[Federal Register Volume 64, Number 186 (Monday, September 27, 1999)]
[Proposed Rules]
[Pages 51933-51937]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-24834]


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DEPARTMENT OF THE TREASURY

Bureau of Alcohol, Tobacco and Firearms

27 CFR Parts 4 and 24

[Notice No. 881 Re: T.D. ATF--398, Notice No. 859 and Notice No. 869]
RIN 1512-AB71


Labeling of Hard Cider (97-2523)

AGENCY: Bureau of Alcohol, Tobacco and Firearms (ATF), Department of 
the Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Bureau of Alcohol, Tobacco and Firearms (ATF) is proposing 
amendments to the labeling rules for hard cider. We are doing so in 
response to comments on our temporary rule and notice of proposed 
rulemaking on this subject. We are postponing the label compliance date 
for that temporary rule by a Treasury decision published in the Rules 
section of today's Federal Register.

DATES: Written comments must be received on or before November 26, 
1999.

ADDRESSES: Address written comments to the Chief, Regulations Division, 
Bureau of Alcohol, Tobacco, and Firearms, P.O. Box 50221, Washington, 
DC 20091-0221. See the Public Participation section of this notice for 
ways to send comments. See the Disclosure section of this notice for 
the location of our Reading Room.

FOR FURTHER INFORMATION CONTACT: Marjorie D. Ruhf, Regulations 
Division, 650 Massachusetts Avenue, NW, Washington, DC 20226; (202) 
927-8202; or [email protected].

SUPPLEMENTARY INFORMATION:

Background

    On August 21, 1998, ATF issued a temporary rule, T.D. ATF-398 (63 
FR 44779), to implement various sections of the Taxpayer Relief Act of 
1997, Public Law 105-34 (``the Act''). On the same day, ATF issued a 
notice of proposed rulemaking, Notice No. 859 (63 FR 44819), inviting 
comments on this temporary rule for a 60 day period. In response to 
requests from the industry, ATF reopened the comment period for an 
additional 30 days on November 6, 1998, by Notice No. 869 (63 FR 
59921).

ATF's Temporary Rule on Labeling of Hard Cider

    Section 908 of the Act amended the Internal Revenue Code of 1986 
(IRC) to create a new excise tax category for hard cider. The temporary 
rule, T.D. ATF-398, implemented this section, including establishing 
temporary rules for labeling hard cider. We changed both the IRC and 
the Federal Alcohol Administration (FAA) Act labeling rules. We 
explained the changes this way:

    Since the term ``hard cider'' now has tax significance, no wine 
may be designated as ``hard cider'' unless it conforms to the 
definition of hard cider in Sec. 24.10 and is eligible for the tax 
category of hard cider. The reference to cider in the FAA [Act] 
labeling regulations at Sec. 4.21(e)(5) is amended to show that the 
term ``hard cider'' is reserved for use in wine eligible for the tax 
category of hard cider. A new Sec. 24.257(a)(3)(iv) has been added 
to the IRC wine labeling requirements for wine under 7 percent 
alcohol by volume to show that wine eligible for the tax category of 
hard cider will be marked ``hard cider'' rather than simply ``wine'' 
under that section.

    We set a compliance date of February 17, 1999, for this change, to 
allow time for producers to change labels to conform with the temporary 
rule.

Basis of Our Temporary Rule

    ATF (as a delegate of the Secretary of the Treasury) has general 
authority to issue labeling regulations under the IRC, 26 U.S.C 
5368(b), which states,

    Wine shall be removed in such containers * * * bearing such 
marks and labels, evidencing compliance with this chapter, as the 
Secretary may by regulations prescribe.

    We also have authority under the FAA Act, 27 U.S.C. 205(e), to 
prescribe regulations that insure that alcohol beverages are labeled or 
marked to ``* * * provide the consumer with adequate information as to 
the identity and quality of the products. * * * ''
    When the new wine tax category was created and named ``hard 
cider,'' we revised the IRC labeling provisions to allow hard cider to 
be labeled as such

[[Page 51934]]

without further indication that it is taxed as a wine. Before that 
amendment, wines with less than 7 percent alcohol by volume had to be 
marked with the word ``wine'' and an appropriate modifier to identify 
the tax class. We also amended the FAA Act labeling regulations to 
provide that no product could be called ``hard cider'' if it was not 
eligible for the tax category of ``hard cider.'' Before the amendment, 
the FAA Act regulations had allowed the use of the term ``cider'' for 
apple wines in certain circumstances. The term ``hard cider'' was not 
addressed.
    In short, we required the phrase ``hard cider'' on containers of 
wine eligible for the hard cider tax rate and prohibited its use 
elsewhere. We believed this would evidence compliance with tax law and 
provide the consumer with adequate information as to the identity of 
the product.

Public Comments on the Temporary Rule

    We received 48 comments in response to the temporary rule and the 
notice of proposed rulemaking. Two comments addressed the issue of 
semi-generic wine designations (also covered in the temporary rule and 
notice), and all the rest concerned the hard cider rules. All the 
comments will be discussed in a future final rule. In this document, we 
will discuss only the comments concerning labeling of hard cider. Based 
on comments we received, we find the temporary rule as originally 
issued imposes an unintended and unnecessary burden.

Comments on Labeling of Ciders Not Eligible for the New Tax Rate

    Producers who make ciders that are not eligible for the new tax 
rate, but who have been using the term ``hard cider'' to describe their 
product, wrote to ask us to change our temporary labeling regulations. 
Their products include apple wines containing 7 percent or more alcohol 
by volume, ciders that contain less than 7 percent alcohol by volume 
with other fruit flavors, and ciders that contain 50 percent or less 
apple juice. Under the temporary rule, each of these products is 
excluded from the definition of cider, and therefore is not entitled to 
use the name ``hard cider'' on labels. The producers and other 
interested persons submitted the following comments:
    Senators Patrick J. Leahy and James M. Jeffords of Vermont, the 
principal authors of the provision that reduced the tax on ``hard 
cider,'' wrote to ATF to express concern at ATF's interpretation of the 
statute. They said:

    Prohibiting producers from using this term if their cider 
contains more than seven percent alcohol runs counter to this common 
understanding of the term. Further the change is somewhat anomalous; 
ciders with more than seven percent are, by most people's thinking, 
even ``harder'' than those products that you will allow to be 
labeled as ``hard cider.'' The rule change will cause consumer 
confusion, and could well affect sales of the affected products. We 
urge that you not adopt this proposed rule.

    Richard G. Burge of Wyder's Cider noted that they will be 
``prohibited from calling [their] products `hard cider', which will be 
reserved for the handful of apple only fermented ciders that comply. 
However, Wyder's ciders have been accepted by the discriminating 
consumer and industry professional alike as a high quality cider 
alternative to the heavier English styles. Our number two ranking in 
the California cider market attests to this fact and to the fine 
quality of the product and its legitimacy as a hard cider. We fail to 
understand how it is that our hard ciders will not only be unable to 
enjoy the lower tax rate, but will also be completely shut out of the 
very product category that we helped to establish.* * * We believe the 
rules should promote the category, not choke it, and at the very least 
should allow non-conforming producers to sell their products as hard 
cider.''
    Mr. Edward C. Metcalfe, founder and former owner of North River 
Winery in Vermont, wrote to give historical information on hard cider. 
He said, ``even in the earliest days of cider making, sugar, molasses 
or other sweetener was often added to raise the alcohol content to give 
the product more kick and to help it keep better under crude storage 
conditions. The `harder' a cider was, the higher the alcohol content. 
These traditional hard ciders have been made for many years, often with 
an alcohol content as high as 12%-14%.'' Mr. Metcalfe expressed concern 
that ``the new labeling requirements would make some current commercial 
products unsaleable.'' He enclosed labels from the North River winery, 
which makes a cider that is 9% alcohol by volume under the brand name 
``Metcalfe's Hard Cider,'' a brand name that would be prohibited under 
the new rules.
    The current owners of North River Winery, Annmary T. Block-Reed and 
Clyde A. Reed, also submitted comments on the history of the term 
``hard cider'' and noted our regulations ``would be denying what has 
been commonly agreed to as the understanding of hard cider for 
generations, all over the world.'' They further noted the regulations, 
as written, would impose a financial hardship, since they are a small 
winery and would need to replace several years' supply of labels.
    Finally, several consumers wrote to express concern about ATF's 
rules for labeling hard cider. One consumer wrote that ``changing the 
definition of the words `hard cider' to only mean ciders which are 
under 7% alcohol would be misleading to consumers and would cause 
widespread confusion in the marketplace.'' Another said ``I believe 
that the general public would not be served well in changing the words 
`hard cider' to mean something other than their traditional meaning.''

Comments on Labeling Cider Eligible for the New Tax Rate

    Producers of wines eligible for the hard cider tax rate stated they 
prefer to use a phrase like ``apple cider'' or ``draft cider'' in their 
marketing:
    Brian t of Black sesas Fagan Cider Co, L.L.C. asked a 
question in his comment: ``Our product label currently says `Goldfinch 
Cider'. Does it have to say `Goldfinch Hard Cider' as the main product 
name designation, or can we retain `Goldfinch Cider' and note ``hard 
cider'' elsewhere on the label?
    Paul Thorpe of E&J Gallo Winery (``Gallo'') commented that the 
regulations should be amended to allow designation of products in the 
hard cider category ``by an equivalent phrase, such as `hard apple 
cider' or `hard draft cider.' ``Gallo further suggested that we state a 
minimum standard for location and legibility of this required 
information. Gallo suggested'' on the label in legible type and 
lettering no smaller than 2 millimeters in height.'' They noted this 
requirement would be consistent with the general requirements for 
mandatory information under the FAA Act regulations for labeling of 
wine and beer.
    Stephen Swift of Matthew Clark Brands, Ltd., makers of Blackthorn 
Fermented Cider, noted they have been describing their product as 
``fermented cider'' on labels and in advertising for over 12 years. He 
said the term ``hard cider'' ``implies that the product is distilled 
(as in hard liquor).''
    Roger Daniels of Green Mountain Cidery, makers of Woodchuck Draft 
Cider, advocated that ATF should take the following positions: ``(a) 
that there are no new regulatory standards or restrictions on the use 
of the labeling designation ``hard cider,'' (b) that there are no new 
regulatory standards or restrictions with respect to container or 
packaging sizes for ``hard cider,'' and (c)

[[Page 51935]]

that the FAA Act regulations do not apply to ``hard cider.''

Discussion of Comments

    When we drafted the hard cider labeling sections of the temporary 
rule, we did not intend to cause a hardship for the industry or 
consumers. We intended to maintain the current system of identifying 
the tax class of wine by information on the label. The function of 
ATF's marking requirement is to insure proper identification of the 
wine for tax purposes, and to inform consumers of the identity of the 
product. From the comments, we see that the term ``hard cider'' has 
broader meaning in the industry and among consumers than the definition 
given in the regulations.
    In light of these comments, we reviewed our need for tax 
identification on the labels of wines. Although much of our work takes 
place on wine premises where supplemental information is available to 
establish the tax rate of a given lot of wine, we believe there are 
times when we must be able to tell the tax rate from looking at the 
label alone. For example, we use this information in processing 
disaster loss claims, conducting market sampling, and verifying import 
and export documentation. Therefore, we will maintain the requirement 
that the label must contain sufficient information to establish the tax 
rate, but we request comments on ways to provide this information with 
the greatest flexibility for the industry.
    We note there is some confusion in the industry on whether the wine 
labeling rules and standards of fill in 27 CFR part 4 apply to hard 
cider less than 7 percent alcohol by volume. They do not. The rules in 
part 4 implement the FAA Act, and apply only to wine which contains 
``not less than 7 percent and not more than 24 percent of alcohol by 
volume.'' That is why hard cider under 7% alcohol by volume is exempt 
from ATF's label approval requirements and metric standards of fill. 
Instead, wine under 7 percent alcohol is subject to Food and Drug 
Administration labeling rules. However, ATF has some wine labeling 
jurisdiction under the IRC, which applies to all beverage wine 
containing 0.5 percent or more alcohol by volume. The IRC wine labeling 
rules are in 27 CFR part 24. These rules do apply to hard cider under 7 
percent alcohol by volume.

New Proposed Rule

    In this document, we are proposing alternative labeling rules and 
requesting public comments. In the Rules section of this issue of the 
Federal Register, we are publishing a Treasury decision postponing the 
compliance date for the hard cider labeling rules (originally February 
17, 1999).
    First, we propose to remove the amendment we made to 
Sec. 4.21(e)(5) of the Federal Alcohol Administration Act wine labeling 
regulations. Part 4 only applies to wines that contain 7%-24% alcohol 
by volume. As amended, that section prohibited the use of the term 
``hard cider'' on any wine with 7% or more alcohol by volume. We 
intended to avoid confusion between these higher alcohol wines and 
wines in the new hard cider tax class by this prohibition. After 
reviewing the comments, we find this precaution unnecessary. We believe 
the required statement of the alcohol content will distinguish the 
product from other products properly identified as ``hard cider'' under 
the IRC. Since the hard cider tax rate is limited to wines under 7% 
alcohol by volume, it will be clear that a product with, say, a 9% 
alcohol content is not ``hard cider'' within the meaning of the IRC.
    Second, we are proposing to amend the IRC marking requirements in 
part 24. When the new tax class of hard cider was established, we 
amended the labeling rules to substitute the phrase ``hard cider'' for 
the word ``wine'' to identify the tax class. On IRC wine labels, no 
single item of information gives the tax class. On conventional wines, 
the word ``wine'' and the alcohol content (modified by the word 
``carbonated'' or ``sparkling'' if either applies) identify the tax 
class.
    For products under 7% alcohol by volume, we want to differentiate 
between ciders which are eligible for the hard cider tax rate and those 
which are taxable as still wine containing not more than 14% alcohol by 
volume. Some producers have marketed eligible products as ``draft 
cider,'' ``fermented cider'' or ``apple cider'' and do not wish to use 
the term ``hard cider'' on labels. Some producers have marketed mixed-
fruit ciders or low-alcohol ciders that are otherwise excluded from the 
current definition of hard cider under the name ``hard cider'' and do 
not wish to rename their products.
    To address these concerns, we propose several changes to 27 CFR 
24.257. First, we propose to adopt the minimum and maximum type size 
requirements of 27 CFR 4.38. Several commenters asked about the minimum 
size for required information under the IRC, because the part 24 
regulations are silent on this point. We propose to use the FAA Act 
type size requirements because they are already in use by the wine 
industry for higher alcohol products. We do not specify placement of 
information required in Sec. 24.257, and we do not propose to add any 
placement requirement as part of this rulemaking. Products with 7 
percent or more alcohol by volume will still be subject to the FAA Act 
rules covering placement.
    We propose to remove the requirement that the word ``wine'' or the 
words ``carbonated wine'' must be ``part of the brand name or in a 
phrase in direct conjunction with the brand name.'' Information on the 
kind of wine may be anywhere on the label. We also propose to add some 
alternative labeling terms to reflect the industry practice of calling 
products ``cider'' instead of wine on these labels. In our proposed 
regulation, we do not require or restrict the use of words such as 
``draft'', ``fermented'' or ``hard'' to identify products in the tax 
class of hard cider. We propose, where the words on the label leave 
doubt as to the tax class, cider makers must include a reference to the 
tax class by section of the law. For example, the temporary rule has a 
requirement that hard cider must contain more than 50 percent apple 
juice. If a cider contains less than 50 percent apple juice, it is 
taxed as a still wine under 14 percent alcohol by volume, but it may 
still be called cider. In order to make it clear that this cider is 
taxed at $1.07 instead of $0.226, we propose to require that the label 
show ``tax class 5041(b)(1) IRC'' or an equivalent phrase. This wording 
is adapted from 27 CFR 25.242, on marking nontaxable cereal beverages. 
We request industry and consumer suggestions for the best way to show 
this information on the container. We also request suggestions for 
other ways to differentiate between ciders eligible for the hard cider 
tax rate and those which belong in other tax categories without 
restricting the use of the name ``hard cider.''

Paperwork Reduction Act

    The regulatory sections we propose to amend by this notice contain 
collections of information which were previously approved by the Office 
of Management and Budget (OMB). Although we propose amending these 
sections, the changes are not substantive or material.

Regulatory Flexibility Act

    The provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et 
seq.) relating to a final regulatory flexibility analysis do not apply 
to this proposed rule because the agency was not required to publish a 
general notice of proposed rulemaking under 5 U.S.C. 553 or any other 
law. Pursuant to 26 U.S.C. 7805(f), ATF will send a copy of this 
proposed rule to the Chief Counsel

[[Page 51936]]

for Advocacy of the Small Business Administration for comment on its 
impact on small business.

Executive Order 12866

    It has been determined that this proposed rule is not a significant 
regulatory action as defined by Executive Order 12866. Therefore, a 
regulatory assessment is not required.

Public Participation

    ATF requests comments on the proposed regulations from all 
interested persons. We specifically request comments on the clarity of 
the proposed rule and how it may be made easier to understand.
    Please include the following in all comments:

ATTN: Notice No. 8

Your name,
Your company affiliation, if it is pertinent to your comment,
Your reason for interest in the project (are you a consumer, grower, 
producer?),
Your signature on paper comments sent by mail or facsimile 
transmission (FAX).

    Address written comments to the Chief, Regulations Division, Bureau 
of Alcohol, Tobacco and Firearms, P.O. Box 50221, Washington, DC 20091-
0221.
    Fax comments to (202) 927-8525. Be sure fax comments are legible, 
on 8\1/2\''  x  11'' paper, and they are 3 pages or less.
    E-mail comments to [email protected]. E-mail comments must 
contain no attachments, special characters or encryption.
    ATF will treat all comments as original written comments. We do not 
acknowledge receipt of comments. We will carefully consider all 
comments received on or before the closing date. We will also consider 
comments received after that date if it is practical to do so, but we 
cannot guarantee consideration of comments received after the comment 
period closes.
    During the comment period, you may request an opportunity to 
present oral testimony at a public hearing. However, the Director 
reserves the right, in light of all circumstances, to determine if a 
public hearing is necessary.

Disclosure

    Comments, including the name of the commenter, will be disclosed to 
the public. Do not include any material in your comment if you consider 
it to be confidential or inappropriate for disclosure to the public.
    You may view and copy written comments on this project during 
normal business hours in the ATF Public Reading Room, Room 6480, 650 
Massachusetts Avenue, NW, Washington, DC.
    Drafting Information: Marjorie D. Ruhf, Regulations Division, 
Bureau of Alcohol, Tobacco and Firearms drafted this document.

List of Subjects

27 CFR Part 4

    Advertising, Consumer protection, Customs duties and inspection, 
Imports, Labeling, Packaging and containers, Wine.

27 CFR Part 24

    Administrative practice and procedure, Authority delegations, 
Claims, Electronic fund transfers, Excise taxes, Exports, Food 
additives, Fruit juices, Labeling, Liquors, Packaging and containers, 
Reporting and recordkeeping requirements, Research, Scientific 
equipment, Spices and flavoring, Surety bonds, Taxpaid wine bottling 
house, Transportation, Vinegar, Warehouses, Wine.

Authority and Issuance

    Accordingly, we propose to amend chapter I of title 27, Code of 
Federal Regulations as follows:

PART 4--LABELING AND ADVERTISING OF WINE

    Par. 1. The authority citation for 27 CFR part 4 continues to read 
as follows:

    Authority: 27 U.S.C. 205, unless otherwise noted.

    Par. 2. Section 4.21 is amended by revising the third sentence of 
paragraph (e)(5) to read as follows:


Sec. 4.21  The standards of identity.

* * * * *
    (e) Class 5; fruit wine
* * * * *
    (5) * * * Fruit wines which are derived wholly (except for sugar, 
water, or added alcohol) from apples or pears may be designated 
``cider'' and ``perry,'' respectively, and shall be so designated if 
lacking in vinous taste, aroma, and characteristics. * * *
* * * * *

PART 24--WINE

    Par. 3. The authority citation for 27 CFR part 24 continues to read 
as follows:

    Authority: 5 U.S.C. 552(a); 26 U.S.C. 5001, 5008, 5041, 5042, 
5044, 5061, 5062, 5081, 5111-5113, 5121, 5122, 5142, 5143, 5173, 
5206, 5214, 5215, 5351, 5353, 5354, 5356, 5357, 5361, 5362, 5364-
5373, 5381-5388, 5391, 5392, 5511, 5551, 5552, 5661, 5662, 5684, 
6065, 6091, 6109, 6301, 6302, 6311, 6651, 6676, 7011, 7302, 7342, 
7502, 7503, 7606, 7805, 7851; 31 U.S.C. 9301, 9303, 9304, 9306.

    Par. 4. Section 24.257 is amended by revising paragraph (a) to read 
as follows:


Sec. 24.257  Labeling wine containers.

    (a) The proprietor must label each bottle or other container of 
beverage wine prior to removal for consumption or sale. The minimum 
type size for information required by this section is: 2 millimeters 
for containers of more than 187 milliliters and 1 millimeter for 
containers of 187 milliliters or less. The maximum type size for 
alcohol content statements is 3 millimeters unless the container is 
larger than 5 liters. The label must be securely affixed and show:
    (1) The name and address of the wine premises where bottled or 
packed;
    (2) The brand name, if different from above;
    (3) The alcohol content as percent by volume or the alcohol content 
stated in accordance with 27 CFR part 4. For wine with less than 7 
percent alcohol by volume stated on the label there is allowed an 
alcohol content tolerance of plus or minus .75 percent by volume; and
    (4) The kind of wine, shown as follows:
    (i) If the wine contains 7 percent or more alcohol by volume and 
must have label approval under 27 CFR part 4, the kind of wine is the 
class, type, or other designation provided in that part.
    (ii) If the wine has an exemption from label approval or contains 
less than 7 percent alcohol by volume, an adequate statement of 
composition may be used instead of the class and type in 27 CFR part 4. 
The statement of composition must include enough information to 
identify the tax class when viewed with the alcohol content. First, the 
wine should be identified by the word ``wine,'' ``mead,'' ``sake,'' 
``cider'' or ``perry,'' as applicable. If the wine contains more than 
0.392 grams of carbon dioxide per 100 milliliters, the word 
``sparkling'' or ``carbonated,'' as applicable, must be included in the 
statement of composition. If the statement of composition leaves doubt 
as to the tax class of the wine, the wine must be marked ``tax class 
5041(b)(1) IRC'' or an equivalent phrase. For example, a still wine 
marked ``wine'' showing an alcohol content of 16 percent alcohol by 
volume would be considered as adequately marked to identify its tax 
class as 5041(b)(2). A wine marked ``hard cider'' showing an alcohol 
content of 9 percent by volume would be considered as adequately marked 
to identify its tax class as 5041(b)(1). However, a wine with an 
alcohol content under 7 percent marked

[[Page 51937]]

``hard cider'' and the alcohol content would not be adequately marked 
to identify its tax class, so the tax class must be shown.
    (5) The net content of the container unless the net content is 
permanently marked on the container as provided in 27 CFR part 4.
* * * * *

    Dated: June 16, 1999.
John W. Magaw,
Director.

    Dated: August 13, 1999.
John P. Simpson,
Deputy Assistant Secretary,
(Regulatory, Tariff and Trade Enforcement).
[FR Doc. 99-24834 Filed 9-24-99; 8:45 am]
BILLING CODE 4810-31-U