[Federal Register: March 24, 2003 (Volume 68, Number 56)]
[Proposed Rules]
[Page 14291-14303]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24mr03-29]
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Part III
Department of the Treasury
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Alcohol and Tobacco Tax and Trade Bureau
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27 CFR Parts 7 and 25
Flavored Malt Beverages and Related Proposals (2001R-136P); Proposed
Rule
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DEPARTMENT OF THE TREASURY
Alcohol and Tobacco Tax and Trade Bureau
27 CFR Parts 7 and 25
[Notice No. 4]
RIN 1512-AC11
Flavored Malt Beverages and Related Proposals (2001R-136P)
AGENCY: Alcohol and Tobacco Tax and Trade Bureau (TTB), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Department of the Treasury and its Alcohol and Tobacco Tax
and Trade Bureau are proposing changes to the beer and malt beverage
regulations related to the production, taxation, composition, labeling,
and advertising of alcohol beverages marketed as ``flavored malt
beverages.'' We are proposing these changes in response to the numerous
questions raised by the States and others concerning these alcohol
beverages.
The proposed regulation permits the addition of flavorings and
other materials containing alcohol to malt beverage products only if
the alcohol from such materials constitutes less than 0.5% by volume of
the finished product. This document solicits comments on other
approaches, including one requiring that a majority of a product's
alcohol derives from fermentation at the brewery and also seeks comment
on the amount of time necessary to comply with the proposed standards.
By proposing these changes, we seek to ensure that flavored malt
beverages comply with the requirements of the Internal Revenue Code of
1986 with respect to their composition, premise where produced,
appropriate tax rate, and system of distribution. We also wish to
ensure the proper classification of these alcohol beverages under the
Federal Alcohol Administration Act so that their labeling and
advertising conform to the applicable requirements of the Act and to
ensure consumers are adequately informed, and not misled, as to the
identity of these products. We believe the proposed changes will
clarify the status of flavored malt beverages under these two Federal
statutes and will provide guidance to the State regulatory and tax
agencies that oversee their taxation and distribution.
DATES: Written comments must be received by June 23, 2003.
ADDRESSES: Send written comments to: Chief, Regulations and Procedures
Division, Alcohol and Tobacco Tax and Trade Bureau, P.O. Box 50221,
Washington, DC 20091-0221 (Attn: Notice No. 4). See the Public
Participation section of this notice for alternative means of
commenting.
Copies of this document and the written comments received will be
available for public inspection by appointment at the ATF Reference
Library, Room 6480, 650 Massachusetts Avenue, NW., Washington, DC
20226; telephone 202-927-7890. Copies of this document and of the
comments received will also be posted on the TTB Web site at http://
www.ttb.gov.
See the Public Participation section of this notice for
www.ttb.gov. See the Public Participation section of this notice for
further details.
FOR FURTHER INFORMATION CONTACT: Charles N. Bacon, Alcohol and Tobacco
Tax and Trade Bureau, Regulations and Procedures Division, 10 Causeway
Street, Room 701, Boston, MA 02222; telephone 617-557-1323.
SUPPLEMENTARY INFORMATION:
Table of Contents
Notes to Readers
A. ATF-TTB Transition
B. Use of Plain Language
I. Background Information
A. What Are Flavored Malt Beverages?
B. What Is Our Authority to Regulate Beer and Breweries?
C. What Is Our Authority to Regulate Malt Beverages?
D. What Is Our Authority to Regulate Distilled Spirits?
E. Why Are We Concerned with the Production, Labeling, and
Taxation of Flavored Malt Beverages?
II. Alcohol Beverage Production
A. Fermentation
B. IRC Definition of Beer
C. What Are Nonbeverage Distilled Spirits?
D. How Are Flavored Malt Beverages Different than Other Malt
Beverages?
III. Flavored Malt Beverages Study
A. What Was the Study's Intent?
B. What Were the Study's Findings?
C. What Conclusions Have We Drawn from this Study?
IV. Establishing a Standard for Added Alcohol
A. ATF Ruling 96-1
B. Standard for Added Alcohol and Alcohol From Fermentation
C. What is the Significance of 0.5% Alcohol by Volume?
V. Proposed Rule Language for Beer
A. Proposal for Alcohol Flavors in Beer
B. Comments Sought on Beer Definition
VI. Proposed Standards for Flavored Malt Beverages
A. How Does the Presence of Alcohol Flavors Affect Malt
Beverages?
B. Proposal for Alcohol Flavors in Malt Beverages
VII. Proposed Alcohol Content Labeling Statement for Flavored Malt
Beverages
A. Differentiation of Flavored Malt Beverages from other Alcohol
and Nonalcohol Beverages
B. Alcohol Content Statement on Brand Label
C. Form of Alcohol Content Statement and Tolerances
D. Effect of State Law
E. Discussion of Alcohol Content Labeling for All Malt Beverages
VIII. Use of Distilled Spirits Terms in Malt Beverage Labeling and
Advertising
A. Background
B. ATF Ruling 2002-2
C. Proposal for Labeling and Advertising
IX. Filing Formulas for Fermented Beverages
A. Current Statement of Process Requirement
B. Regulatory Proposal for Filing a Formula
C. Comments Sought on Formula Proposal
X. Samples
XI. Formulas and Samples for Imported Malt Beverages
XII. Public Participation
A. Comments Requested
B. What Is a Comment?
C. How May I Submit Comments?
D. How Does TTB Use the Comments?
E. May I Review Comments Received?
F. Will TTB Keep My Comments Confidential?
XIII. Regulatory Analyses and Notices
A. Does the Paperwork Reduction Act Apply to this Proposed Rule?
B. Does the Regulatory Flexibility Act Apply to this Proposed
Rule?
C. Is this a Significant Regulatory Action as Defined by
Executive Order 12866?
XIV. Drafting Information
XV. List of Subjects
XVI. The Proposed Rule
Notes to Readers
A. ATF-TTB Transition
Effective January 24, 2003, the Homeland Security Act of 2002
(Public Law 107-296, 116 Stat. 2135 (2002)) divided the Bureau of
Alcohol, Tobacco and Firearms (ATF) into two new agencies, the Alcohol
and Tobacco Tax and Trade Bureau (TTB) in the Department of the
Treasury and the Bureau of Alcohol, Tobacco, Firearms, and Explosives
in the Department of Justice. The regulation and taxation of alcohol
beverages remains a function of the Department of the Treasury and is
the responsibility of TTB. References to the former ATF and the new TTB
in this document reflect the time frame, before or after January 24,
2003.\1\
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\1\ The new Bureau of Alcohol, Tobacco, Firearms, and Explosives
continues to use the ``ATF'' abbreviation and continues to provide
some support services to TTB. References to the ``ATF Reference
Library'' in this document are to the new bureau's library, which
currently supports TTB.
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B. Use of Plain Language
In this document, ``we,'' ``our,'' and ``us'' refers to the
Department of the Treasury and/or the Alcohol and Tobacco Tax and Trade
Bureau (TTB). ``You,'' ``your,'' and similar words refer to members of
the alcohol beverage
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industry and others to whom TTB regulations apply.
I. Background Information
A. What Are Flavored Malt Beverages?
In recent years, flavored malt beverages have become increasingly
popular and have gained greater market share. These products differ
from traditional malt beverages and beer in several respects. Flavored
malt beverages exhibit little or no traditional beer or malt beverage
character. Their flavor is derived primarily from added flavors rather
than from malt and other materials used in fermentation. Flavored malt
beverages are marketed in traditional beer-type bottles and cans, and
their alcohol content is similar to most traditional malt beverages--in
the 4 to 6% alcohol by volume range.
Although flavored malt beverages are produced at breweries, their
method of production differs significantly from the production of other
malt beverages or beer. In producing flavored malt beverages, brewers
brew a fermented base of beer from malt and other brewing material.
Brewers then treat this base using a variety of processes in order to
remove malt beverage character from the base; i.e., they remove the
color, bitterness, and taste that are generally associated with beer,
ale, porter, stout, and other malt beverages. This leaves a base
product to which brewers add various flavors, which typically contain
distilled spirits, to achieve the desired taste profile and alcohol
level.
Although the alcohol content of flavored malt beverages is similar
to that of most traditional malt beverages, the alcohol in many of them
is derived primarily from the distilled spirits component of the added
flavors rather than from the fermentation of malt and other materials.
In some cases, as much as 99% of the alcohol in the finished flavored
malt beverage product comes from added flavorings containing distilled
spirits and not from fermentation in the brewery. Because these alcohol
beverages begin with a base of fermented beer, they are made at
breweries, taxpaid at the rate applicable to beer, and distributed to
the alcohol beverage market through beer and malt beverage wholesalers.
Flavored malt beverages are sold under many proprietary names and
include alcohol beverages such as alcoholic lemonades, alcoholic colas,
cooler-type products, and other flavored alcohol beverages. In the last
two years, brewers have partnered with distilled spirits producers in
order to label flavored malt beverages using prominent distilled
spirits brand names. Published statistics for calendar year 2001
indicate that flavored malt beverages constitute as much as 5% of the
overall U.S. malt beverage market, or as much as 10 million barrels (of
31 gallons each) of the overall malt beverage market of approximately
200 million barrels.
B. What Is Our Authority To Regulate Beer and Breweries?
Beer is a taxed under the Internal Revenue Code of 1986 (IRC). The
IRC both defines beer and imposes a Federal excise tax on beer removed
from a brewery, or imported into the United States, for consumption or
sale. Section 5052(a) IRC defines ``beer'' as:
* * * beer, ale, porter, stout, and other similar fermented
beverages (including sake or similar products) of any name or
description containing one-half of 1 percent or more of alcohol by
volume, brewed or produced from malt, wholly or in part, or from any
substitute therefor.
This statutory definition of beer is restated in our regulations in 27
CFR part 25, Beer.
This definition of beer originated in the internal revenue act
passed by Congress in 1862 to help finance the Civil War and has
remained essentially unchanged to the present day. (See Sec. 50 of the
Act of July 1, 1862, 12 Stat. 432, 450.) TTB and its predecessor
agencies have long relied on this statutory definition in collecting
the Federal excise tax on beer. Under IRC section 5051, the current
excise tax on beer is $18 per barrel of 31 gallons, with certain
exceptions for qualified small domestic brewers.
The IRC also governs the establishment and bonding of breweries.
IRC section 5401 requires a brewer to give notice to the Secretary of
the Treasury and file a bond with the Secretary prior to commencing
business at a brewery. TTB and its predecessor bureaus have long
regulated the establishment and operation of breweries under these
statutory provisions.
C. What Is Our Authority to Regulate Malt Beverages?
The Federal Alcohol Administration Act (FAA Act), 27 U.S.C. 211,
defines a ``malt beverage'' as:
* * * a beverage made by the alcoholic fermentation of an
infusion or decoction, or combination of both, in potable brewing
water, of malted barley with hops, or their parts, or their
products, and with or without other malted cereals, and with or
without the addition of unmalted or prepared cereals, other
carbohydrates or products prepared therefrom, and with or without
the addition of carbon dioxide, and with or without other wholesome
products suitable for human food consumption.
This definition also appears in our regulations in 27 CFR part 7,
Labeling and Advertising of Malt Beverages.
The FAA Act gives the Secretary of the Treasury or his designate
authority to issue regulations providing the public with information
about the identity and quality of malt beverages, and to prevent
deception in the labeling and advertising of malt beverages. The FAA
Act also requires that persons engaged in the business of wholesaling
or importing malt beverages obtain permits. In addition, it requires
bottlers or importers of malt beverages to obtain certificates of label
approval prior to introducing malt beverages into interstate or foreign
commerce. Regulations implementing these FAA Act provisions appear in
27 CFR part 7, Labeling and Advertising of Malt Beverages.
D. What Is Our Authority To Regulate Distilled Spirits?
Since the early days of the Republic, Congress has levied, and the
Treasury Department has collected, taxes on distilled spirits. Today,
under provisions of the IRC that define and tax distilled spirits, TTB
regulates the production, labeling, and taxpayment of distilled
spirits. Under other provisions of the IRC, we also oversee the
qualification and operation of distilled spirits plants (DSPs).
IRC section 5002(a)(8) defines ``distilled spirits'' as:
* * * that substance known as ethyl alcohol, ethanol, or spirits
of wine in any form (including all dilutions and mixtures thereof
from whatever source or by whatever process produced).
IRC section 5001 imposes Federal excise tax on distilled spirits at
the rate of $13.50 per proof gallon. A proof gallon is one liquid
gallon containing 50% alcohol by volume (100 proof) at 60[deg] F.
The FAA Act, at 27 U.S.C. 211(a)(5), defines distilled spirits
similarly as:
* * * ethyl alcohol, hydrated oxide of ethyl, spirits of wine,
whiskey, rum, brandy, gin, and other distilled spirits, including
all dilutions and mixtures thereof, for non-industrial use.
The FAA Act also gives us the authority to prescribe labeling and
advertising regulations for distilled spirits.
The FAA Act requires distillers, blenders, bottlers, wholesalers,
and importers of distilled spirits to obtain basic permits. It further
requires these persons to obtain certificates of label approval for
labels on bottles of distilled
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spirits prior to bottling or releasing bottled distilled spirits from
customs custody. Regulations implementing these FAA Act provisions
appear in 27 CFR Part 5, Labeling and Advertising of Distilled Spirits.
E. Why Are We Concerned With the Production, Labeling, and Taxation of
Flavored Malt Beverages?
This proposed rulemaking addresses the question: ``Should certain
products currently marketed as flavored malt beverages be classified as
malt beverages or distilled spirits under the FAA Act and the Internal
Revenue Code?'' The answer to this question affects the rate of tax
applicable to them, the premises where they may be produced, the way
they are labeled, advertised, marketed, and the distribution system by
which they are sold to retailers and consumers. Further, their
classification as malt beverages or as distilled spirits may affect
State oversight and control of these alcohol beverages.
State regulatory and taxation agencies have expressed concern about
flavored malt beverages and have requested that we take action to
clarify their status as either malt beverages or distilled spirits.
Moreover, through our own examination of these products, we believe
that, because of their present formulations, many beverages currently
marketed as flavored malt beverages should not be so classified.
This notice proposes significant changes in our regulations issued
under both the IRC and the FAA Act.
II. Alcohol Beverage Production
A. Fermentation
Fermentation is the process by which yeast converts sugar into
alcohol and carbon dioxide. Both the definition of ``beer'' under IRC
section 5052 and ``malt beverage'' under Sec. 211 of the FAA Act focus
on fermentation as the source of the alcohol in these products.
B. IRC Definition of Beer
Under the Internal Revenue Code, ``fermentation'' is the
determining criteria for defining beer. In 1869, the Commissioner of
Internal Revenue ruled that the term ``substitute for malt'' within
this definition includes other fermentable substances such as rice,
grain of any kind other than malt, sugar, bran, and glucose. In re-
enacting the Internal Revenue Code in 1954, Congress specifically
included sake, a fermented rice-based beverage, and products similar to
sake within the definition of beer for production and taxation
purposes. This specific inclusion shows that, while sake and similar
products do not resemble beer, ale, porter or stout, Congress intended
that such products are to be considered fermented products and taxed at
the beer rate. In all cases, the IRC definition of beer hinges
``fermentation.''
C. What Are Nonbeverage Distilled Spirits?
Distilled spirits have thousands of nonbeverage and industrial
uses. Distilled spirits are used in solvents, medicines, flavor
manufacture, pharmaceutical products, cleaning products, food products,
fuels, ink, and many other ordinary items. Generally, the IRC does not
require payment of the excise tax, or it permits rebate of most of the
excise tax, when distilled spirits are used for nonbeverage or
industrial purposes.
Under IRC Sec. 5131, a person may use taxpaid distilled spirits in
the manufacture of medicines, medicinal preparations, food products,
flavors, flavoring extracts, or perfume.
The excise tax treatment of distilled spirits used in
``nonbeverage'' products is different because these products are
``unfit for beverage use;'' i.e., an ordinary person would not consume
these products for beverage purposes. This criterion does not, however,
require that nonbeverage products be poisonous or harmful if consumed,
and, indeed, nonbeverage products deemed ``unfit for beverage use'' are
often used to produce food and beverage products intended for human
consumption.
D. How Are Flavored Malt Beverages Different Than Other Malt Beverages?
Flavored malt beverages are produced at breweries and taxpaid as
beer. However, as previously stated, most flavored malt beverages
differ from traditional brewery products:
[sbull] The beer base is treated to remove taste, aroma,
bitterness, and extracts, leaving a base;
[sbull] Their taste is derived from added flavors rather than from
fermentation of malt and other fermentable materials;
[sbull] They have low carbonation;
[sbull] They are clear in color, or their color is derived from
added flavoring or coloring materials;
[sbull] Their alcohol content is derived in large part from the
distilled spirits contained in the added flavoring materials, rather
than from the fermentation of malt and other materials.
The last characteristic not only sets flavored malt beverages apart
from other malt beverages, but also raises the question of whether they
should be classified as beer or as distilled spirits.
III. Flavored Malt Beverages Study
A. What Was the Study's Intent?
In order to address the question of the classification of flavored
malt beverages, we examined the formulation of 114 alcohol beverage
products labeled and marketed as flavored malt beverages. The intent of
this study was to find out how these products are produced, what
ingredients are used, and where the alcohol in them is derived. This
study did not examine malt beverages that are labeled and marketed as
flavored beers, flavored ales, and so forth since these types of malt
beverages typically have the character of malt beverages and their
alcohol is derived primarily from fermentation.
Please note: Since this study examined individual formulas and
production batch records furnished by brewers, it contains
confidential, proprietary information that is protected from
unauthorized disclosure under IRC sections 6103 and 7213, and under
the Trade Secrets Act, 18 U.S.C. 1905. Thus, by law, we cannot
furnish this study to the public, either on request or under the
Freedom of Information Act, without pervasive redactions.
B. What Were the Study's Findings?
For each flavored malt beverage, we examined batch records to
determine: (1) The amount of alcohol derived from alcohol flavors added
during production, (2) the amount of alcohol derived from fermented
material produced at the brewery, and (3) the volume of beer base
present in the flavored malt beverage. For the 114 different flavored
malt beverages studied, we found the following:
Table 1.--Alcohol Derived from Added Alcohol Flavoring Materials
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Number of
Flavored
Alcohol percentage derived from added alcohol flavors Malt
Beverages
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0-25....................................................... 4
26-50...................................................... 0
51-75...................................................... 5
76-100..................................................... 105
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Table 2.--Volume of Beer Base Present in Flavored Malt Beverages
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Number of
Volume of flavored malt beverage derived from fermented Flavored
beer base (Percent) Malt
Beverages
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0-25....................................................... 95
26-50...................................................... 4
51-75...................................................... 1
76-100..................................................... 14
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C. What Conclusions Have We Drawn From this Study?
It is clear from the study's findings that the great majority of
the alcohol in most flavored malt beverages is not derived from
fermentation of malt and grain. Instead, it is very clear that most of
these products' alcohol is derived from distilled spirits contained in
added alcohol flavorings. We found that over 75% of the alcohol in most
of the flavored malt beverages studied is derived from alcohol
flavoring materials, and that in some cases, this figure rose to more
than 99%. In contrast, the alcohol derived from flavorings constitutes
less than 25% of the overall alcohol in only 4 of the 114 products
studied.
A second finding from this study is that most flavored malt
beverages contain very little actual beer. Only 15 out of the 114
flavored malt beverages studied contain as much as 50% by volume
fermented beer; the remainder of their volume consists of flavors,
water, and other ingredients. Two of the flavored malt beverages
studied contain only 1% fermented beer by volume.
IV. Establishing a Standard for Added Alcohol
A. ATF Ruling 96-1
As noted in Reader's Note ``A'' above, references to ATF refer to
the agency as it existed in the Department of the Treasury before
January 24, 2003. Please note that while the former ATF issued this
ruling, it remains in effect and all references to ATF in the ruling
should be considered references to TTB. See the Homeland Security Act
of 2002, Public Law 107-296, section 1912 (November 24, 2002). This
ruling may be accessed on the TTB Web site at: http://www.ttb.gov/
alcohol/info/revrule/revrulex.htm.
For many years, ATF and its predecessors have allowed brewers to
use alcohol flavoring ingredients when producing malt beverages. In
fact, ATF recognized this practice in 1996 by issuing Ruling 96-1 (ATF
Quarterly Bulletin 1996-1, p. 49). For malt beverages in excess of 6%
alcohol by volume (alc/vol), the ruling establishes that a maximum of
1.5% alc/vol may be derived from alcohol flavoring materials. The
ruling does not establish a limit on alcohol derived from flavoring
materials for malt beverages under 6% alc/vol. Ruling 96-1 also states
that ATF would initiate future rulemaking to consider the prohibition,
restriction, or limitation on the use of flavor materials containing
alcohol at any stage in the production of malt beverages, but that
``pending completion of rulemaking, ATF will allow the continued
production or importation of fermented beverages which contain alcohol
not solely the result of fermentation at the brewery * * * .''
B. Standard for Added Alcohol and Alcohol From Fermentation
Neither the IRC nor the FAA Act provides a clear statement as to
how much, if any, of a beer's or a malt beverage's overall alcohol
content may come from added flavors or other alcohol-containing
materials or, conversely, how much of their alcohol content must result
from fermentation at the brewery. While neither statute sanctions the
direct addition of distilled spirits or other alcohol to beer or malt
beverages, we and our predecessors have long allowed flavors, including
flavors containing alcohol, to be added to these products. For example,
flavors may be added to beer to provide a particular flavor character.
Many States have urged us to define flavored malt beverages and
establish regulatory limits on the addition of alcohol to beer and malt
beverages through the use of flavors. In the absence of such a Federal
definition and regulation, several States have said that they will
develop their own definitions for flavored malt beverages.
We believe that the definition of ``beer'' in the IRC, which refers
to beer, ale, porter, stout, and ``other similar fermented beverages,''
requires that a product must derive a substantial portion of its
alcohol from fermentation at a brewery since the definition does not
contemplate a product that derives most of its alcohol content from
distilled spirits. As our study shows, very few products currently
marketed as flavored malt beverages meet this standard.
We also believe that a similar standard should apply to the
definition of ``malt beverage'' under the FAA Act, which defines a malt
beverage as a product made from the fermentation of malted barley with
hops. While the definition in the Act allows for the addition to malt
beverages of ``other wholesome food products'' such as flavors, we do
not believe that Congress intended for such added materials to be a
malt beverage's dominant ingredient or source of most of its alcohol
content.
For these reasons, the Treasury Department and TTB propose to
delineate how much of the alcohol content of a beer or malt beverage
must be derived from fermentation at the brewery, and how much of the
product's alcohol content may be derived from alcohol added through the
use of flavors and other ingredients containing alcohol.
C. What Is the Significance of 0.5% Alcohol by Volume?
The Department of the Treasury and TTB consider one-half of one
percent alcohol by volume (0.5% alc/vol) to be the dividing point
between an alcohol beverage subject to internal revenue tax and a
beverage containing alcohol that is not subject to tax as an alcohol
beverage. This dividing point is recognized in IRC Sec. 5052, which
defines beer as containing one-half percent alcohol or more by volume.
While the IRC does not establish an alcohol content threshold for wine
or distilled spirits, TTB regulations at 27 CFR 24.10 use the same
threshold, 0.5% alc/vol, as the distinction between a taxable wine and
a beverage that is not subject to tax as wine on removal from a winery.
In sum, the Treasury Department and its alcohol taxation agencies have
historically used the 0.5% alcohol by volume threshold as a dividing
line between alcohol products subject to one type of taxation or
another.
The presence of alcohol in many beverage products is widespread,
from juice, soft drinks, and soda, to cereal beverages made by brewers.
For soft drinks and some other beverages, the small amount of alcohol
present is usually derived from the use of flavoring materials
containing distilled spirits. However, where the alcohol content in
such a beverage product reaches 0.5% alc/vol, the product would be
subject to the internal revenue excise tax for distilled spirits
products. Such beverage products containing as much as 0.5% alc/vol
clearly meet the statutory definition of distilled spirits.
In the absence of specific statutory language stating otherwise, we
believe that IRC Sec. 5052 supports a regulation classifying any beer
or malt beverage product containing 0.5% or more alcohol by volume that
is derived from distilled spirits, or from distilled spirits in the
form of flavors or other materials, as a distilled spirits product.
Under our proposed rule, such products would be taxed and classified as
distilled spirits.
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We welcome comments on other limits that may be appropriate for the
addition of alcohol through flavoring or other materials to beer or
malt beverage products. For example, we believe that IRC section 5052
also would support the issuance of a regulation requiring that a beer
or malt beverage product must directly derive a majority of the alcohol
in a product taxed as beer from fermentation. In other words, less than
50% of the alcohol in a beer or malt beverage could come from alcohol
added through flavoring or other materials. We would also welcome
comments relating to the affect of our proposed regulation on the
viability of products currently on the market. We are particularly
interested in comments addressing whether products on the market could
be made currently under our proposed standard, or if not, on the time
required to implement such a standard.
V. Proposed Rule Language for Beer
A. Proposal for Alcohol Flavors in Beer
The Treasury Department and TTB propose to establish a new
production standard for beer in their regulations issued under the IRC.
Under proposed 27 CFR 25.15, to be taxed as ``beer'' a product must
contain less than 0.5% alc/vol derived from added materials, including
flavorings, that contain distilled spirits. An alcohol beverage
containing 0.5% or more alc/vol derived from distilled spirits in
flavors or other materials will be considered distilled spirits. Such
an alcohol beverage must be produced at a distilled spirits plant, must
be taxpaid at the rate applicable to distilled spirits products, must
be labeled and advertised as a distilled spirits specialty, and must be
distributed by persons holding basic permits as wholesalers of
distilled spirits.
B. Comments Sought on Beer Definition
We request comments on this proposed standard for beer.
Specifically, we solicit any studies, laboratory trials, or other
empirical data that may exist for added alcohol in flavored malt
beverages. We seek comments on how adoption of this proposed added
alcohol standard would affect taste, shelf life, stability, or other
characteristics of these products.
We also seek comments on whether production practices are available
to produce flavored malt beverages with the desired product profile and
still comply with the proposed standard. Finally, we seek comments on
whether another standard, such as a standard requiring that a minimum
of 51% of the alcohol in a malt beverage be derived from fermentation
at the brewery, would be more appropriate for these products. Any
suggestions or comments for differing added alcohol standards should be
backed with data, facts, or studies to support the suggestion. We also
encourage you to provide any other useful information or opinions on
this issue.
Since any standard applied would be a substantial change from
existing regulations and policy, we also seek comment on the amount of
time required to comply with any new rule that limits the amount of
alcohol that may be added to products taxed as beer. Comment should be
directed toward the amount of time necessary to develop and implement
new formulas for these products, and possible costs involved.
VI. Proposed Standards for Flavored Malt Beverages
A. How Does the Presence of Alcohol Flavors Affect Malt Beverages?
The FAA Act definition of ``malt beverage'' was intended to cover
all products made by brewers at the time of the FAA Act's enactment in
1935. This definition requires that a malt beverage be made from the
fermentation of malted barley with hops, with or without the addition
of ``other wholesome food products.'' For years brewers have used many
substances including starches, sugars, honey, fruits, flavors
(including those containing alcohol), colors, and adjuncts to aid in
fermentation, clarification, and preservation of malt beverages.
Federal alcohol regulation and tax agencies, including the former ATF
and the new TTB, have allowed these ingredients in malt beverage
products.
Federal administrators of the FAA Act have seldom examined the
question of what constitutes ``wholesome food products'' other than to
state that the substances added to malt beverages must be sanctioned as
safe for food use by the Food and Drug Administration and have some
intended purpose in the production of a malt beverage. We and our
predecessors have considered flavorings containing distilled spirits to
be wholesome food products and have allowed their use in producing malt
beverages.
The extensive use of flavors containing distilled spirits
introduces a significant amount of distilled spirits into a malt
beverage. Adding alcohol or distilled spirits in this fashion reduces
the need to use fermented malt in the production of a malt beverage in
order to acquire alcohol content. When carried to extremes, the result
is a product in which much of its alcohol content comes from added
flavorings rather than from fermentation at a brewery and a product in
which less than half of its overall volume is a result of fermentation.
We believe that the definition of flavored malt beverages in the
FAA Act supports limiting the amount of alcohol in the beverage that is
not ``made by the alcoholic fermentation * * * of malted barley with
hops * * *.'' Further, we believe that to label a beverage that derives
most of its alcohol content from added alcohol flavors as a malt
beverage is inherently misleading since consumers would expect that
malt beverages derive a significant portion of their alcohol content
from fermentation of barley malt and other ingredients at the brewery.
B. Proposal for Alcohol Flavors in Malt Beverages
Thus, the Department of the Treasury and TTB propose to adopt a
standard for malt beverages that limits the alcohol content derived
from alcohol flavorings and other materials to less than one-half of
one percent alcohol by volume (0.5% alc/vol). We propose to add a new
section, Sec. 7.11, Standards for malt beverages, that specifies this
limit. We welcome comments on this proposed standard and on other
possible standards, which are consistent with the FAA Act definition of
malt beverage, such as requiring that the alcohol content of a malt
beverage be ``predominantly;'' i.e.; at least 51%, derived from
fermentation at the brewery. We further seek comments on the time
required to implement any such added alcohol standard for malt
beverages.
VII. Proposed Alcohol Content Labeling Statement for Flavored Malt
Beverages
A. Differentiation of Flavored Malt Beverages From Other Alcohol and
Nonalcohol Beverages
Due to the unique character of these new types of flavored malt
beverages many consumers have limited experience with them. At the same
time, due to their label appearance and the use of the brand names of
well-known distilled spirits, we believe that consumers are likely to
be confused as to their actual alcohol content. We believe that
consumers are likely to assume that some flavored malt beverages are
high in alcohol content like the distilled spirits whose brand names
they bear. Likewise, while other brands of flavored malt beverages are
not labeled with distilled spirits brand names, their labeling or
packaging,
[[Page 14297]]
which often resembles that of nonalcoholic new age beverages such as
juices, sodas, bottled water, and energy drinks, is likely to confuse
consumers as to their identity as alcohol products.
Because of the likely consumer confusion over the actual alcohol
content, or range of alcohol, in flavored malt beverages, we believe
that a mandatory requirement to label these products with their alcohol
content will provide substantial consumer benefit. We believe labeling
flavored malt beverages with their alcohol content will help consumers
identify them as malt beverages and will help consumers to understand
that their alcohol content is similar to that of traditional malt
beverages. Alcohol content labeling would also help draw attention to
any flavored malt beverages that might lie outside the customary 4 to
6% alcohol by volume range for malt beverages. For example, if a
flavored malt beverage contains 10% alc/vol, alcohol content labeling
would inform consumers about this important distinction.
Since there is no regulatory provision in part 7 that uniquely
identifies flavored malt beverages, we propose that mandatory alcohol
content labeling apply to any malt beverage that contains alcohol from
a source other than from fermentation at a brewery. For example if a
brewer adds a flavoring containing alcohol to a malt beverage, whether
it is labeled as a flavored malt beverage, a flavored beer or ale, or a
specialty malt beverage product, the requirement to display alcohol
content on the label would apply.
B. Alcohol Content Statement on Brand Label
Beyond simply requiring the alcohol content to be displayed on
labels of flavored malt beverages, we believe additional benefit
accrues to consumers when it appears on the brand label. Since the
brand label is the most prominent label, and is the principal display
panel on the package, consumers are more likely to read information,
including alcohol content information, displayed on the brand label as
opposed to information appearing on the back label. Thus, we propose to
amend Sec. 7.22(a) to require that you list the alcohol content of a
flavored malt beverage on its brand label. This proposed requirement
differs from that for alcohol content labeling for other malt beverages
since, under Sec. 7.22(b), the alcohol content statement may appear on
any label.
C. Form of Alcohol Content Statement and Tolerances
We propose no changes to the form of the alcohol content statement
or the tolerances provided in Sec. 7.71, or to the type size
requirements in Sec. 7.28.
With regard to the actual statement of alcohol content, Sec.
7.71(a)(3) requires labeling with the percentage of alcohol by volume,
which may be expressed in one of several ways: (1) ``Alcohol X percent
by volume;'' (2) ``alcohol by volume X percent;'' (3) `` X percent
alcohol by volume;'' or (4) `` X percent alcohol/volume.'' You may use
the abbreviations ``alc'' and ``vol'' and the symbol ``%'' in lieu of
``percent.''
Tolerances are prescribed at Sec. 7.71(c). This section allows
alcohol content of a malt beverage to vary by plus or minus 0.3% from
the stated label alcohol content.
Type size requirements for statement of alcohol content appear in
Sec. 7.28(b)(3). For containers of \1/2\ pint or less, the minimum
type size is 1 mm. For containers larger than \1/2\ pint, the minimum
size is 2 mm. Type size may not exceed 3 mm for containers of 40 fl.
oz. or smaller, or exceed 4 mm for containers larger than 40 fl. oz.
D. Effect of State Law
In the case of all malt beverages, the penultimate clause of the
FAA Act makes Federal labeling regulations applicable only to the
extent that State law imposes similar requirements on malt beverages
sold within the State. Specifically, the proposed regulations apply to
malt beverage labeling and advertising in interstate commerce only to
the extent that State law imposes similar requirements on malt
beverages that are exclusively intrastate. You must comply with these
regulations to the extent that the State imposes similar requirements
on malt beverages that are to be consumed or sold within that State.
For example, if a State law requires that the alcohol content statement
appear in a form different than provided by Federal regulations, then
State law will govern the labeling of malt beverages sold or introduced
into commerce in that State.
E. Discussion of Alcohol Content Labeling for All Malt Beverages
In Rubin v. Coors Brewing Co., 514 U.S. 476 (1995), the U.S.
Supreme Court upheld a lower court ruling in favor of Coors Brewing
Co., which had challenged the provisions of the FAA Act and 27 CFR part
7 regulations prohibiting statements of alcohol content on malt
beverage labels. The Court found that brewers have a right to inform
consumers of their products' alcohol content. Since this 1995 Supreme
Court ruling, we added Sec. 7.71 to the part 7 malt beverage labeling
and advertising regulations to permit the optional listing of alcohol
content on malt beverage labels. (See T.D. ATF-339, 58 FR 21228.)
We believe that there are good reasons to require labels of all
malt beverages to bear an alcohol content statement; however, we are
not proposing to do so in this notice. To the maximum extent possible,
we wish to restrict this notice of proposed rulemaking to proposals
concerning flavored malt beverages and not further complicate this
notice with proposals that relate to all malt beverages. Thus, we
propose to require mandatory alcohol content labeling only for malt
beverages that contain alcohol from added flavors or other material
containing alcohol. We may examine the question of mandatory alcohol
content labeling for all malt beverages in a future notice of proposed
rulemaking.
VIII. Use of Distilled Spirits Terms in Malt Beverage Labeling and
Advertising
A. Background
Some newer flavored malt beverages use the names of well-known
brands of distilled spirits as part of their own brand names. The
labels of these flavored malt beverage brands are also often designed
to resemble the labels of the distilled spirits brand used in their
name. In addition, when first introduced, some of these flavored malt
beverages bore label statements referring to the class and type of
distilled spirits used in producing the nonbeverage flavoring
component.
For these reasons, many State regulatory and taxing authorities
questioned the classification of flavored malt beverages and requested
that we take action to clarify their status as either malt beverages or
distilled spirits.
B. ATF Ruling 2002-2
In response to these concerns, ATF issued Ruling 2002-2 on April 8,
2002. Please note that while the former ATF issued this ruling, it
remains in effect and any references to ATF in the ruling should be
considered references to TTB. This ruling may be accessed on the TTB
Web site at: http://www.ttb.gov/alcohol/info/revrule/revrulex.htm.
ATF issued this ruling to clarify permissible labeling and
advertising practices for flavored malt beverages, and to give brewers
and importers labeling guidelines that would serve to prohibit the
misleading impression that flavored malt beverages are distilled
[[Page 14298]]
spirits or contain distilled spirits. ATF also restated the holdings
made in Ruling 96-1 concerning the use of alcohol flavorings in
producing flavored malt beverages and concerning the requirements for
filing statements of process for malt beverages. With respect to
labeling and advertising of malt beverages, Ruling 2002-2 held:
[sbull] Held, for brand names.
--The use of a brand name of a distilled spirits product as the brand
name of a malt beverage is not in itself misleading.
--The use of a distilled spirits term found in the standards of
identity in 27 CFR part 5 such as whisky, rum, vodka, brandy, gin, and
so forth, as the brand name for a malt beverage is misleading. ATF will
not approve labels where a distilled spirits term is used as the brand
name for a malt beverage.
--The use of a coined term that is similar to or resembles a class and
type of distilled spirits as part of the brand name for a malt beverage
will be examined on a case-by-case basis to determine if it is
misleading as to the identity of the product.
[sbull] Held, for class and type statements including statements of
composition and fanciful names.
--The use of a distilled spirits terms found in the standards of
identity in 27 CFR part 5, or the use of a distilled spirits brand
name, in the statement of composition or in the fanciful name for a
flavored malt beverage is misleading as to the identity of the product.
ATF will no longer approve labels where distilled spirits terms or
brand names appear in the fanciful name or the statement of composition
for a malt beverage.
--Use of a cocktail term as the fanciful name of a malt beverage is not
misleading if there is no misleading impression about the identity of
the product, based on the overall labeling and advertising of the
product.
[sbull] Held, for all other labeling and advertising statements.
--The use of any distilled spirits terms found in the standards of
identity in 27 CFR part 5, or of distilled spirits brand names,
appearing in any other place on a malt beverage label or in an
advertisement for a malt beverage will be presumed to be misleading.
Examples of statements that will be presumed to be misleading include:
+ ``Tastes like rum.''
+ ``The flavor of brandy.''
+ ``Serve like a liqueur.''
+ ``Made by Old Sourmash Whisky Company, City, State.''
--Use of cocktail terms on a label or advertisement for a malt beverage
is not in itself misleading if there is no misleading impression about
the identity of the product, based on the overall labeling or
advertising of the product.
C. Proposal for Labeling and Advertising
We propose to amend Sec. Sec. 7.29 and 7.54 to incorporate the
provisions of Ruling 2002-2. Although brewers and importers have
revised their labels and advertising to comply with the ruling, we wish
to place these provisions in our part 7 regulations. By doing so, you
may more easily refer to, and comply with, these labeling and
advertising provisions. Moreover, by proposing these requirements, the
public, the alcohol beverage industry, and State regulatory agencies
will have the opportunity to comment and provide input on these
regulations.
In 1968, ATF added provisions to the regulations in Part 4,
Labeling and Advertising of Wine, to prohibit labeling and advertising
statements that imply that wine products are similar to distilled
spirits, or imply that wine is made with or contains distilled spirits.
(See Sec. Sec. 4.39 and 4.64.) We propose to add similar language to
the malt beverage regulations at Sec. Sec. 7.29 and 7.54. These
proposed part 7 regulatory provisions would prohibit a labeling or
advertising statement or representation which tends to create the
impression that a malt beverage:
[sbull] Contains distilled spirits (other than from ``nonbeverage''
flavors containing alcohol),
[sbull] Is similar to a distilled spirit, or
[sbull] Has intoxicating qualities.
A statement of alcohol content on a malt beverage label is
permitted under this proposal. In accord with Ruling 2002-2, the use of
a brand name of a distilled spirits product as the brand name of a malt
beverage is permitted. However, the use of a distilled spirits brand
name in any other malt beverage labeling or advertising contexts would
be prohibited under this proposal. The use of a cocktail name would not
be considered a reference to distilled spirits if the overall
formulation, label, or advertisement does not present a misleading
impression about the identity of the product.
We welcome comments on this proposal.
IX. Filing Formulas for Fermented Beverages
A. Current Statement of Process Requirement
Existing regulations at 27 CFR 25.67 require you to file a
statement of process with TTB's National Revenue Center in Cincinnati,
Ohio as part of your Brewer's Notice for any fermented beverage that
you intend to market under a name other than ``beer,'' ``lager,''
``ale,'' ``porter,'' ``stout,'' or ``malt liquor.'' Under Sec. 25.76,
you must file an amended Brewer's Notice if you make changes to an
approved statement of process.
When you file a statement of process with the National Revenue
Center, a specialist at TTB's Advertising, Labeling and Formulation
Division in Washington, DC examines the proposed statement of process
in order to ensure that authorized materials will be used, to determine
the correct class and type, and to ensure that the fermented product
may be made at a brewery.
B. Regulatory Proposal for Filing a Formula
We wish to describe more clearly the fermented products for which
you must file a formula. Additionally, we believe that all brewers
should be able to file their statements of process or formulas directly
with our Advertising, Labeling and Formulation Division in Washington,
DC. For these reasons, we propose to replace the statement of process
requirement found at Sec. Sec. 25.62 and 25.67 with a formula
requirement.
1. Requirements for Filing Formulas
We believe current Sec. Sec. 25.62 and 25.67, which require you to
file a statement of process for any product not marketed as a ``beer,''
``ale,'' and so forth, are vague and lead to questions as to when a
formula is required. For example, if you intend to produce a flavored
beer, you have been required to file a formula although this
requirement is not clear in the current regulation. Similarly, if you
add coloring or flavoring material to a product that you intend to
market as a beer, it is unclear if you are required to file a statement
of process when, in fact, you are required to file one because of the
use of these added materials.
Proposed Sec. 25.55 requires you to file a formula with TTB for
certain fermented products that you intend to make at your brewery. For
the purposes of tax classification and label evaluation, products for
which you must file a formula include: sake, flavored sake, and
sparkling sake, products to which you add any material containing
alcohol such as nonbeverage flavors, products to which you add coloring
or natural or artificial flavors, or any product to which you add
fruits, herbs, spices, or honey.
Under this proposed rule, you must also file a formula for any
fermented
[[Page 14299]]
product that will undergo special processing or filtration, or undergo
any other process not used in traditional brewing. The use of reverse
osmosis, ion exchange treatments, filtration that changes the character
of beer or removes material from beer, concentration or reconstitution
of beer, and freezing or superchilling of beer, are examples of
processes for which you must file a formula with TTB. You are not
required to file a formula for traditional brewing processes such as
pasteurization, filtration prior to bottling, filtration in lieu of
pasteurization, centrifuging (for clarification), lagering,
carbonation, and the like.
You must currently file your formula prior to producing the
fermented product at your brewery. Proposed Sec. 25.55(c) permits you
to produce certain fermented beverages for research and product
development purposes without receiving formula approval. Under proposed
Sec. 25.55(c), you could not sell or market these products until
receiving formula approval.
2. Filing Formulas
Under the proposed rule, you must file your formula in duplicate
directly with TTB's Advertising, Labeling and Formulation Division in
Washington, DC. After approval, we will return one copy to you. You may
make copies of this approved formula for use at any of your breweries
where the formula is valid. A copy of this formula will become part of
the required records kept at any individual brewery where you make
products using the formula. These proposed regulations do not require a
Government form for your formula, although we are considering use of a
form like ATF Form 5120.29, Formula and Process for Wine, or requiring
both beer and wine formulas to be filed on this form.
Under the proposed rule, you may file one formula to cover
production of a fermented product made at any brewery that you own or
operate. You may not use your approved formula to cover production of a
fermented product at a brewery that you do not operate, such as when
you have beer produced for you under contract by another brewer. Also,
when you file a formula to cover production of a fermented product at
more than one of your breweries, you must identify each brewery where
the formula is valid by including each brewery's name, address, and
brewery registry number on the formula.
3. Information Required in Formulas
Proposed Sec. 25.57 lists the information that you must include in
a formula. This section spells out this information in more detail than
does existing Sec. Sec. 25.62 and 25.67 relating to statements of
process. Proposed Sec. 25.57 also requires you to provide information
required in your statements of process by Rulings 94-3, 96-1, and 2002-
2.
Under the proposed rule, your formula must list each ingredient
used in the production of a fermented product and the quantity of that
ingredient or a range of the quantity. If you indicate use of a range
of an ingredient, the range may not be so wide as to render the formula
meaningless. For example, a formula that indicates use of ingredients
as ``water 0-100 gallons, flavors 0-10 gallons, beer base 0-500
gallons,'' has limited value in determining what kind of product will
be made. Therefore any range of ingredients indicated in a formula must
be ``reasonable.'' We seek comment on means to quantify in the
regulations what a ``reasonable'' range of ingredients should be.
If flavors are present in your fermented product, you must include:
(1) The name of the flavor; (2) the product number, if any; (3) the
name and location of the flavor manufacturer; (4) the TTB or ATF
formula number and approval date, if any, of the flavor; (5) and the
alcohol content of the flavor.
If you use flavors containing alcohol, or other ingredients
containing alcohol, proposed Sec. 25.57 imposes additional
requirements. You must indicate in your formula: (1) The volume and
alcohol content of the beer base; (2) the maximum volumes of flavors or
other ingredients containing alcohol; (3) the alcohol strength of
flavors or other materials containing alcohol; (4) the alcohol
contribution to the finished product made by flavors and ingredients
containing alcohol; and (5) the final volume and alcohol strength of
the finished product. We will use this information to determine the
amount of alcohol in a fermented product that is not derived from
fermentation at the brewery and whether the proposed product meets the
proposed definition of beer in this notice.
Under the proposed rule, you must also describe in detail any
special process that you use in producing your fermented product. This
information will help us to determine whether a particular process may
be distillation and thus not eligible to be conducted on brewery
premises. It will also help us determine the product classification of
a proposed brewery product.
4. Superseding Formulas
Under proposed Sec. 25.58, you must file a formula superseding an
existing formula if you change a product's ingredients or production
process. In this case, ``change'' means to add a new ingredient or
process, to eliminate an ingredient or process, or to change the
quantity of an ingredient outside of an approved range. When you file a
superseding formula you may give it the same serial number as the
superseded formula, but you must indicate that it is a superseding
formula, such as ``Formula No. 2, Superseding, 3-04-2003.'' We will
cancel a formula that you supersede.
5. Previously Approved Statements of Process
Your previously approved statements of process (SOP) will remain
valid after the adoption of these regulations provided the finished
product under the SOP is in compliance with the new requirements
relating to the definition of beer in proposed Sec. 25.15. You will
not need to notify us or take any other action regarding these
documents. After these regulations become effective, you must comply
with the formula requirements or supercede statements of process for
any new formulas that you intend to use.
C. Comments Sought on Formula Proposal
We welcome comments on the proposed regulations for the preparation
and filing of formulas. We are especially interested to know if the
proposed system will be easier and less confusing than the present
statement of process requirement.
X. Samples
We propose to add a new section, Sec. 25.53, regarding the
submission of samples. This section recognizes our authority to require
a brewer to submit a sample of a beer or an ingredient used for
producing beer. We occasionally examine samples of beer or ingredients
in conjunction with our review of statements of process or formulas and
in order to determine the proper tax classification of fermented
products. This proposal merely incorporates this existing statutory
authority in our part 25 regulations.
XI. Formulas and Samples for Imported Malt Beverages
We propose amending Sec. 7.31 by placing in the part 7 regulations
our statutory authority to require an importer to submit a formula to
us in conjunction with the filing of a certificate of label approval,
ATF Form 5100.31. Similarly, we propose to place in the part 7
regulations our authority to require importers to submit samples of a
malt beverage or samples of
[[Page 14300]]
ingredients used in producing a malt beverage. Occasionally, we must
examine a statement of process or analyze samples of a malt beverage in
order to determine the proper classification of a product, whether a
particular product is a malt beverage, or whether a product is
correctly labeled under part 7 regulations. We welcome comments on this
proposal.
XII. Public Participation
A. Comments Requested
The Department of the Treasury and TTB request comments from all
interested parties on the proposals contained in this notice.
We specifically request comments on other standards or approaches
that would be appropriate as an alternative or addition to any final
rule, including one that would limit the presence of alcohol derived
from added flavors or other materials to not more than 49% of the
alcohol volume of the finished product. In developing the final rule,
Treasury and TTB will carefully re-evaluate the proposed standard in
light of all comments and suggested alternative standards and
approaches and will adopt the most appropriate standard or approach.
We also specifically request comments on:
[sbull] The proposed amendments to our regulations relating to the
production, labeling, and composition of products marketed as flavored
malt beverages;
[sbull] The proposed definitions for beer and malt beverages
requiring these products to be composed primarily of alcohol from
fermentation and that limit the contribution of alcohol from added
flavors or other ingredients containing alcohol to less than 0.5%
alcohol by volume;
[sbull] The proposed requirement that malt beverages containing
alcohol derived from added flavors or other ingredients containing
alcohol bear a mandatory alcohol content statement on their brand
labels;
[sbull] Whether products currently on the market could be made
under our proposed standard or under an alternative standard;
[sbull] The amount of time required to comply with any new
restrictions on adding alcohol to beer and malt beverages;
[sbull] The new formula filing requirements for brewers and
importers who wish to produce or import beer or malt beverages
containing added flavors, added colors, or which undergo processing not
customary in the production of traditional beers; and
[sbull] While we believe that our proposal is consistent with the
definitions in the Internal Revenue Code and the FAA Act, flavored malt
beverages that contain a significant amount of added alcohol may not
have been contemplated by Congress at the time of the statutes'
enactment. Therefore, we also seek comments on whether Treasury and TTB
should seek legislation that would specifically address the treatment
of such products, and whether such legislation is necessary to avoid
unintended economic consequences of the application of the statute
under this rule.
We also specifically request comments on the clarity of the
proposed regulations and how they may be made easier to understand.
B. What Is a Comment?
In order for a submission to be considered a ``comment,'' it must
clearly indicate a position for or against the proposed rule or some
part of it, or must express neutrality about the proposed rule.
Comments that use reasoning, logic, and, if applicable, good science to
explain the respondent's position are most persuasive in the formation
of a final rule.
To be eligible for consideration, comments must:
[sbull] Contain your name and mailing address;
[sbull] Reference this notice number;
[sbull] Be legible and written in language generally acceptable for
public disclosure;
[sbull] Contain a legible, written signature if submitted by mail
or fax; and
[sbull] Contain your e-mail address if submitted by e-mail.
To ensure that the public is able to access our office equipment,
comments submitted by fax must be no more than five pages in length
when printed on 8\1/2\ by 11 inch paper. Comments submitted by mail or
e-mail may be of any length.
C. How May I Submit Comments?
By mail: You may send written comments by mail to the address shown
in the ADDRESSES section of this notice.
By fax: You may submit comments by facsimile transmission to 716-
434-8041. We will treat faxed transmissions as originals.
By e-mail: You may submit comments by e-mail by sending the
comments to nprm@ttb.gov. We will treat e-mailed transmissions as
originals.
By online form: You may also submit comments using the comment form
provided with the online copy of this proposed rule on the TTB Web site
at http://www.ttb.gov/alcohol/rules/index.htm. We will treat comments
at http://www.ttb.gov/alcohol/rules/index.htm. We will treat comments
submitted via the Web site as originals.
Public Hearing: Any person who desires an opportunity to comment
orally at a public hearing on the proposed regulation should submit his
or her request in writing to the Administrator within the 90-day
comment period. The Administrator, however, reserves the right to
determine, in light of all circumstances, whether a public hearing will
be held.
D. How Does TTB Use the Comments?
We will carefully consider all comments that we receive on or
before the closing date. We will not acknowledge receipt of comments or
reply to individual comments. We will summarize and discuss pertinent
comments in the preamble of any subsequent notices or the final rule
published on this subject.
E. May I Review Comments Received?
You may view copies of the comments received in response to this
notice of proposed rulemaking by appointment at the ATF Reference
Library, Room 6480, 650 Massachusetts Avenue, NW., Washington, DC
20226, telephone 202-927-7890. You may request copies of the comments
at 20 cents per page by writing to the ATF Reference Librarian at the
above address.
For the convenience of the public, we will also post comments
received in response to this notice on the TTB Web site. All comments
posted on our Web site will show the name of the commenter, but will
not show street addresses, telephone numbers, or e-mail addresses. We
may also omit voluminous attachments or material that we do not
consider suitable for posting. In all cases, the full comment will be
available in the ATF Reference Library. To access online copies of the
comments on this rulemaking, visit http://www.ttb.gov/alcohol/rules/
index.htm
, and click on the ``View Comments'' button under this notice
number.
F. Will TTB Keep My Comments Confidential?
We cannot recognize any material in comments as confidential. All
comments and materials may be disclosed to the public in the ATF
Reference Library. We may also post the comment on our Web site. (See
``May I Review Comments Received?'') Finally, we may disclose the name
of any person who submits a comment and quote from the comment in the
preamble to a final rule on this subject. If you consider your material
to be confidential or inappropriate for disclosure to the
[[Page 14301]]
public, you should not include it in the comments.
XIII. Regulatory Analyses and Notices
A. Does the Paperwork Reduction Act Apply to This Proposed Rule?
The provisions of the Paperwork Reduction Act of 1995, Public Law
104-13, 44 U.S.C. chapter 35, and its implementing regulations, 5 CFR
part 1320, do not apply to this notice of proposed rulemaking because
we are not proposing any new or revised recordkeeping requirements. We
are only proposing to clarify when a formula must be filed with TTB
and, for the purpose of efficiency, we propose to change the place
where within TTB these formulas are filed. In the future, we may
develop a specific form for this information collection.
The Office of Management and Budget has previously approved the
information collection and recordkeeping provisions contained in
proposed Sec. Sec. 25.55 through 25.58 under OMB control number 1512-
0045, in accordance with the requirements of the Paperwork Reduction
Act. This information collection and the related recordkeeping
requirements are currently contained in Sec. Sec. 25.62 and 25.67.
B. Does the Regulatory Flexibility Act Apply to This Proposed Rule?
We certify under the provisions of the Regulatory Flexibility Act
(5 U.S.C. 601 et seq.) that this notice will not have a significant
impact on a substantial number of entities. We believe that 10 or fewer
qualified small breweries actually manufacture flavored malt beverages
subject to this rule. We specifically solicit comments on the number of
small breweries that may be affected by this rule and on the impact of
this rule on those breweries. We ask that any small brewery that
believes that it would be significantly affected by this rule to let us
know and tell us how it would affect you.
Pursuant to Sec. 7805(f) of the Internal Revenue Code of 1986, we
have submitted this regulation to the Chief Counsel for Advocacy of the
Small Business Administration for comment on its impact on small
business.
C. Is This a Significant Regulatory Action as Defined by Executive
Order 12866?
This is not a significant regulatory action as defined by Executive
Order 12866. Therefore, the order does not require a regulatory
assessment because no effect of $100 million or more flows from this
rule and because any effect flows directly from the underlying
statutes.
XIV. Drafting Information
Various personnel of the Alcohol and Tobacco Tax and Trade Bureau
and the Department of the Treasury drafted this document.
List of Subjects
27 CFR Part 7
Advertising, Authority delegations, Beer, Consumer protection,
Customs duties and inspection, Imports, Labeling, Packaging and
containers, Reporting and recordkeeping requirements.
27 CFR Part 25
Beer, Claims, Electronic fund transfers, Excise taxes, Exports,
Labeling, Liquors, Packaging and containers, Reporting and
recordkeeping requirements, Research, Surety bonds.
The Proposed Rule
For the reasons set forth in the preamble, the Department of the
Treasury and the Alcohol and Tobacco Tax and Trade Bureau propose to
amend the regulations in title 27, Code of Federal Regulations, as
follows:
PART 7--LABELING AND ADVERTISING OF MALT BEVERAGES
1. The authority citation for 27 CFR part 7 continues to read as
follows:
Authority: 27 U.S.C. 205.
2. We amend Sec. 7.10 by revising the definition of ``malt
beverage'' to read as follows:
Sec. 7.10 Meaning of terms.
* * * * *
Malt beverage. A beverage made by the alcoholic fermentation of an
infusion or decoction, or combination of both, in potable brewing
water, of malted barley with hops, or their parts, or their products,
and with or without other malted cereals, and with or without the
addition of unmalted or prepared cereals, other carbohydrates or
products prepared therefrom, and with or without the addition of carbon
dioxide, and with or without other wholesome products suitable for
human food consumption. Standards applying to malt beverages appear in
Sec. 7.11.
* * * * *
3. We amend Subpart B by adding a new Sec. 7.11 to read as
follows:
Sec. 7.11 Standards for malt beverages.
The following standards apply to a fermented product that is
considered a malt beverage under this part.
(a) Alcohol flavoring materials and other ingredients containing
alcohol may be used in producing a malt beverage provided these alcohol
ingredients constitute less than 0.5 percent alcohol by volume (0.5%
alc/vol) of the finished malt beverage. For example, a finished malt
beverage of 5.0% alc/vol must derive more than 4.5% alc/vol from the
fermentation of barley malt and other materials, and must derive less
than 0.5% alc/vol from the addition of alcohol flavors or other
ingredients containing alcohol.
(b) A malt beverage may be filtered or processed in order to remove
color, taste, aroma, bitterness, or other characteristics derived from
fermentation.
4. We amend Sec. 7.22 by adding a new paragraph (a)(5) to read as
follows:
Sec. 7.22 Mandatory label information.
There shall be stated:
(a) On the brand label:
* * * * *
(5) Alcohol content in accordance with Sec. 7.71, for malt
beverages that contain any alcohol derived from added flavors or other
ingredients containing alcohol.
* * * * *
5. We amend Sec. 7.29 by revising paragraph (a) and by adding a
new paragraph (a)(7) to read as follows:
Sec. 7.29 Prohibited practices.
(a) Statements on labels. Containers of malt beverages, or any
labels on such containers, or any carton, case, or individual covering
of such containers, used for sale at retail, or any written, printed,
graphic, or other material accompanying such containers to the consumer
must not contain:
* * * * *
(7)(i) Any statement, design, device, or representation which tends
to create the impression that a malt beverage:
(A) Contains distilled spirits; or
(B) Is similar to a distilled spirit; or
(C) Has intoxicating qualities.
(ii) A label statement of alcohol content in conformity with Sec.
7.71 is not considered a prohibited practice in violation of this
section. Use of a brand name of a distilled spirits product as a malt
beverage brand name is permitted. Use of a cocktail name as a brand
name or fanciful name is permitted if the overall malt beverage
formulation and label do not present a misleading impression about the
identity of the product.
* * * * *
6. We amend Sec. 7.31 by adding paragraph (e) to read as follows:
[[Page 14302]]
Sec. 7.31 Label approval and release.
* * * * *
(e) Formula and samples. The Administrator may require you to
submit a formula for a malt beverage, and a sample of any malt beverage
or ingredients used in producing a malt beverage in conjunction with
the filing of a certificate of label approval on ATF Form 5100.31.
7. We amend Sec. 7.54 by revising paragraph (a) and by adding a
new paragraph (a)(8), to read as follows:
Sec. 7.54 Prohibited statements.
(a) General prohibition. An advertisement of malt beverages must
not contain:
* * * * *
(8)(i) Any statement, design, device, or representation which
relates to alcohol content or which tends to create the impression that
a malt beverage:
(A) Contains distilled spirits; or
(B) Is similar to a distilled spirit; or
(C) Has intoxicating qualities.
(ii) A label statement of alcohol content in conformity with Sec.
7.71 is not considered a prohibited practice in violation of this
section. Use of a brand name of a distilled spirits product as a malt
beverage brand name is permitted. Use of a cocktail name as a brand
name or as a fanciful name is permitted if the overall malt beverage
advertisement does not present a misleading impression about the
identity of the product.
* * * * *
PART 25--BEER
8. The authority citation for part 25 continues to read as follows:
Authority: 19 U.S.C. 81c; 26 U.S.C. 5002, 5051-5054, 5056, 5061,
5091, 5111, 5113, 5142, 5143, 5146, 5222, 5401-5403, 5411-5417,
5551, 5552, 5555, 5556, 5671, 5673, 5684, 6011, 6061, 6065, 6091,
6109, 6151, 6301, 6302, 6311, 6313, 6402, 6651, 6656, 6676, 6806,
7011, 7342, 7606, 7805; 31 U.S.C. 9301, 9303-9308.
9. We amend Sec. 25.11 by revising the definition of ``beer'' to
read as follows:
Sec. 25.11 Meaning of terms.
* * * * *
Beer. Beer, ale, porter, stout, and other similar fermented
beverages (including sak[eacute] and similar products) of any name or
description containing one-half of one percent or more alcohol by
volume, brewed or produced from malt, wholly or in part, or from any
substitute for malt. Standards for the beer tax rate appear in Sec.
25.15.
* * * * *
10. We amend subpart B by adding an undesignated center heading and
a new section, Sec. 25.15, to read as follows:
Standards for Beer Tax Rate
Sec. 25.15 What standards must be met to qualify as a fermented
product to be taxed at the beer rate?
(a) You may use barley malt, malted grains other than barley,
unmalted grains, sugars, syrups, molasses, honey, fruit, fruit juice,
fruit concentrate, herbs, spices, and other food materials for
fermenting beer.
(b) You may use alcohol flavoring materials, taxpaid wine, and
other ingredients containing alcohol in producing beer, provided these
alcohol ingredients contribute less than 0.5 percent alcohol by volume
of the finished beer. For example, a finished beer of 5.0% alc/vol must
derive more than 4.5% alc/vol from the fermentation of ingredients at
the brewery. Added flavors or other ingredients containing alcohol may
constitute less than 0.5% alc/vol of the finished beer.
11. We amend Subpart F by adding two undesignated center headings,
and by adding new Sec. Sec. 25.53, and 25.55 through 25.58, to read as
follows:
Subpart F--Miscellaneous Provisions
* * * * *
Samples
Sec. 25.53 Am I required to furnish samples of my fermented products
or ingredients?
The appropriate TTB officer may, at any time, require you to submit
samples of:
(a) Cereal beverage, sake, or any fermented product produced at the
brewery.
(b) Materials used in the production of cereal beverage, sake, or
any fermented product.
(c) Cereal beverage, sake, or any fermented product, in conjunction
with the filing of a formula. (26 U.S.C. 5415, 5555, 7805(a))
Formulas
Sec. 25.55 Are formulas required for my fermented products?
(a) For what fermented products must a formula be filed? You must
file a formula with TTB if you intend to produce:
(1) Any fermented product that will be treated by any special
processing, filtration, or other methods of manufacture that change the
character of beer or remove material from beer. The removal of any
volume of water from beer, filtration of beer to remove color, flavor,
or character, the separation of a beer into different components,
reverse osmosis, concentration of beer, and ion exchange treatments are
examples of processes that require you to file a formula under this
section.
(2) Any fermented product to which taxpaid wine or any flavor or
other ingredient containing alcohol will be added.
(3) Any fermented product to which coloring or natural or
artificial flavors will be added.
(4) Any fermented product to which fruits, herbs, spices, or honey
will be added.
(5) Sake, flavored sake, or sparkling sake.
(b) Are separate formulas required for different products? You must
file a separate formula for each fermented product for which a formula
is required.
(c) When must I file a formula? (1) Except as provided in paragraph
(2), you may not produce a fermented product for which a formula is
required until you have filed and received approval of a formula for
that product.
(2) You may, for research and product development purposes, produce
a fermented product without an approved formula, but you may not sell
or market this product until you receive approval of a formula.
(d) How long is my formula approval valid? Your formula approved
under this section remains in effect until you supersede it with a new
formula, until you voluntarily surrender it to TTB, or until TTB
cancels or revokes it.
(e) Are my previously approved statements of process valid? Your
statements of process approved before [EFFECTIVE DATE OF FINAL RULE]
are considered approved formulas under this section, provided the
finished product under the statement of process is in compliance with
Sec. 25.15. You do not need to resubmit any approved statements of
process. (26 U.S.C. 5415, 5555, 7805(a))
Sec. 25.56 How do I file a formula?
(a) What are the general requirements for filing a formula?
(1) You must identify each brewery where the formula is valid by
including each brewery name, address, and the brewery registry number
for each brewery for which the formula applies.
(2) You must serially number each formula, commencing with ``1''
and continuing in numerical sequence.
(3) You must date and sign each formula.
(4) You must submit two copies of each formula to TTB.
(b) Where do I file a formula? File your formulas with the Chief,
Advertising, Labeling and Formulation Division, Alcohol and Tobacco Tax
and Trade Bureau, 650 Massachusetts Avenue, NW., Washington, DC 20226.
(26 U.S.C. 5401, 7805)
[[Page 14303]]
Sec. 25.57 What ingredient and process information must I include on
a formula?
(a) For each formula you must list--
(1) Each separate ingredient and the specific quantity used, or a
reasonable range of quantities used.
(2) For fermented products containing flavorings, you must include:
The name of the flavor; the product number, if any; the name and
location (city, State and TTB company code) of the flavor manufacturer;
the TTB or ATF formula number and approval date, and the alcohol
content of the flavor.
(3) For formulas that include the use of taxpaid wine or other
ingredients containing alcohol, you must explicitly indicate:
(i) The volume and alcoholic content of the beer base;
(ii) The maximum volumes of the flavoring materials or other
ingredients to be used;
(iii) The alcoholic strength of the flavoring materials or other
ingredients;
(iv) The overall alcohol contribution to the finished product
provided by the addition of flavoring materials or other ingredients
containing alcohol; and
(v) The final volume and alcoholic content of the finished product.
(b) You must describe in detail each process used to produce a
fermented beverage.
(c) You must state the alcohol content of the fermented product at
each step in production after fermentation, and the alcohol content of
the finished product.
(d) At any time, an appropriate TTB officer may require you to file
additional information concerning a fermented product, ingredients, or
processes, in order to determine whether a formula should be approved,
disapproved, or if the approval of a formula should be continued. (26
U.S.C. 5415, 5555, 7805(a))
Sec. 25.58 When must I file a new or superseding formula?
(a) You must file a new or superseding formula if you--
(1) Create an entirely new fermented product that requires a
formula;
(2) Add new ingredients to an existing formulation;
(3) Delete ingredients from an existing formulation;
(4) Change the quantity of an ingredient used from the quantity or
range of usage in an approved formula;
(5) Change an approved processing, filtration, or other special
method of manufacture that requires the filing of a formula; or
(6) Change the contribution of alcohol from flavor or ingredients
that contain alcohol.
(b) When you file a new or superseding formula with TTB, follow the
procedures described above in Sec. Sec. 25.56 through 25.57.
(c) When you file a new formula, you must give it a new formula
number.
(d) A superseding formula is one that replaces an existing formula.
You must inform TTB when you file a superseding formula. When TTB
approves a superseding formula, we will cancel your previous formula.
You may use the same formula number for a superseding formula as the
formula it replaces, but you must annotate the formula number to
indicate it is a superseding formula (For example, Formula 2,
superseding). (26. U.S.C. 5401)
Sec. 25.62 [Amended]
12. We amend Sec. 25.62 by removing and reserving paragraph
(a)(7).
Sec. Sec. 25.67 and 25.76 [Removed]
13. We amend Subpart G by removing and reserving Sec. Sec. 25.67
and 25.76.
Signed: March 4, 2003.
John J. Manfreda,
Acting Administrator.
Approved: March 17, 2003.
Timothy E. Skud,
Deputy Assistant Secretary, (Regulatory, Tariff, and Trade
Enforcement).
[FR Doc. 03-6855 Filed 3-21-03; 8:45 am]
BILLING CODE 4810-31-P