Classification of Brewed Products as "Beer" Under the Internal ...

Tag : Beverages
Classification of Brewed Products as "Beer" Under the InternalRevenue Code of 1986 and as "Malt Beverages" Under the FederalAlcohol Administration Act

Released : Friday, July 18, 2008 11:20 AM
DEPARTMENT OF THE TREASURY
Alcohol and Tobacco Tax and Trade Bureau (TTB)
Ruling on the classification of brewed products.
CFR Part: "27 CFR Parts 7, 16, and 25"
Citation: "73 FR 41259"
Document Number: "TTB Ruling 2008-3"
Page Number: "41259"
"Rules and Regulations"
SUMMARY: This document reproduces a ruling issued by the Alcoholand Tobacco Tax and Trade Bureau on July 7, 2008, to clarify thatthat certain brewed products classified as "beer" under theInternal Revenue Code of 1986 do not meet the definition of a "maltbeverage" under the Federal Alcohol Administration Act.
DATES: The ruling was effective on July 7, 2008.
FOR FURTHER INFORMATION CONTACT: Ramona Hupp, Regulations andRulings Division, Alcohol and Tobacco Tax and Trade Bureau, 1310 GStreet, NW., Room 200-East, Washington, DC 20220; telephone (202)927-2166.
SUPPLEMENTARY INFORMATION: On July 7, 2008, the Alcohol andTobacco Tax and Trade Bureau (TTB) issued TTB Ruling 2008-3 toclarify that certain brewed products classified as "beer" under theInternal Revenue Code of 1986 do not meet the definition of a "maltbeverage" under the Federal Alcohol Administration Act. We madethis ruling available through the TTB Web site on July 8, 2008.This ruling is reproduced below:
TTB Ruling 2008-3
Classification of Brewed Products as "Beer" Under the InternalRevenue Code of 1986 and as "Malt Beverages" Under the FederalAlcohol Administration Act
In recent months, the Alcohol and Tobacco Tax and Trade Bureau(TTB) has received inquiries from brewers regarding the labelingstandards that apply to beers produced from substitutes for maltedbarley, such as rice or corn. We also have fielded questions frombrewers and importers regarding the appropriate labeling of beersthat are made without hops. This ruling explains the statutorycriteria for classification of products as "beer" and "maltbeverages" under the applicable laws and regulations.
Laws and Regulations
Federal Alcohol Administration Act
Sections 105(e) and (f) of the Federal Alcohol AdministrationAct (FAA Act), 27 U.S.C. 205(e) and (f), vest broad authority inthe Secretary of the Treasury to prescribe regulations with respectto the labeling and advertising of wine, distilled spirits, andmalt beverages that are introduced into interstate or foreigncommerce or imported into the United States. Section 105(e) alsoprovides that no person may bottle, or remove from customs custodyin bottles, distilled spirits, wine, or malt beverages unless hehas obtained a certificate of label approval issued in accordancewith regulations prescribed by the Secretary. Regulations thatimplement the provisions of SUBSEC 105(e) and (f), as they relateto malt beverages, are set forth in part 7 of the TTB regulations(27 CFR part 7), Labeling and Advertising of Malt Beverages. In thecase of malt beverages, the labeling provisions of the FAA Actapply only if the laws of the State into which the malt beveragesare shipped impose similar requirements.
Section 117(a)(7) of the FAA Act (27 U.S.C. 211(a)(7) definesthe term "malt beverage" as "a beverage made by the alcoholicfermentation of an infusion or decoction, or combination of both,in potable brewing water, of malted barley with hops, or theirparts, 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 orwithout the addition of carbon dioxide, and with or without otherwholesome products suitable for human food consumption." The samedefinition appears in the TTB regulations at 27 CFR 7.10.
Internal Revenue Code of 1986
Chapter 51 of the Internal Revenue Code of 1986 (IRC) sets forthexcise tax collection and related provisions pertaining todistilled spirits, wines, and beer; these provisions and theregulations promulgated thereunder are also administered by TTB.Within Chapter 51 of the IRC, section 5051 (26 U.S.C. 5051) imposesa tax on all beer brewed or produced, and removed for consumptionor sale, within the United States, or imported into the UnitedStates. Section 5412 of the IRC (26 U.S.C. 5412) provides that beermay be removed from the brewery for consumption or sale only inhogsheads, packages, and similar containers, marked, branded, orlabeled in such manner as the Secretary of the Treasury may byregulation require. Regulations that implement the Chapter 51provisions pertaining to beer are set forth in part 25 of the TTBregulations (27 CFR part 25) and include, in SEC 25.142 (27 CFR25.142), label requirements for beer in bottles.
Section 5052(a) of the IRC (26 U.S.C. 5052(a) defines the term"beer," for purposes of Chapter 51, as "beer, ale, porter, stout,and other similar fermented beverages (including sake or similarproducts) of any name or description containing one-half of 1percent or more of alcohol by volume, brewed or produced from malt,wholly or in part, or from any substitute therefor." The samedefinition appears in the TTB regulations at 27 CFR 25.11. Inaddition, with reference to what may be a substitute for malt, SEC25.15(a) of the TTB regulations (27 CFR 25.15(a) states that"[o]nly rice, grain of any kind, bran, glucose, sugar, and molassesare substitutes for malt."
"Beer" versus "Malt Beverage"
As indicated above, the definition of a "beer" under the IRCdiffers from the definition of a "malt beverage" under the FAA Actin several significant respects. First, the IRC does not requirebeer to be fermented from malted barley; instead, a beer may bebrewed or produced from malt or "from any substitute therefor."Second, the IRC does not require the use of hops in the productionof beer. Third, the definition of "beer" in the IRC provides thatthe product must contain one-half of one percent or more of alcoholby volume, whereas there is no minimum alcohol content for a "maltbeverage" under the FAA Act.
Accordingly, a fermented beverage that is brewed from asubstitute for malt (such as rice or corn) but without any maltedbarley may constitute a "beer" under the IRC but does not fallwithin the definition of a " malt beverage" under the FAA Act.Similarly, a fermented beverage that is not brewed with hops mayfall within the IRC definition of "beer" but also falls outside ofthe definition of a "malt beverage" under the FAA Act.
It should be noted that sake and similar products are includedwithin the definition of "beer" under the IRC. See 26 U.S.C.5052(a). However, sake is also included within the definition of awine under the FAA Act, which, among other things, covers onlywines with an alcohol content of at least seven percent alcohol byvolume. See 27 U.S.C. 211(a)(6). Thus, sake and similar productswith an alcohol content of at least seven percent alcohol by volumeare subject to the labeling and other requirements of the FAA Act.
TTB Jurisdiction Over These Products
Beers (other than sake and similar products) that do not conformto the definition of a "malt beverage" in the FAA Act are outsidethe scope of the FAA Act and, therefore, are not subject to thelabeling, advertising, and other provisions of the TTB regulationspromulgated under the FAA Act. This means, among other things, thatbrewers and importers of such products are not required to obtain acertificate of label approval for these beers.
Brewery products that are not malt beverages under the FAA Actbut that conform to the IRC definition of "beer" are still subjectto all applicable requirements of the IRC and part 25 of the TTBregulations, including the labeling of bottles ( SEC 25.142) andthe approval of formulas (27 CFR 25.55). Furthermore, all alcoholbeverages containing not less than one-half of one percent alcoholby volume and intended for human consumption are subject to theGovernment health warning statement requirements of the AlcoholicBeverage Labeling Act of 1988 (the ABLA, codified at 27 U.S.C. 213through 219 and 219a) and the ABLA implementing regulations in part16 of the TTB regulations (27 CFR part 16).
In cases where a brewery product (other than sake and similarproducts) fails to meet the definition of a "malt beverage" underthe FAA Act, the product will be subject to ingredient and otherlabeling requirements administered by the U.S. Food and DrugAdministration (FDA). As reflected in the 1987 Memorandum ofUnderstanding between FDA and TTB's predecessor agency, the Bureauof Alcohol, Tobacco and Firearms (ATF), TTB is responsible for thepromulgation and enforcement of regulations with respect to thelabeling of distilled spirits, wines, and malt beverages pursuantto the FAA Act. Importantly, however, in cases where an alcoholbeverage is not covered by the labeling provisions of the FAA Act,the product is subject to ingredient and other labelingrequirements under the Federal Food, Drug, and Cosmetic Act, andthe implementing regulations that are administered by FDA.
Required Quantities of Malted Barley and Hops to Qualify as a MaltBeverage Under the FAA Act
TTB and its predecessor agency have previously provided guidanceon the minimum quantities of malted barley and hops required to beused in the production of malt beverages. In 1994, the Bureau ofAlcohol, Tobacco and Firearms (ATF) issued ATF Compliance Matters94-1, which provided that beers fermented from at least 25 percentmalted barley (calculated as the percentage of malt, by weight,compared to the total dry weight of all ingredients contributingfermentable extract to the base product) and made with at least71/2 pounds of hops (or the equivalent thereof in hop extracts orhop oils) per 100 barrels were "malt beverages" under the FAA Act.Because neither the FAA Act nor the implementing regulations in 27CFR part 7 prescribe minimum standards for the amount of maltedbarley used in the production of a malt beverage, we are nowreconsidering this guidance.
Pending a decision on whether to engage in rulemaking on thisissue, TTB will continue to address inquiries from brewersregarding the classification of fermented beverages that containhops and malted barley, but are made from less than 25 percentmalted barley or less than 71/2 pounds of hops per 100 barrels. Forexample, we recently determined that a neutral malt beer basecontaining a much lower amount of malted barley (one percent of thetotal dry weight of all ingredients contributing fermentableextract to the product) conformed to the definition of a "maltbeverage."
Brewers and importers should contact the Assistant Director,Advertising, Labeling and Formulation Division, if they have aquestion as to whether a particular product falls within thedefinition of a "malt beverage" and therefore is subject to thecertificate of label approval and other requirements under the FAAAct.
TTB Holding
Held, in order for a brewery product to fall within thedefinition of a "malt beverage" under the FAA Act, it must be afermented beverage made from both malted barley and hops, or theirparts, or their products. A fermented beverage that qualifies as a"beer" under the IRC (other than sake or similar products) but thatis made without both malted barley and hops is not subject to therequirements of the FAA Act.
Dated: July 7, 2008.
John J. Manfreda,
Administrator.
Dated: July 14, 2008.
John J. Manfreda,
Administrator.
[FR Doc. E8-16413 Filed 7-17-08; 8:45 am]
BILLING CODE 4810-31-P
Copyright 2008 Federal Information & News Dispatch, Inc.
Provider:
Federal Information & News Dispatch, Inc. / Federal Register
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