The TTB has proposed and is seeking public comment on modifications to the definition and treatment of Hard Cider through temporary rule, T.D. TTB–147, based on requirements set out in the PATH Act.
The summary from the Temporary Rule:
SUMMARY: This temporary rule amends the Alcohol and Tobacco Tax and Trade Bureau (TTB) regulations to implement changes made to the definition of ‘‘hard cider’’ in the Internal Revenue Code of 1986 by the Protecting Americans from Tax Hikes Act of 2015. The modified definition broadens the range of wines eligible for the hard cider tax rate. TTB is amending its regulations to reflect the modified definition of hard cider effective for products removed on or after January 1, 2017, and to set forth new labeling requirements to identify products to which the hard cider tax rate applies. The new labeling requirements include both a one-year transitional rule and a new labeling requirement that takes effect for products removed on or after January 1, 2018. TTB is also soliciting comments from all interested parties on these amendments through a notice of proposed rulemaking published elsewhere in this issue of the Federal Register.
Some Highlights From the Full Text:
Use of Pears and Pear Concentrate in Addition to Apples and Apple Concentrate – The modified definition under the PATH Act provides that wine eligible for the hard cider tax rate must be derived primarily from apples or pears or from apple juice concentrate or pear juice concentrate and water… if apple juice and pear juice (or the equivalent amount of concentrate reconstituted to the original brix of the juice prior to concentration) together represent more than 50 percent of the volume of the finished product, this requirement is met.
Increase in Authorized Amount of Carbon Dioxide – prior to the effective date of the hard cider provisions of the PATH Act, to be eligible for the ‘‘hard cider’’ tax rate under the IRC, wine must be, among other things, a ‘‘still wine,’’ that is, a wine containing not more than 0.392 gram of carbon dioxide per 100 milliliters. The modified definition of hard cider allows wine that is eligible for the hard cider tax rate to contain no more than 0.64 gram of carbon dioxide per 100 milliliters of wine … This means that, under the modified definition, certain wines that would previously have fallen within the tax classes applicable to sparkling wine or artificially carbonated wine will be eligible for the hard cider tax rate.
Increase in Allowed Alcohol Content – Prior to the effective date of the hard cider provisions of the PATH Act, wine is not eligible for the hard cider tax rate unless it contains less than 7 percent alcohol by volume. However, the definition of hard cider as modified by the PATH Act increases the allowable alcohol content to less than (not equal to) 8.5 percent alcohol by volume. The increase in the allowed alcohol content allows a broader range of products to be eligible for the hard cider tax rate, including products that are subject to the FAA Act labeling and permit requirements, which apply to wines that contain at least 7 percent alcohol by volume.
Fruit Products and Fruit Flavoring – Prior to the effective date of the hard cider provisions of the PATH Act, the statutory definition of hard cider provides that no fruit product other than apple and apple concentrate may be used in wine eligible for the hard cider tax rate. As described above, the current regulatory definition of hard cider for tax purposes states that, among other things, hard cider must contain ‘‘no other fruit product nor any artificial product which imparts a fruit flavor other than apple.’’ Pursuant to the PATH Act, the modified definition of hard cider prohibits the use of any ‘‘fruit product or fruit flavoring other than apple or pear.’’ … it is TTB’s interpretation that wine is not eligible for the hard cider tax rate if it contains any fruit flavoring that imparts the flavor of a fruit other than apple or pear. The term ‘‘fruit flavoring’’ includes a natural fruit flavor, an artificial fruit flavor, and a natural flavor that artificially imparts the flavor of a fruit that is not contained in that flavor.
Need for Revised Labeling Requirements To Implement the PATH Act for the Hard Cider Tax Class – current regulations require wines to be labeled with the ‘‘kind’’ of wine, and provide that wines that are not subject to FAA Act labeling requirements must be labeled with a statement of composition that, when viewed with the alcohol content, includes enough information to identify the tax class. … Under the definition of hard cider set forth in the PATH Act, wine taxed at the hard cider tax rate may contain a higher alcohol content (less than 8.5 percent instead of less than 7 percent alcohol by volume) and may be effervescent (containing not more than 0.64 gram of carbon dioxide per 100 milliliters of wine). Under the modified definition, wine may also contain pears in addition to or in place of apples. This affects how the product must be labeled to provide sufficient information to identify the appropriate tax class.