On June 27, the Alcohol and Tobacco Tax and Trade Bureau (TTB) published a Notice of Proposed Rulemaking (NPRM) on specially denatured alcohol (SDA), completely denatured alcohol (CDA) and related amendments to federal regulations governing non-beverage “industrial” alcohol.  In the NPRM, the TTB makes a host of proposals to reduce regulatory burdens on the industrial alcohol industry and update regulations to align with current practice.

The NPRM contains a great many recommendations that you or someone on your staff should review with care.  Primary among the changes, however, are the following:

1. Reclassifying two often-used SDA formulas, SDA # 12-A and SDA #35, as CDA formulas.  This change considerably reduces the regulatory burden associated with using these formulas.
2. Issuing “general use” formulas for articles made with any of 15 SDA formulas.  Again, this change greatly reduces the regulatory burdens associated with using these SDA formulas.
3. Issuing three new “general use” formulas for uses involving duplicating fluids, ink solvents and certain proprietary solvents.
4. Authorizing the export of SDA by dealers, instead of only distilled spirits plants as currently authorized.
5. Authorizing the export of articles that would not qualify for domestic distribution because they are not sufficiently denatured.  This change may substantially impact ethanol export operations, as some other countries’ standards for the denaturing of fuel alcohol are not as stringent as the TTB standard.
6. Removing from the regulations SDA formulas no longer in use.

Taken together, the proposals represent a significant step towards simplifying TTB’s regulation of industrial alcohol production and distribution.  One can certainly envision a bolder liberalization, but in many instances Internal Revenue Code statutes prevent more radical changes to current regulations and policies.  Although not likely a high priority in today’s political environment, Congress would be wise to revisit those statutes, as many date back to Prohibition or just after repeal.

Current SDA and CDA producers and users should examine their current operations in light of the proposed regulations and should consider submitting comments to TTB, which are due on or before August 26, 2013.