institute, as well as speakers from many of the nation’s leading law firms.

Of particular note, Marc Sorini will make a  presentation titled, Federal Excise Tax Strategies and Tactics.  McDermott counsel Art DeCelle will be moderating a panel of representatives from the industry’s leading national trade associations to discuss “The Future of Federal Regulation of Alcohol.”

To view the full conference brochure, click here.  For more information and to register, please visit: https://cle.com/WashingtonDC.



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New TTB FAQs on Sugar Claims

by | Jul 2, 2014 | ,

On Tuesday, July 1, 2014, the Alcohol and Tobacco Tax and Trade Bureau (TTB) released new Frequently Asked Questions (FAQs) concerning sugar claims made on labels and in advertising.  The FAQs articulate, for the first time, a clear TTB policy on the subject and apply to all malt beverages (e.g., beer), wines and distilled spirits subject to TTB’s Federal Alcohol Administration Act jurisdiction.

The FAQs are notable in three primary respects:

  1. TTB will permit truthful and non-misleading sugar claims, provided that they are adequately supported by testing.
  2. TTB will consider a sugar claim the same as a carbohydrate claim and, thus, labels and advertisements making such claims must include a statement of average analysis in accordance with TTB Rulings 2004-1 and 2013-2.
  3. TTB will permit products containing less than 0.5 grams of sugar per serving to make the claims “zero sugar,” “no sugar” or “sugar free.”

The new policy does not apply to certain terms applied to wines and related to sugar content (e.g., “late harvest”) that were subject to prior rulings on such terms.



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