On January 23, 2017, the Alcohol and Tobacco Tax and Trade Bureau (TTB) issued a temporary rule (T.D. TTB–147) in the Federal Register that amends the federal regulations for hard cider. The temporary rule amends TTB regulations to implement changes made to the federal definition of “hard cider” in the Internal Revenue Code of 1986 (IRC) by the Protecting Americans from Tax Hikes Act of 2015. TTB’s modified definition broadens the range of wines that can legally be classified as “hard cider” for excise tax purposes.
On December 18, 2015, the President Obama signed the Consolidated Appropriations Act into law. Division Q of the Act is titled “Protecting Americans from Tax Hikes Act of 2015 (PATH Act)” and the PATH Act amends the IRC at 26 U.S.C. 5041 by altering the definition of hard cider for excise tax purposes. (The IRC is the federal law that addresses alcohol beverage taxes and defines different classifications of alcohol beverages, such as hard cider, for taxation purposes. Note that the definition of certain alcohol beverage products for taxation purposes can be different from their definition for labeling purposes.) The modification to 26 U.S.C. 5041 does not alter the tax rate itself for hard cider but instead broadens the definition of hard cider per the below:
- Hard cider is a wine derived primarily from apples or pears, or from apple juice concentrate or pear concentrate and water;
- Hard cider contains no fruit product or fruit flavoring other than apple or pear;
- Hard cider cannot contain more than 0.64 gram of carbon dioxide per hundred milliliters of wine (except if the Secretary, by regulation, prescribes such tolerances that may be reasonably necessary in good commercial practice); and
- Hard cider may range between 0.5 percent alcohol by volume and 8.5 percent alcohol by volume.
In summary, the amendments to the IRC increase the authorized amount of carbon dioxide that may be present in hard cider (for taxation purposes); includes the use of pear and pear concentrate in addition to apple and apple concentrate; includes the use of fruit products and fruit flavoring; and increases the allowed alcohol by volume content.
Again, the above relates only to the federal definition of hard cider for federal excise tax purposes only. The amended definition of hard cider (for tax purposes) applies to cider products removed from bond on or after January 1, 2017.
TTB to Amend Regulations in Relation to Hard Cider
As a result of the PATH Act amendments, TTB is amending 27 CFR Part 24 to include a Subpart P, which will be entitled Eligibility for the Hard Cider Tax Rate. The Subpart consists of two new sections: 27 CFR 24.331 and 24.332. The former sets out the statutory criteria for eligibility for the hard cider tax rate for wines removed on or after January 1, 2017. The latter section further elaborates on the criteria set out in 24.331. 24.332 reiterates much of the information mentioned in the PATH Act as well as the modifications made to 26 U.S.C. 5041. However, there are some additional and important details.
According to the temporary rule, 24.332(b)(2) provides edibility of and restrictions on the use of wine treating materials derived from a fruit other than apple or pear (i.e., may be used in the production of wine eligible for the hard cider tax rate if it is used for a purpose other than flavoring and is either used in accordance with wine treating materials outlined in 24.246 (if natural wine) or used in amounts insufficient to impart a fruit flavor other than apple or pear (if used in a special natural wine or other than standard wine)). In its temporary rule, TTB went on to say that any “written or pictorial reference to a material derived from fruit other than apple or pear (other than the inclusion of wine treating material in an ingredient labeling statement) in the labeling or advertising of a wine will be treated as evidence that the wine treating material was added for the purpose of flavoring the wine.” See T.D. TTB–147 at page 5.
The temporary rule also notes that 24.332(c) will contain language that clarifies the use of honey, spices, hops, or pumpkins (i.e., the use of such would not disqualify a product from the hard cider tax rate).
Further, TTB will reorganize 27 CFR 24.257 to addresses wines that require label approvals under the FAA Act, labeling rules for products taxed as hard ciders, wines that do not require label approvals, and the requirement of tax class statement on certain labels. (Not an exhaustive list; see amended section for more information.)
TTB further amends Part 27 with respect to the definition of “hard cider” as it will apply to imported wine. The temporary rule reflects that the definition of “hard cider” will remain consistent for both domestically-produced ciders and imported ciders. Part 27 is further amended to address changes in labeling regulations and requires that any container of an imported wine eligible for the hard cider tax must be labeled in accordance with requirements applicable to wine containers removed from wine premises (per 24.257(a)(4)). (The temporary rule provides that labeling requiremetns for imported hard ciders mimic the labeling requirements for domestically-produced hard ciders.)
Modification to Hard Cider Labels and TTB’s Request for Comments
TTB is also amending its regulations to include new labeling requirements to identify products to which the hard cider tax rate applies. This includes a one-year transitional rule as well as a new labeling requirement that takes effect for products removed on or after January 1, 2018.
The current regulation listed in Part 24 reads as follows:
(B) Labeling rules for wines eligible for the “hard cider” tax class—(1) Transitional rule for “hard cider” removed on or after January 1, 2017 and prior to January 1, 2018. On an optional basis, wines that are taxed at the “hard cider” tax rate may include the statement “Tax class 5041(b)(6)” on the label to adequately indicate the appropriate tax class.
(2) Additional labeling rules effective for “hard cider” removed from wine premises on or after January 1, 2018. For wines removed from wine premises on or after January 1, 2018 that are taxed at the “hard cider” tax rate, the label must also include the statement “Tax class 5041(b)(6).” This statement may appear anywhere on the label.
TTB is presently soliciting comments for the new labeling requirements in a separate notice that was published in the Federal Register. See Notice No. 168: Implementation of Statutory Amendments Requiring the Modification of the Definition of Hard Cider (Comment Request). TTB is interested in comments in regard to labeling provisions requiring ‘‘Tax Class 5041(b)(6)’’ appear on the labels of products to which the hard cider tax rate applies. The agency is also interested in comments that address alternative ideas or suggestions. Comments must be received on or before March 24, 2017.
For more information on wine or alcohol law, or labeling regulations, please contact Lindsey Zahn.
DISCLAIMER: This blog post is for general information purposes only, is not intended to constitute legal advice, and no attorney-client relationship results. Please consult your own attorney for legal advice.