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.

On Friday, March 2, 2018, Alcohol and Tobacco Tax and Trade Bureau (TTB) issued its next round of guidance concerning the alcohol excise tax provisions of the recently enacted tax law (Tax Act). TTB has not yet addressed some of the biggest ambiguities contained in the Tax Act, such as (i) how foreign producers can assign excise tax credits to US importers and (ii) how the “Single Taxpayer Rule” will work. Nevertheless, TTB continues to make incremental progress in interpreting the Tax Act.

The March 2 guidance features the following:

  1. A new TTB Industry Circular, No. 2018-1 (March 2, 2018), announces the creation of a temporary “alternate procedure” (aka, variance) allowing wine producers to tax determine and tax pay wine of the winery’s own production stored untaxpaid at another bonded wine cellar as if the wine were removed from the producing winery’s bonded premises. Prior law allowed wineries eligible for tax credits under the small winery tax provisions to transfer their credits to another bonded winery. So, for example, an eligible small winery could transfer bulk wine in bond to a larger bonded winery for bottling without losing the tax credits. The new tax law does not contain a similar transfer provision, leading to the prospect of small wineries losing their tax credits because they transferred the wine to a bonded winery that already used up its tax credits available under the Tax Act. The alternate procedure permits a winery to tax pay the wine as if it were removed from the producing winery’s premises, allowing it to take the tax credit. The temporary alternate procedure authorized by Industry Circular 2018-1 expires on June 30, 2018.
  2. Beer, wine and spirits removed from a brewery, winery or distillery but received in bond from elsewhere can benefit from the Tax Act’s reduced rates and/or tax credits only if the taxpaying brewery, winery or distillery “produced,” “distilled” and/or “processed” the beer, wine or spirits in question. Exactly what processing qualifies the taxpaying facility for the reduced rate or tax credits will depend on specific facts and the commodity at issue.
  3. TTB further qualifies the produced/distilled/processed requirement by indicating that any production process should be made “in good faith in the ordinary course of production” and not done for purposes of obtaining a tax advantage.

Please let us know if you have any questions about these developments.