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Oregon Issues New Guidance on Hard Seltzer Classification

Recently, Oregon issued clarification pertaining to the classification of hard seltzers in the state. The guidance, as summarized below, impacts the majority of hard seltzers in the market. Classification of hard seltzer has a number of impacts, most notably on excise tax (or “privilege tax”) rates and licensing needed to produce, import, distribute and sell hard seltzers in the state. Specifically, Oregon has signaled that should the state’s guidance result in the reclassification of a supplier’s hard seltzer product, there may be retroactive tax liability imposed. This alert should assist those engaged in the production or sale of hard seltzer in Oregon in determining whether reclassification is necessary and the implications thereof. For specific questions on the implications of this guidance on your business, please do not hesitate to reach out to McDermott Will & Emery.

Classifications of Hard Seltzer
“Hard seltzer” must meet the following to be categorized as a malt beverage in Oregon:

  1. 100% of the alcohol by volume (ABV) is obtained through the fermentation of grain and the ABV is more than 0.5% but not more than 14%; or
  2. At least 98.5% of the ABV is obtained through the fermentation of grain and the ABV is more than 6% but not more than 14%. Once those criteria are met, not more than 1.5% of the ABV may be obtained through other flavoring agents containing alcohol; or
  3. At least 51% of the ABV is obtained by the fermentation of grain and the ABV is more than 0.5% and not more than 6%.

Once the criteria above is met, up to 49% of the ABV may be obtained through other flavoring agents containing alcohol.

Oregon relies on the federal definition of “grain” to mean barley, canola, corn, flaxseed, mixed grain, oats, rye, sorghum, soybeans, sunflower seed, triticale and wheat, and the subsequent definition for each grain. This may exclude hard seltzers deriving alcohol primarily through the fermentation of cane sugar from meeting the malt beverage definition in Oregon. The state may require verification that a product claimed to be a malt beverage for tax purposes is in fact produced through the fermentation of grain via the submission of an ingredients list or documentation describing the manufacturing process.

“Hard seltzer” must meet the following to be categorized as a wine in Oregon:

  1. An alcoholic beverage obtained by the fermentation of vinous or fruit juice, or other fermented beverage fit for beverage purposes, and contains more than 0.5% ABV and does not contain more than 21% ABV.
  2. Wine may contain distilled liquor and other “non-traditional” ingredients, provided that it does not contain more than 21% ABV.
  3. “Wine” does not include malt beverage, cider or distilled liquor.

“Hard seltzer” must meet the following to be categorized as a cider in Oregon:

  1. An alcoholic beverage obtained by the fermentation of the juice of apples or pears; contains more than 0.5% ABV but does not contain more than 8.5% ABV.
  2. The juice is not required [...]

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TTB Publishes New Nonbeverage Product Formula Form

On August 12, 2019, the Alcohol and Tobacco Tax and Trade Bureau (TTB) published its updated Formula and Process for Nonbeverage Product, TTB Form 5154.1. The Nonbeverage Product approval process is critical to obtain “drawback” (a refund) on most of the alcohol excise tax on distilled spirits used to make such products deemed “unfit for beverage purposes.” The Nonbeverage Formula Form accordingly is important to producers of flavorings and extracts, soft drink concentrates and other non-beverage products made using potable alcohol. (more…)




TTB Spring 2019 Updates to Semi-Annual Regulatory Agenda

The spring edition of the federal government’s semi-annual Unified Agenda of Federal Regulatory and Deregulatory Actions (Regulatory Agenda) has been published. Like other federal agencies, the Alcohol and Tobacco Tax and Trade Bureau (TTB) uses the Regulatory Agenda to report on its current rulemaking projects.

The Regulatory Agenda provides glimpses into TTB’s policy focus and aspirations. But, readers should recognize that TTB rulemaking moves very slowly, and the Agency often does not meet the aspirational dates published in the Regulatory Agenda.  (more…)




TTB Publishes Updated Guidelines for Formula Approvals for Domestic Producers and Importers

On September 18, 2018, the Alcohol and Tobacco Tax and Trade Bureau (TTB) issued TTB Industry Guidance 2018-10, a webpage consisting of questions and answers related to formulas. According to TTB, this new guidance “essentially replaces” Industry Circular 2007-4, which provided the framework for pre-COLA product evaluations. TTB has removed Industry Circular 2007-4 from its website.

The release of Industry Guidance 2018-10 comes with troubling implications. TTB has essentially revoked an Industry Circular signed by TTB Administrator John Manfreda and replaced it with a series Frequently Asked Questions (FAQs) with no clear authorship or authority. Furthermore, they have deleted Industry Circular 2007-4, preventing industry members from reviewing how these FAQs differ or alter the previous method for determining when formulas are required. Indeed, TTB seems to be significantly expanding the types of products that require formula approval. TTB notes in the new FAQs that “there may be circumstances when we will require a formula . . . even though the product does not generally require a formula.” See Industry Guidance 2018-10, FAB4.

TTB has recently required formulas for products, such as particular varieties of mezcal and spirits aged in previously used cooperage, where formulas were not previously required. It appears where no regulatory restrictions on aging (e.g., length of time or type of barrel) exists for a particular type/class of distilled spirits, TTB will more than likely request a formula approval prior to reviewing a Certificate of Label Approval (COLA) application. Some products may not require a formula if the label text only specifies the type of barrel used for aging, i.e., “Aged in used bourbon barrels.” But if the label mentions any attribute the aging provides to the liquid (e.g., “notes of sweet corn” or “hints of charred wood”) then TTB will likely require a formula.

Although TTB previously made strides in increasing speeds in which COLAs and formulas were reviewed, these new requirements will increase the compliance workload and approval timelines for TTB as well as alcohol beverage industry members. In addition to the challenges created by increasing the number of products requiring formulas, more questions are likely to arise under the anonymous FAQs, which replaced the longstanding protocols in Industry Circular 2007-4.




TTB Issues Guidance on Transfers of Beer between Breweries of Different Ownership

Last week, the Alcohol and Tobacco Tax and Trade Bureau (TTB) published a TTB Procedure governing the transfer in bond of beer between breweries of different ownership. See TTB Procedure 2018-1 (July 17, 2018). In bond transfers between breweries of different ownership were authorized by the 2017 tax reform act and like many provisions of that act, the transfer provision is scheduled to sunset at the end of 2019.

Some highlights:

  1. The beer transfers can include both packaged and bulk beer.
  2. Transferred beer can be re-consigned while in transit or returned to the shipping brewery.
  3. Most recordkeeping and recording rules are the same as the current regulations governing transfers between breweries of the same ownership.
  4. Because the 2017 tax reform act’s lower tax rates apply to beer “produced” by the removing brewery, beer transferred in bulk does not benefit from the lower rates if the receiving brewer makes no changes or only de minimis changes to the transferred beer.
  5. For excise tax purposes, a beer is “produced” by a brewer if it is “brewed by fermentation or produced by the addition of water or other liquids during any state of production.” Blending alone does not qualify as “production.”
  6. Packaged beer that was transferred does not receive any lower rate of tax and will be taxed at the $18/barrel rate upon removal.
  7. Absent evidence of theft or diversion, in-transit losses of up to 2 percent are permitted without the need to file a report or a claim with TTB.
  8. Bulk containers used to transfer beer between breweries are subject to certain marking requirements.



TTB to Allow Proprietors to Request Alternating Premise Variances for Storage of Tax- and Non-Tax-Determined Commodities

On May 16, 2018, the Alcohol and Tobacco Tax and Trade Bureau (TTB) issued Industry Circular 2018-3, allowing proprietors of distilled spirits plants (DSPs), bonded wine cellars (BWCs) and breweries to submit a request for a variance to the typical method for storing tax-determined and non-tax-determined products. Under TTB regulations, a proprietor designates areas of the premises as bonded and non-bonded. With few exceptions, tax-determined products can only be stored on non-bonded areas of the premises and non-tax-determined products can only be stored in bonded areas.

Under Industry Circular 2018-3, proprietors may request a variance to the bonded/non-bonded designations established in existing regulations. This variance would allow an “alternation” of a specific area or multiple areas between a bonded and non-bonded designation. An “alternation” allows two practices (e.g., brewing and winemaking) statutorily prohibited from occurring at the same premise to occur through the creation of a legal fiction. The premise “alternates” between one type of premise to accomplish one task and reverts to another type of premise to accomplish another task. (more…)




TTB Announces Extension of Tax Credits for Wines Stored at Bonded Wine Cellars and Bonded Wineries

On May 17, the Alcohol and Tobacco Tax and Trade Bureau (TTB) issued an Industry Circular, No. 2018-1A, clarifying that under the recently-enacted tax reform legislation (Tax Act), wineries may tax determine and tax pay wine they produce and that is stored untaxpaid at another bonded wine cellar or bonded winery as if the wine were removed from the producing winery’s bonded premises.

Among the Tax Act’s many changes to the Internal Revenue Code, the new legislation (which went into effect on January 1, 2018) prescribed new tax credits for wine and suspended (through 2019) the previous tax credit. The Tax Act also suspended the prior law’s transfer provision, which allowed small wineries eligible for tax credits to transfer their credits to another bonded winery. This threatened to leave small wineries transferring their wines to larger bonded wineries without their tax credits. To apply the tax credits to such wines under the Tax Act, the producing winery would need to physically bring the wine back to its premises and remove and tax pay the wine. (more…)




USDA Publishes Proposed GMO Labeling Regulations

The Agricultural Marketing Service of the US Department of Agriculture (USDA) recently published a proposed rule containing regulations to implement the National Bioengineered Food Disclosure Standard mandated by Congress in 2016. See 83 Fed. Reg. 19860 (May 4, 2018). The proposed regulations would govern the labeling of raw agricultural products and packaged foods whose labeling is governed the federal Food, Drug & Cosmetics Act, including wines below 7 percent alcohol by volume and non-malt beer (e.g., “hard seltzers”). The proposed regulations would not directly apply to alcohol beverages whose labeling is governed by the Federal Alcohol Administration Act, including all distilled spirits, wines containing 7 percent alcohol by volume or greater, and beer containing malted barley and hops. Nevertheless, the Alcohol and Tobacco Tax and Trade Bureau may look to the bioengineered food disclosure regulations as persuasive guidance in developing its own policies towards the disclosure of bioengineered ingredients (often called “genetically modified organisms” or “GMOs”). (more…)




TTB in a Deregulatory Mood

Changes in Administration and other political shifts can have subtle and, occasionally, not-so-subtle influences in the Alcohol and Tobacco Tax and Trade Bureau (TTB) policies and priorities. In the article, “TTB in a Deregulatory Mood” published by Artisan Spirit, Marc Sorini explores how the Trump Administration’s desire to reduce regulatory burdens on business has already influenced TTB’s regulatory priorities. Particularly, in the most recent “Unified Agenda,” a bi-annual compilation of federal regulatory initiatives, TTB placed a priority on deregulatory projects, several of which would alter the regulatory environment for the industry. Marc discusses how the change in administration appears to have an effect on TTB’s rulemaking efforts.

Access the full article.

Originally published in Artisan Spirit, Spring 2018.




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