[Federal Register Volume 75, Number 140 (Thursday, July 22, 2010)]
[Proposed Rules]
[Pages 42659-42662]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-17957]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Alcohol and Tobacco Tax and Trade Bureau
27 CFR Parts 40, 41, 44, 45, and 46
[Docket No. TTB-2010-0004; Notice No. 106]
RIN 1513-AB78
Standards for Pipe Tobacco and Roll-Your-Own Tobacco; Request for
Public Comment
AGENCY: Alcohol and Tobacco Tax and Trade Bureau, Treasury.
ACTION: Advance notice of proposed rulemaking; solicitation of
comments.
-----------------------------------------------------------------------
SUMMARY: The Alcohol and Tobacco Tax and Trade Bureau requests public
comments on standards that have been proposed to distinguish between
pipe tobacco and roll-your-own tobacco for Federal excise tax purposes
based upon certain physical characteristics of the two products. We
also request comments on any other physical characteristics that may be
used for such purposes.
DATES: We must receive written comments on or before September 20,
2010.
ADDRESSES: You may send comments on this advance notice to one of the
following addresses:
http://www.regulations.gov (via the online comment form
for this advance notice as posted within Docket No. TTB-TTB-2010-0004
at ``Regulations.gov,'' the Federal e-rulemaking portal);
Mail: Director, Regulations and Rulings Division, Alcohol
and Tobacco Tax and Trade Bureau, P.O. Box 14412, Washington, DC 20044-
4412; or
Hand Delivery/Courier in Lieu of Mail: Alcohol and Tobacco
Tax and Trade Bureau, 1310 G Street, NW., Suite 200-E, Washington, DC
20005.
See the Public Participation section of this advance notice for
specific instructions and requirements for submitting comments, and for
information on how to request a public hearing.
You may view copies of this advance notice, selected supporting
materials, and any comments we receive about this proposal at http://www.regulations.gov within Docket No. TTB-2010-0004. A direct link to
this docket is posted on the TTB Web site at http://www.ttb.gov/tobacco/tobacco-rulemaking.shtml under Notice No. 106. You also may
view copies of this advance notice, any supporting materials, and any
comments we receive about this proposal by appointment at the TTB
Information Resource Center, 1310 G Street, NW., Washington, DC 20220.
Please call 202-453-2270 to make an appointment.
FOR FURTHER INFORMATION CONTACT: Amy R. Greenberg, Regulations and
Rulings Division, Alcohol and Tobacco Tax and Trade Bureau (202-453-
2099).
SUPPLEMENTARY INFORMATION:
Background
TTB Authority
Chapter 52 of the Internal Revenue Code of 1986 (IRC) sets forth
the Federal excise tax and related provisions that apply to tobacco
products and processed tobacco manufactured in, or imported into, the
United States. Section 5702(c) of the IRC (26 U.S.C. 5702(c)) defines
the term ``tobacco products'' as ``cigars, cigarettes, smokeless
tobacco, pipe tobacco, and roll-your-own tobacco.'' Each of these terms
is also separately defined in section 5702.
Regulations implementing the provisions of chapter 52 of the IRC
are contained in 27 CFR parts 40 (Manufacture of tobacco products,
cigarette papers and tubes, and processed tobacco), 41 (Importation of
tobacco products, cigarette papers and tubes, and processed tobacco),
44 (Exportation of tobacco products and cigarette papers and tubes,
without payment of tax, or with drawback of tax), 45 (Removal of
tobacco products and cigarette papers and tubes, without payment of
tax, for use of the United States), and 46 (Miscellaneous regulations
relating to tobacco products and cigarette papers and tubes). These
regulations are administered by the Alcohol and Tobacco Tax and Trade
Bureau (TTB).
Children's Health Insurance Program Reauthorization Act of 2009
On February 4, 2009, the President signed into law the Children's
Health Insurance Program Reauthorization Act of 2009, Public Law 111-3,
123 Stat. 8 (``the Act'').
[[Page 42660]]
Section 701 of the Act amended the IRC to increase the Federal
excise tax rates on tobacco products and cigarette papers and tubes,
effective as of April 1, 2009. The tax rates on pipe tobacco and roll-
your-own tobacco, which had both previously been $1.0969 per pound,
were raised to $2.8311 per pound for pipe tobacco and $24.78 per pound
for roll-your-own tobacco. See 26 U.S.C. 5701(f) and (g), respectively.
On March 31, 2009, TTB published in the Federal Register (T.D. TTB-75,
74 FR 14479) a temporary rule to amend the TTB regulations to reflect
the section 701 changes. In the same issue of the Federal Register, TTB
also published a notice of proposed rulemaking (Notice No. 93, 74 FR
14506) inviting comments on the temporary regulations.
On June 22, 2009, TTB published a temporary rule in the Federal
Register (T.D. TTB-78, 74 FR 29401) to implement certain additional
changes made to the IRC by section 702 of the Act. In the same issue of
the Federal Register, TTB also published a notice of proposed
rulemaking (Notice No. 95, 74 FR 29433) inviting comments on the
temporary regulations.
In an additional temporary rule, published in the Federal Register
on September 24, 2009 (T.D. TTB-81, 74 FR 48650), TTB amended certain
temporary provisions set forth in T.D. TTB-78 by extending the length
of time packages of roll-your-own tobacco and pipe tobacco that did not
comply with new regulatory requirements could still be used. This
temporary rule also was published concurrent with a notice of proposed
rulemaking in the same issue of the Federal Register (Notice No. 99, 74
FR 48687) soliciting comments on the revision.
Distinguishing Between Pipe Tobacco and Roll-Your-Own Tobacco in T.D.
TTB-78
Temporary rule T.D. TTB-78 included new provisions regarding the
expansion of the statutory definition of roll-your-own tobacco
generally to include cigar wrapper and filler, and regarding the
packaging and labeling of pipe tobacco and roll-your-own tobacco to
better differentiate, on the basis of the packaging and labeling,
between these two types of taxable products. In T.D. TTB-78, TTB noted
that the tax rate increases adopted in section 701 of the Act resulted
in a significant difference between the rate of tax imposed on roll-
your-own tobacco ($24.78 per pound) and the rate of tax imposed on pipe
tobacco ($2.8311 per pound). Prior to the amendments made by the Act,
the two tax rates were the same.
The Bureau further noted that the existing TTB regulations
contained no standards to differentiate between roll-your-own tobacco
and pipe tobacco beyond a repeat of the statutory definitions. In T.D.
TTB-78, we amended these definitions to incorporate the definitional
changes contained in the Act. These definitional changes did not
include any language which provides objective standards to readily
distinguish between roll-your-own tobacco and pipe tobacco. Section
5702(o) of the IRC, as amended by the Act, defines the term ``roll-
your-own tobacco'' as ``any tobacco, which, because of its appearance,
type, packaging, or labeling, is suitable for use and likely to be
offered to, or purchased by, consumers as tobacco for making cigarettes
or cigars, or for use as wrappers thereof.'' The term ``pipe tobacco''
is defined at 26 U.S.C. 5702(n) as ``any tobacco which, because of its
appearance, type, packaging, or labeling, is suitable for use and
likely to be offered to, or purchased by, consumers as tobacco to be
smoked in a pipe.''
TTB recognizes that the similarity of roll-your-own tobacco and
pipe tobacco and the much lower rate on pipe tobacco resulting from the
tax rate changes made by the Act created an incentive for persons who
roll their own cigarettes to use pipe tobacco. In T.D. TTB-78, the
agency noted that there is now a heightened need for more regulatory
detail to clarify the difference between the two products. Because both
the definition of roll-your-own tobacco and the definition of pipe
tobacco require consideration of the packaging and labeling of the
product in order to determine the appropriate tax classification and
because additional regulatory standards regarding the packaging and
labeling were available, TTB amended the regulations to more clearly
distinguish between the two products on those bases. With regard to the
products' other defining characteristics, TTB stated that it was
evaluating analytical methods and other standards that may lead to
future rulemaking proposals.
Comments Received
As a result of our rulemaking actions, TTB received six written
submissions from four industry members and one consumer organization
suggesting specific standards that could be used to distinguish between
roll-your-own tobacco and pipe tobacco. According to some of these
commenters, such standards are urgently needed because, they allege,
the new packaging and labeling regulations are not sufficient to
prevent the misrepresentation of roll-your-own tobacco as pipe tobacco.
A representative for Altadis USA, Inc., a manufacturer and importer
of pipe tobacco, submitted the most detailed proposal regarding
physical standards in comments to Notice No. 95, which were repeated in
a separate letter to TTB's Administrator. Stating that it believes the
new packaging requirements outlined in Notice No. 95 are only
marginally helpful in dealing with the ``misclassification problem,''
Altadis USA, Inc. proposes that TTB establish standards of physical
characteristics for pipe tobacco. It asserts that examination of
physical characteristics is necessary to determine whether the product,
by virtue of its ``appearance'' and ``type,'' is ``suitable for use''
as tobacco to be smoked in a pipe, as described in the statutory
definition of pipe tobacco at 26 U.S.C. 5702(n), or as tobacco for
making cigarettes or cigars, as described in the statutory definition
of roll-your-own tobacco at 26 U.S.C. 5702(o). This commenter therefore
proposes that processed tobacco in its finished form be classified as
pipe tobacco only if it meets at least one of the following:
At least 18% of its weight consists of reducing sugars;
Moisture content exceeds 22% of its weight;
Its cut tobacco exceeds \1/8\ inch in width;
At least 10% of its weight consists of Latakia, Perique,
or Black Tobacco (USDA Type 37) or a combination thereof; or
At least 20% of its weight consists of flavoring, casing,
or other non-tobacco content.
According to the commenter, any processed tobacco product that does
not meet any of these criteria cannot be legitimately classified as
pipe tobacco and must be classified as roll-your-own tobacco.
TTB notes that this commenter also proposes that TTB take into
consideration pre-existing or established brands for pipe tobacco and
roll-your-own tobacco. The commenter states that prior to the
introduction of the relevant tobacco tax legislation in Congress in
January 2009, there were no ``crossover brands'', that is, ``brands
associated with both pipe tobacco and roll-your-own tobacco.'' The
commenter therefore urged TTB to deem any processed tobacco regularly
sold under a pre-existing brand name, trade name, or trademark
predominantly associated with roll-your-own tobacco, prior to January
1, 2009, as roll-your-own tobacco. Similarly, any processed tobacco
regularly sold under a pre-
[[Page 42661]]
existing brand name, trade name, or trademark predominantly associated
with pipe tobacco prior to January 1, 2009, should be deemed pipe
tobacco.
A representative of Top Tobacco L.P., a manufacturer of roll-your-
own-tobacco, specifically addresses the above commenter's proposed
standards for pipe tobacco in a letter to TTB's Administrator. Although
the company states that it agrees with the general statement of facts
in the submission, it disagrees with the proposed criterion regarding
the width of the cut of the tobacco. This commenter states that it does
not believe that the width factor can be a reliable indicator of
whether or not a product is intended for consumption as roll-your-own
tobacco or pipe tobacco because, according to the commenter, tobacco
cut at \1/8\ of an inch can be rolled into cigarettes and, further,
consumers can use basic kitchen or hardware appliances to grind wider
cut tobacco into a size suitable for use as roll-your-own tobacco. The
commenter goes on to assert that width standards proposed in Germany
were not successful.
In response to Notice No. 95, the Pipe Tobacco Council, Inc. (PTC)
submitted a comment proposing that pipe tobacco products sold as such
prior to January 1, 2009, be exempt from the proposed labeling and
packaging regulations. The PTC proposes that manufacturers with such
products certify that the products were on the market prior to January
1, 2009, and that TTB create and maintain a database of such
certifications. Manufacturers wishing to market any products as pipe
tobacco that would be sold to consumers for the first time on or after
January 1, 2009, would be required to submit a sample of the finished
product to TTB along with a ``valid reason why the product should be
considered pipe tobacco.'' Such reasons could include the product's cut
size, casing and flavoring rates, tobacco grades used, cut style, and
moisture. Finally, PTC proposes that any brand name or trademark that
was ever sold as either a roll-your-own tobacco product or cigarette
brand produced and sold after January 1, 2009, should not be classified
as pipe tobacco.
A representative of the National Tobacco Company LP (NTC), a
manufacturer of both pipe tobacco and roll-your-own tobacco, in a
comment to Notice No. 95, states that the constituent tobacco materials
used in various tobacco products often overlap in terms of their type
and appearance. Therefore, NTC believes that the type of tobacco and
the appearance of the tobacco product are not always reliable guides to
the product's suitable and intended use. Nonetheless, the commenter
does suggest a number of characteristics that could be used to identify
pipe tobacco, such as the inclusion of substantial amounts of
Cavendish, Latakia, or Perique tobacco, the appearance of a broad-leaf
cut tobacco blend, high moisture content, dense packing, burn
inhibitors, and block or flake cut. NTC states that the presence of
menthol flavoring and the use of blending components such as expanded
stem, expanded leaf tobacco, or reconstituted sheet tobacco could
indicate that a tobacco product is intended for use as roll-your own
tobacco.
In a comment to Notice No. 99 (74 FR 48687), Extension of Package
Use-Up Rule for Roll-Your-Own Tobacco and Pipe Tobacco, the consumer
organization Campaign for Tobacco-Free Kids states that the proposed
packaging regulations do not do enough to prevent the mislabeling of
roll-your-own tobacco as pipe tobacco. It urges TTB to establish clear
criteria to distinguish between those types of tobacco that may be
labeled as pipe tobacco and those that may not. The group suggests that
one possibility is to require that any loose tobacco consisting
primarily of flue-cured or burley tobacco be labeled and taxed as roll-
your-own tobacco.
TTB Response
We are aware that additional regulatory standards to distinguish
between roll-your-own tobacco and pipe tobacco, based on physical
characteristics, would be beneficial. It is our primary concern that
any regulatory distinction drawn between these products be objective
and enforceable. To that end, TTB continues to conduct research on the
physical characteristics of the products that may be used to
effectively distinguish between the two products for tax purposes. We
also believe that soliciting comments from the public may assist us in
developing objective, enforceable, and not easily subverted
distinctions. Accordingly, in this document we are requesting comments
on the proposals set forth above, and any additional comments, on the
distinguishing physical characteristics of the two products.
Public Participation
Comments Invited
We invite comments from interested members of the public on whether
the physical standards discussed above under the heading ``Comments
Received'' are appropriate and sufficient for distinguishing between
pipe tobacco and roll-your-own tobacco. We also request comments on any
additional physical characteristics that could also be used to
distinguish between these two tobacco products for tax classification
purposes. Furthermore, we invite comments on any particular
combination(s) of physical characteristics which would distinguish
between pipe tobacco and roll-your-own tobacco. If a commenter can
identify a specific list of differentiating physical characteristics,
we invite the commenter to opine on what number of the physical
characteristics should be present in order for the product to be
classified as ``pipe tobacco'' (e.g., 2 of 5, 3 of 6). In addition, we
request comments providing objective methods for analyzing whether or
not a tobacco product meets the physical characteristics discussed in
this notice or any additional physical characteristics suggested by the
commenter. In particular, we invite commenters to provide objective
methods for determining the percentage of Cavendish, Latakia, Perique,
or Black Tobacco in a tobacco product, and for determining the
percentage of casings and flavorings on a tobacco product.
Submitting Comments
You may submit comments on this advance notice by using one of the
following three methods:
Federal e-Rulemaking Portal: You may send comments via the
online comment form linked to this advance notice in Docket No. TTB-
2010-0004 on ``Regulations.gov,'' the Federal e-rulemaking portal, at
http://www.regulations.gov. A link to the docket is available under
Notice No. 106 on the TTB Web site at http://www.ttb.gov/tobacco/tobacco-rulemaking.shtml. Supplemental files may be attached to
comments submitted via Regulations.gov. For information on how to use
Regulations.gov, click on the site's Help or FAQ tabs.
U.S. Mail: You may send comments via postal mail to the
Director, Regulations and Rulings Division, Alcohol and Tobacco Tax and
Trade Bureau, P.O. Box 14412, Washington, DC 20044-4412.
Hand Delivery/Courier: You may hand-carry your comments or
have them hand-carried to the Alcohol and Tobacco Tax and Trade Bureau,
1310 G Street, NW., Suite 200-E, Washington, DC 20005.
Please submit your comments by the closing date shown above in this
notice. Your comments must reference Notice No. 106 and include your
name and mailing address. Your comments also must be made in English,
be legible, and be written in language acceptable for public
disclosure. We do not
[[Page 42662]]
acknowledge receipt of comments, and we consider all comments as
originals.
If you are commenting on behalf of an association, business, or
other entity, your comment must include the entity's name as well as
your name and position title. If you comment via Regulations.gov,
please include the entity's name in the ``Organization'' blank of the
comment form. If you comment via postal mail, please submit your
entity's comment on letterhead.
You may also write to the Administrator before the comment closing
date to ask for a public hearing. The Administrator reserves the right
to determine whether to hold a public hearing.
Confidentiality
All submitted comments and attachments are part of the public
record and subject to disclosure. Do not enclose any material in your
comments that you consider to be confidential or that is inappropriate
for public disclosure.
Public Disclosure
On the Federal e-rulemaking portal, Regulations.gov, we will post,
and the public may view, copies of this advance notice, selected
supporting materials, and any electronic or mailed comments we receive
about this proposal. A direct link to the Regulations.gov docket
containing this advance notice and the posted comments received on it
is available on the TTB Web site at http://www.ttb.gov/tobacco/tobacco-rulemaking.shtml under Notice No. 106. You may also reach the
docket containing this advance notice and the posted comments received
on it through the Regulations.gov search page at http://www.regulations.gov.
All posted comments will display the commenter's name, organization
(if any), city, and State, and, in the case of mailed comments, all
address information, including e-mail addresses. We may omit voluminous
attachments or material that we consider unsuitable for posting.
You and other members of the public may view copies of this advance
notice, any related supporting materials, and any electronic or mailed
comments we receive about this proposal by appointment at the TTB
Information Resource Center, 1310 G Street, NW., Washington, DC 20220.
You may also obtain copies at 20 cents per 8.5 x 11 inch page. Contact
our information specialist at the above address or by telephone at 202-
453-2270 to schedule an appointment or to request copies of comments or
other materials.
Drafting Information
Jennifer Berry of the Regulations and Rulings Division drafted this
advance notice.
Signed: April 28, 2010.
John J. Manfreda,
Administrator.
Approved: May 26, 2010.
Timothy E. Skud,
Deputy Assistant Secretary (Tax, Trade, and Tariff Policy) .
[FR Doc. 2010-17957 Filed 7-21-10; 8:45 am]
BILLING CODE 4810-31-P