The Alcohol and Tobacco Tax and Trade Bureau (TTB) recently notified holders of permits that were originally filed in paper of plans to move all permits to the Permits Online (PONL) system this fall. This could lead to substantial delays due to the volume of permits included. Industry members who wish to submit requests ahead of that time can send their information (EIN, Permit and Registry Numbers) to Permits.Online@ttb.gov and enter Permits Online Data Load in the subject line of the email. Filing amendments electronically has historically been significantly faster using TTB’s PONL system.
Arthur DeCelle wrote this bylined article describing how brewers can use product labels, point of sale (POS) advertising, social networks, and other media to tell customers about their environmental responsibility efforts. Such information “must be truthful and substantiated by evidence [and] must not be deceptive to reasonable consumers,” Mr. DeCelle wrote, urging brewers to “carefully consider the language you use and any potential for consumer deception [regarding] false or deceptive environmental claims.”
On March 13, the European Commission approved a report that calls on members of the alcohol beverage industry to develop a comprehensive self-regulatory system of ingredient and nutritional labeling for beer, wine, and distilled spirits. The Commission is composed of representatives of each member nation of the European Union (EU) with a range of administrative responsibilities and authority to develop and propose legislation for consideration by the European Parliament.
The European Commission characterizes access to ingredient and nutrition information as a right of EU consumers, and called on industry members to develop a self-regulatory proposal over the next year. Current EU policy on alcohol beverage labeling is analogous to US policy. The EU regulation on food labeling exempts alcohol beverages containing more than 1.2 percent alcohol-by-volume.
The European Commission proposal warrants careful attention by US alcohol beverage suppliers across all beverage categories. The initial industry response by European suppliers will likely start a lengthy process leading to new ingredient disclosures.
US regulations are largely based on the presumption that consumers have a working knowledge of ingredients in alcohol beverages. Alcohol & Tobacco Tax & Trade Bureau (TTB) and its predecessor agency considered and rejected mandatory ingredient labeling proposals several times since 1970s. TTB’s most recent assessment of ingredient and nutritional labeling of alcohol beverages was an advance notice of proposed rulemaking published in 2005 soliciting public input on the existing TTB policy. No further rulemaking activity followed the TTB inquiry.
Existing TTB regulations focus on disclosures of certain ingredients that pose unique health risks or allergic reactions. Industry members are permitted to disclose ingredients on a voluntary basis. A few alcohol beverages are subject to US Food and Drug Administration (FDA) regulations, which require comprehensive ingredient and nutritional labeling.
Many US products are exported for consumption in the EU. If a new system is adopted in the EU, producers in the US must provide ingredient and nutritional information to their customers overseas with no corresponding requirements in their home markets. EU suppliers are major players in the US market and may decide to voluntarily provide the same information to their American customers that they will ultimately have to provide in their home markets.
These dynamics will likely reinvigorate calls by consumer advocacy organizations and government agencies (e.g., Federal Trade Commission, Food and Drug Administration, and National Institutes of Health) in support of ingredient labeling of alcohol beverages in the US. In the current era of dwindling government resources, the European Commission’s call for an industry self-regulatory initiative provides an opening for a similar initiative in the US. Industry members and associations should monitor developments in the EU and consider appropriate responses directly to the EU initiative and to analogous proposals in the US.
An English version of the European Commission proposals is available here.
On January 23, 2017 the Alcohol & Tobacco Tax & Trade Bureau (TTB) published a Temporary Rule and a Notice of Proposed Rulemaking (NPRM) related to the new definition of hard cider. Congressional action required a new definition when Congress amended the Internal Revenue Code in December 2015 by enacting the Protecting Americans from Tax Hikes (PATH) Act. The Temporary Rule lays out TTB’s current thinking on regulations to implement the revised definition, while the NPRM requests comments on the regulations spelled out in the Temporary Rule.
We view the following provisions as most significant:
1. Requiring a new mandatory tax classification statement on all products eligible for the hard cider tax rate, effective January 1, 2018.
2. Requiring the words “sparking” or “carbonated” on all hard cider with carbonation in excess of 0.392 grams per 100 ml.
3. Codifying in the regulations (although this reflects longstanding TTB policy) that materials like honey, hops, spices and pumpkin may be added to hard cider without jeopardizing the hard cider tax rate.
4. Establishing a .009 gram per 100 ml tolerance for carbonation in cider.
5. Suggesting in the pre-amble that treating materials, regardless of source, could render a product ineligible for the hard cider rate if those materials imparts a fruit flavor other than apple (under the new regulations apple or pear).
6. Codifying in the regulations for the first time (although this reflects longstanding TTB policy) that the hard cider definition and most rules also apply to imported hard cider.
The current deadline for comments on the proposed regulations is March 24, 2017, but TTB generally grants reasonable extensions (typically 60 or 90 additional days) upon request.
Current conventional wisdom in the craft beer business holds that being local helps sell more beer. This has led many brewers to emphasize their local roots on their labels and in their marketing efforts. In some ways, the trend has a “back to the future” feel, as labels and marketing materials once again feature place names that often became the brand names for many of the first generation of craft brewers in the 1980s.
But the emphasis on place can come with a price: the prospect of legal hurdles, including lawsuits, over allegations that a brand name, label, or advertisement misrepresents the beer’s place of production. Legally this subject usually goes by the name “geographic misdescription,” itself a subset of false advertising law. How can brewers minimize their chances of becoming the target of a lawsuit or government investigation alleging that a beer’s labeling or marketing deceived consumers?
On January 10, 2017, TTB published a Federal Register notice adjusting the civil monetary penalty imposed for violations of the Alcohol Beverage Labeling Act of 1988 (the ABLA). The ABLA requires the labels of alcohol beverages sold in the United States to bear the now-familiar Government Warning Statement. When first enacted, the maximum civil penalty for violations was $10,000 per day.
Under TTB’s latest inflation adjustment, the maximum penalty will stand at $20,111 per day, beginning with all penalties assessed after January 10, 2017. This new amount will apply even in cases where the underlying violation occurred prior to the effective date of the new penalty amount. View the full text of TTB’s notice here.
On January 4, 2017 TTB published in the Federal Register a temporary rule, T.D. TTB–146, modifying the tax filing timeframe for taxpayers who fall below a certain monetary threshold and removing the bond requirements for certain eligible taxpayers who pay taxes below certain maximum amounts on distilled spirits, wine and beer. See 82 Fed. Reg. 1108 (Jan. 4, 2017). Congress mandated these changes when it enacted the PATH Act in December 2015, and the changes became effective on January 1, 2017. The temporary rule involves two primary changes:
Taxpayers who do not reasonably expect to be liable for more than $1,000 in alcohol excise taxes (for distilled spirits, wine and beer) in the calendar year and were not liable for more than $1,000 in the prior year can pay their taxes annually rather than quarterly or semi-monthly. If a taxpayer has multiple locations, the $1,000 threshold applies to the combined total. A taxpayer must select the return period on its return.
Taxpayers who do not reasonably expect to be liable for more than $50,000 in alcohol excise taxes (for distilled spirits, wine and beer) in the calendar year and were not liable for more than $50,000 in the prior year are exempt from filing bonds to cover operations or withdrawals. In order to take advantage of this exemption, the taxpayer must notify TTB of its eligibility and receive TTB approval. New applicants will do this during the initial application process and existing taxpayers can do so through an amendment to their registration or brewer’s notice. Ironically, the bond exemption does not apply to taxpayers that conduct operations or withdrawals of wine or spirits for industrial (as opposed to beverage) use.
TTB has issued additional guidance on the PATH Act’s impact in Industry Circular 2016–2 (Dec. 30, 2016).
On December 23rd, 2016 the federal government published its Fall edition of the “Unified Agenda” – a bi-annual compilation of all ongoing federal rulemaking projects. Attached is a copy of the TTB detail from this latest Unified Agenda. As always, projected future publication dates should be viewed with a very healthy dose of skepticism.
TTB’s portion of the Unified Agenda identifies the following “priority” items:
Final rules implementing the International Trade Data System (ITDS). TTB published these final rules on December 22, 2016 – mission accomplished.
Revisions to TTB regulations to implement the “Protecting Americans from Tax Hikes Act of 2015” (PATH Act). Among other things, the PATH Act amended the Internal Revenue Code definition of “hard cider” and changed the bonding requirements for small excise taxpayers. While listed as a priority for action in late 2016, TTB has shown little ability to quickly amend its regulations to reflect statutory changes enacted by Congress (see Taxpayer Relief Act note below).
Revisions to modify and streamline TTB’s wine, distilled spirits, and malt beverage labeling regulations. This item has appeared in the Unified Agenda for several years, and apparently stems from a January 2011 Executive Order requiring the identification and elimination of outmoded and burdensome regulations. The Unified Agenda lists a December 2016 publication date for a Notice of Proposed Rulemaking (NPRM) on this subject.
Back on the “priority” list of this Unified Agenda is the NPRM permitting the self-certification of nonbeverage product formulas. Projected publication of that NPRM now has slipped to September 2017.
A project to combine the current four forms required for reporting by distilled spirits plants (DSPs) into two report forms now receives priority status. Originally proposed in December 2011, TTB now expects to publish a 2017 “Supplemental NPRM” to gather more comments on the subject.
Among the other TTB rulemaking projects industry members may take an interest in are the following:
TTB’s allergen labeling rulemaking, initiated in April 2005, remains on the Unified Agenda, but under the heading of “Next Action Undetermined.” This suggests that TTB may walk away from mandatory allergen labeling altogether.
TTB is considering amendments to the “standards of fill” for wine and distilled spirits, with an NPRM projected date of April 2017.
A new item proposes an NPRM to amend the wine labeling regulations in order to better address the labeling of flavored wines. The project arises from a petition received by TTB and projects an April 2017 publication date.
TTB has withdrawn (and presumably abandoned) the rulemaking project, commenced in 2010, to further define the use of terms like “estate bottled” on wine labels.
TTB continues to plan for a “Supplemental NPRM” to solicit additional comments on the use of an American viticultural area as an appellation on a wine finished in an adjacent state. TTB now expects to publish the Supplemental NPRM in January 2017.
Final rules arising from the August 2016 NPRM proposal to impose certain Federal Alcohol Administration Act labeling requirements on [...]
One of the last things anyone thinks about when embarking on a new, exciting venture (like opening their own distillery), is how things will come to an end. The fun is in the journey, in the craft – and those are rightfully the focal points for entrepreneurs running their own craft distilleries. But, inevitably, the time comes for the next adventure, the next enterprise, the next journey. An entrepreneur may have to recoup the investments they have made in their business or transfer that business to the next generation to carry it forward. No matter the driving force, there comes a time in the life cycle of every business that requires an entrepreneur to consider a sale or some other form of transaction.
This article, originally published in the Winter 2016 issue of Artisan Spirit, addresses several issues that can arise when buying or selling a craft distillery.
A recent Texas Court of Appeals decision, EATX Coffee, LLC v. Texas Alcoholic Beverage Commission, provides an important reminder of how principles of administrative law may check the current trend towards “regulation by Internet.” Ct. of App of Texas, 4th Dist., No. 04-16-00213-CV (Dec. 7, 2016). Like TTB and many other state alcohol beverage authorities, the Texas Alcoholic Beverage Commission (TABC) periodically publishes “Question and Answer” (Q&A) documents purporting to interpret the Texas Alcoholic Beverage Code.
The EATX opinion arose from a challenge of two particular Q&A’s that, in effect, banned the filling of “crowlers” by Texas beer and wine retailers. A crowler is an aluminum can that a retailer can fill with beer and seal for consumers to take away from the retail premises. While TABC has declared that retailers may fill and sell “growlers” of beer (large bottles filled and sealed by retailers), the TABC’s Q&A’s declared the filling of crowlers to constitute manufacturing – an activity that a retailer cannot engage in without a manufacturing license. (And, of course, under state tied house laws a retailer generally cannot lawfully obtain a manufacturing license).
EATX, having invested in crowler equipment and facing disciplinary action over its filling and sale of crowlers, filed a lawsuit against the TABC seeking a declaration that TABC’s Q&A’s were wrong because the filling of a crowler does not constitute manufacturing. EATX also sought an injunction against enforcement. In response, TABC asserted that the Q&A’s were not a “rule” and therefore the trial court lacked jurisdiction to hear a challenge to the Q&A’s, and also asserted that EATX failed to exhaust the administrative remedies it could raise in defense of a TABC disciplinary action against EATX’s retail license.
The Texas Court of Appeals, 4th District, reversed. Reviewing the Q&A’s, the Court of Appeals concluded that: (1) they are of general applicably as they purport to apply to all retail permit holders; (2) they interpret the law and do not simply re-state it; (3) they do not affect only TABC’s internal management or organization. As such, the Q&A’s constitutes a “rule” within the meaning of Texas’ Administrative Procedures Act and the trial court had jurisdiction to hear the case and grant relief. Turning to exhaustion, the Court of Appeals found no authority for the proposition that a litigant aggrieved by the promulgation of a rule must instead wait and raise its arguments in an action brought to cancel, suspend or refuse to renew its license. In short, EATX can have its day in court.
Given the declining use of notice-and-comment rulemaking by TTB and most state alcohol regulatory agencies, the use of Q&A’s, “FAQs,” “advisory bulletins,” “industry memoranda,” and similar informal policy documents has been rising for decades. While such expedients may help move policy forward in a quicker, less resource-intensive (for the agency) manner, the EATX opinion stands as a useful reminder to regulators that this approach has limits.
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