[Federal Register Volume 65, Number 186 (Monday, September 25, 2000)]
[Rules and Regulations]
[Pages 57544-57548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-24121]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Bureau of Alcohol, Tobacco and Firearms

27 CFR Parts 270, 275, 290, 295, and 296

[T.D. ATF-429; Ref: T.D. ATF-424, T.D. ATF-424a, T.D. ATF-427 and 
Notice No. 889]
RIN 1512-AB92


Implementation of Public Law 105-33, Section 9302, Relating to 
the Imposition of Permit Requirements on the Manufacturer of Roll-Your-
Own Tobacco (98R-370P)

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

ACTION: Final rule (Treasury decision).

-----------------------------------------------------------------------

SUMMARY: This final rule implements the provision of the Balanced 
Budget Act of 1997 requiring that manufacturers of roll-your-own 
tobacco obtain a permit. In addition to the permit requirements, this 
document addresses provisions for records, marks, labels and notices. 
In response to comments received, this final rule will allow 
manufacturers to mark packages with the term ``cigarette tobacco'' as 
an alternative to the terms ``roll-your-own tobacco'' or ``Class J''. 
Also, this final rule adopts without change most of the temporary rules 
of regarding roll-your-own tobacco published earlier.

DATES: Effective date: September 25, 2000.

FOR FURTHER INFORMATION CONTACT: Robert P. Ruhf, Regulations Division, 
650 Massachusetts Avenue, NW., Washington, DC 20226; (202) 927-8210; or 
alc/[email protected].

SUPPLEMENTARY INFORMATION:

Background

    This final rule implements the provision of the Balanced Budget Act 
of 1997, Public Law 105-33 (``the Act''), enacted on August 5, 1997 
relating to roll-your-own tobacco. Section 9302 of the Act amended the 
Internal Revenue Code of 1986 (IRC), 26 U.S.C. 5701 and 5702 by 
imposing new permit requirements for manufacturers of roll-your-own 
tobacco. In addition to the

[[Page 57545]]

permit requirements, this final rule addresses provisions for records, 
marks, labels and notices.

Roll-Your-Own Tobacco

    Roll-your-own tobacco is defined by 26 U.S.C. 5702(p) of the IRC to 
mean ``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.'' Since the Act amended 
the definitions of the terms ``Tobacco products'' and ``Manufacturer of 
tobacco products'' to include roll-your-own tobacco, manufacturers of 
roll-your-own tobacco are subject to all the statutory and regulatory 
controls set forth in chapter 52 of IRC. These controls include tax 
payment, permit qualification, bonding, recordkeeping, marks, labels, 
notices, and civil and criminal sanctions.
    On or after January 1, 2000, manufacturers of roll-your-own tobacco 
must apply for a permit to engage in the business of manufacturing 
roll-your-own tobacco. Section 9302(i)(2) of the Act also contains a 
transitional rule which allows those who, on the date of enactment, 
August 5, 1997, were engaged in the manufacture of roll-your-own 
tobacco and made an application for a permit prior to January 1, 2000, 
to continue to engage in such business pending final action on the 
application.
    Concerning marks required on packages, the temporary regulations of 
T.D. ATF-424 (64 FR 71929) required that every package of roll-your-own 
tobacco must, before removal subject to tax, have imprinted thereon or 
on a label securely affixed to the package the designation ``roll-your-
own tobacco,'' as well as a statement of the pounds and ounces of the 
product contained in the package. The temporary regulations provided 
``Tax Class J'' as an alternative to the designation ``roll-your-own 
tobacco''. T.D. ATF-427 (65 FR 40050) extended the use-up rule to allow 
manufacturers and importers to continue using packages marked without 
the proper designation (``roll-your-own-tobacco'' or ``tax class J'') 
that were used before January 1, 2000. This decision allows 
manufacturers and importers to use up such packages until October 1, 
2000. However, Treasury Decision ATF-427 did not extend the date for 
marking packages with the statement of pounds and ounces of roll-your-
own tobacco. Manufacturers and importers have been required to place a 
statement of the pounds and ounces on packages of roll-your-own tobacco 
removed on and after April 1, 2000.

Technical Changes

    In addition to the above changes, Treasury Decision ATF-424 made 
several technical changes. It revised the title of Part 270, removed 
references to obsolete forms, and renumbered other forms. Since 
Treasury Decision ATF-424 discussed these changes and ATF did not 
receive any comments about these technical changes, we are not 
discussing these technical changes in this final rule.

Notice of Proposed Rulemaking

    On December 22, 1999, Notice 889 (64 FR 71935) was published in the 
Federal Register to request comments on the temporary regulations 
implemented by Treasury Decision ATF-424 (64 FR 71929). The deadline 
for comments was February 22, 2000.

Comments Received

    ATF received comments from two different organizations.

Analysis of Comments

Alternate Designation for Roll-Your-Own Tobacco

    The Pipe Tobacco Council, Washington, DC, stated that it 
represented domestic manufacturers and importers of roll-your-own 
tobacco who account for more than 90 percent of the current domestic 
sales of roll-your-own tobacco. This organization requested an 
extension of the deadline date from labeling packages as ``roll-your-
tobacco'' for nine months. This extension was granted by Treasury 
Decision ATF-427 (65 FR 44050). In addition, the Pipe Tobacco Council 
proposed the alternate designation ``cigarette tobacco'' instead of 
using the designation of ``roll-your-own tobacco'' or ``Tax Class J'' 
for labeling packages.
    In proposing the regulations at 27 CFR 275.72b that implemented 
this labeling requirement, we believed that allowing the use of this 
alternative designation would adequately protect the revenue by 
distinguishing the roll-your-own tobacco class from the other classes 
of tobacco products. It would also facilitate the relabeling of many 
tobacco products which are subject to tax but which are currently 
labeled with terms other than roll-your-own tobacco.
    The Pipe Tobacco Council submitted samples of some of the popular 
brands of roll-your-own tobacco. None of these samples were labeled 
with the designation ``roll-your-own tobacco'', but most of these 
products currently use the designation ``cigarette tobacco'' on their 
packages. In addition, the Pipe Tobacco Council submitted a survey 
conducted by one of its members. The survey found that nine (9) brands 
of roll-your-own tobacco were labeled with the designation ``cigarette 
tobacco'', two brands used ``cigarette rolling tobacco'', and three 
other brands used other designations. However, none of the brands used 
``roll-your-own tobacco'' as a designation. In conclusion, the Pipe 
Tobacco Council stated that most consumers of roll-your-own tobacco 
recognize the designation ``cigarette tobacco'' as a distinctive class.
    In addition, the Pipe Tobacco Council cited the fact that we had 
allowed the use of the word ``little'' in place of the word ``small'' 
on packages of cigars (refer to 27 CFR 270.214(c)). Even though the law 
only refers to small cigars, we had allowed this alternate designation 
to be placed on packages of such cigars.
    The Pipe Tobacco Council provided estimated costs that a 
manufacturer or importer would spend to comply with marking ``Tax Class 
J'' or ``roll-your-own tobacco'' on packages. It estimated that a 
manufacturer or importer would have to spend between $13,000 to $22,000 
per brand of roll-your-own tobacco to place the designation ``Tax Class 
J'' on such packages and between $33,000 to $50,000 per brand of roll-
your-own tobacco to place the designation ``roll-your-own tobacco'' on 
such packages.
    We believe that there would be no jeopardy to the revenue to allow 
such products to be designated ``cigarette tobacco.'' First, we believe 
that the term ``cigarette tobacco'' is an accurate description of this 
tobacco product. It has been a standard term used by many roll-your-own 
manufacturers and importers and recognized by consumers. Second, the 
use of the term ``cigarette tobacco'' follows the same logic in 
describing the use of the tobacco product as the term ``pipe tobacco.'' 
Pipe tobacco is suitable to be smoked in a pipe. Roll-your-own tobacco 
by its definition is suitable for making cigarettes. Third, we do not 
anticipate any administrative problems for ATF or Customs if the 
designation ``cigarette tobacco'' is marked on packages (that is, the 
immediate container for sale or delivery to the consumer) as opposed to 
the alternative designations. Fourth, we recognize the considerable 
cost and time for manufacturers and importers if we only allowed the 
markings of ``roll-your-own tobacco'' or ``tax class J'' to be placed 
on their many brands of this tobacco product. Fifth, it is consistent 
with past practice since we have allowed the use of ``little cigars'' 
as an alternate marking for small cigars. Accordingly, we have amended 
the regulations to allow such products to be designated as ``cigarette 
tobacco'' as an

[[Page 57546]]

alternative to marking such products as ``roll-your-own tobacco'' or 
``tax class J.''

Permit Requirements

    The Friends of Tobacco, Pink Hill, NC, gave comments about the 
requirement that persons must have a permit to engage in the business 
manufacturing roll-your-own tobacco. The Friends of Tobacco stated that 
it is a national, non-profit organization representing farmers, small 
businesses, retailers, wholesalers and allied industries associated 
with tobacco. This organization stated that the proposed regulation 
will cause small business closings, reduce competition and restrict 
business to a few large corporations.
    The law (26 U.S.C. 5713) clearly states that a manufacturer of 
roll-your-own tobacco must have a permit to engage in this business. 
While we understand that this may impose burdens on the manufacturers 
of roll-your-own tobacco, the law is clear and provides no room for 
exceptions. Moreover, we do not believe that this regulation will 
prevent small businesses from operating.
    There are costs involved with applying for a permit, getting a 
surety bond to ensure payment of tax, and the paperwork (records, 
inventories, reports, and tax returns) that must be maintained or 
filed. However, the costs should not keep most small businesses from 
operating as roll-your-own manufacturers. For example, there are many 
small cigar businesses who operate successfully as manufacturers of 
tobacco products and hundreds of small wineries and breweries who 
successfully operate under similar permit requirements.
    We believe that the current requirements to become a manufacturer 
of tobacco products, including roll-your-own, are minimal but are 
necessary to protect the revenue. The application process ensures that 
only persons who are qualified may obtain a permit to operate as a 
tobacco products manufacturer. A person who will operate as a tobacco 
products manufacturer must also have a bond which ensures payment of 
taxes. The bond can be given by a corporate surety, cash or securities 
of the United States. The amount that needs to be covered ranges from a 
minimum of $1,000 to a maximum of $250,000. Most small companies can 
secure this coverage or put up cash or securities. We do not believe 
that the required paperwork will place an undue burden on small 
businesses who operate as roll-your-own manufacturers.
    Most of the records required for a manufacturer are presently kept 
by small businesses for other purposes as part of their commercial 
records. ATF requires that a manufacturer inventory tobacco products, 
in this case roll-your-own tobacco, at the beginning and conclusion of 
business and at the request of ATF. The inventory requirement is based 
on the need to be able to determine the amount of taxable tobacco 
product on hand at a manufacturer. These inventories are not overly 
burdensome and are necessary to protect the revenue. In addition, ATF 
requires manufacturers to file semi-monthly tax returns and monthly 
reports. These records are necessary to protect the revenue. However, 
ATF within certain conditions may allow a variance from these 
recordkeeping requirements to accommodate the needs of small 
businesses. For example, ATF may grant a variance relieving a 
manufacturer from filing semi-monthly tax returns where no tax is due 
or payable or a variance from filing monthly reports where no 
reportable activity occurs.
    The Friends of Tobacco requested that we grant permits to all roll-
your-own manufacturers who were in business before January 1, 2000. We 
are bound by the provisions of Section 9302(i)(2) of the Balanced 
Budget Act of 1997. This section allows only persons who were engaged 
in business as a manufacturer of roll-your-own tobacco on or before 
August 5, 1997 and who applied for a permit before January 1, 2000, to 
continue operating pending final action on their application. All other 
persons must apply for, and obtain, a permit to manufacturer tobacco 
before commencing such operations. ATF has and will continue to make 
every effort to process all such permit applications in a timely and 
expedient manner.

Temporary Regulations Adopted as Final

    Except as discussed above, this final rule adopts the temporary 
regulations, T.D. ATF-424 (64 FR 71929), T.D. ATF-424a (65 FR 31079) 
and T.D. ATF-427 (65 FR 40050), to implement the permit requirements 
for manufacturers of roll-your-own tobacco and related requirements for 
marks, labels and notices under the Balanced Budget Act of 1997 (111 
Stat. 251). The following is a list of sections in the temporary 
regulations that are adopted without change.

Part 270

    The heading of Part 270, authority citation, Secs. 270.11, 270.61a, 
270.61b, 270.133, 270.181, 270.182, 270.183, 270.201, 270.202, 
270.216a, 270.216c, 270.231, 270.252, 270.255, 270.311, 270.476.

Part 275

    The authority citation, Secs. 275.11, 275.81, 275.86, 275.107, 
275.110, 275.121, 275.139, 275.140, 275.141, 275.170, 275.172.

Part 290

    The authority citation, Secs. 290.11, 290.143, 290.147, 290.222, 
290.224, 290.225, 290.226, 290.227, 290.232.

Part 295

    The authority citation, Secs. 295.11, 295.45c.

Part 296

    The authority citation, Secs. 296.72, 296.74, 296.163.

Regulatory Flexibility Act

    In accordance with the provisions of the Regulatory Flexibility Act 
(5 U.S.C. 601 et seq.) it is hereby certified that this regulation will 
not have a significant economic impact on a substantial number of small 
entities. The revenue effects of the roll-your-own requirements on 
small businesses flow directly from the underlying statute. Likewise, 
any secondary or incidental effects, and any reporting, recordkeeping, 
or other compliance burdens flow directly from the statute. A copy of 
the proposed and temporary rules were submitted to the Chief Counsel 
for Advocacy of the Small Business Administration for comment as 
provided for in 26 U.S.C. 7805(f). No comments were received.

Executive Order 12866

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

Paperwork Reduction Act

    The collections of information contained in this final rule have 
been reviewed and approved under the requirements of the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3507(d)). No public comments were 
received. The Office of Management and Budget (OMB) has issued control 
numbers 1512-0358 and 1512-0502 for the collections of information. An 
agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless it displays a valid 
control number assigned by OMB.
    The collection of information in this proposed regulation is in 27 
CFR 270.182, 270.183, 270.216b, 275.72b,

[[Page 57547]]

and 295.45b. This information is required to ensure proper payment of 
excise taxes on roll-your-own tobacco products. We use this information 
to determine whether or not such excise taxes have been properly paid. 
The collection of information is mandatory. The likely respondents 
include small businesses or organizations.
    We estimate that the total annual reporting and/or recordkeeping 
burden under control numbers 1512-0358 and 1512-0502 for the first year 
is 385 hours for initiating and obtaining required permits. For 
subsequent years, the total annual reporting/recordkeeping burden under 
1512-0358 is 1,650 hours and under 1512-0502 the burden is 1 hour. 
Under 1512-0358 we estimate the burden at 11 additional respondents 
with an additional 150 hours burden per respondent. Under 1512-0502 we 
have estimated an additional 11 recordkeepers and for all respondents a 
total burden of 1 hour.

Administrative Procedure Act

    This final rule is issued in accordance with the Administrative 
Procedures Act (5 U.S.C. 553). It is exempt from the effective date 
provisions of 5 U.S.C. 553(d) because immediate guidance is necessary 
to inform manufacturers and importers of the revised regulations, which 
allow an alternative designation of ``cigarette tobacco'' to be marked 
on packages of roll-your-own tobacco, and because the revised 
regulations relieves a restriction by providing this alternative 
designation.

Drafting Information

    The principal author of this document is Robert Ruhf, of the 
Regulations Division, Bureau of Alcohol, Tobacco and Firearms.

List of Subjects

27 CFR Part 270

    Administrative practice and procedure, Authority delegations, 
Cigars and cigarettes, Claims, Electronic funds transfer, Excise taxes, 
Labeling, Packaging and containers, Penalties, Reporting requirements, 
Seizures and forfeitures, Surety bonds, Tobacco.

27 CFR Part 275

    Administrative practice and procedure, Authority delegations, 
Cigars and cigarettes, Claims, Electronic funds transfer, Customs 
duties and inspection, Excise taxes, Imports, Labeling, Packaging and 
containers, Penalties, Reporting requirements, Seizures and 
forfeitures, Surety bonds, Tobacco, Warehouses.

27 CFR Part 290

    Administrative practice and procedure, Aircraft, Authority 
delegations, Cigars and cigarettes, Claims, Customs duties and 
inspection, Excise taxes, Exports, Foreign trade zones, Labeling, 
Packaging and containers, Penalties, Surety bonds, Tobacco, Vessels, 
Warehouses.

27 CFR Part 295

    Administrative practice and procedure, Authority delegations, 
Cigars and cigarettes, Excise taxes, Labeling, Packaging and 
containers, Tobacco.

27 CFR Part 296

    Authority delegations, Cigars and cigarettes, Claims, Disaster 
assistance, Excise taxes, Penalties, Seizures and forfeitures, Surety 
bonds, Tobacco.

Authority and Issuance

    Accordingly, the temporary regulations published in T.D. ATF-424 
(December 22, 1999, 64 FR 71929) as amended by T.D. ATF-424a (May 16, 
2000, 65 FR 31079) and T.D. ATF-427 (June 29, 2000, 65 FR 40050) are 
adopted as final with the following changes.

PART 270--MANUFACTURE OF TOBACCO PRODUCTS

    Paragraph 1. The authority citation for 27 CFR Part 270 continues 
to read as follows:

    Authority: 26 U.S.C. 5142, 5143, 5146, 5701, 5703-5705, 5711-
5713, 5721-5723, 5731, 5741, 5751, 5753, 5761-5763, 6061, 6065, 
6109, 6151, 6301, 6302, 6311, 6313, 6402, 6404, 6423, 6676, 6806, 
7011, 7212, 7325, 7342, 7502, 7503, 7606, 7805; 31 U.S.C. 9301, 
9303, 9304, 9306.


    Par. 2. Section 270.216b is revised to read as follows:


Sec. 270.216b  Notice for roll-your-own tobacco.

    (a) Product designation. Before removal subject to tax, roll-your-
own tobacco must have adequately imprinted on, or on a label securely 
affixed to, the package, the designation ``roll-your-own tobacco'' or 
``cigarette tobacco'' or ``Tax Class J.''
    (b) Product weight. Before removal subject to tax, roll-your-own 
tobacco must have a clear statement of the actual weight in pounds and 
ounces of the product in the package. This statement must be adequately 
imprinted on, or on a label securely affixed to, the package. (Approved 
by the Office of Management and Budget under control number 1512-0502)

PART 275--IMPORTATION OF TOBACCO PRODUCTS AND CIGARETTE PAPERS AND 
TUBES

    Par. 3. The authority citation for 27 CFR Part 275 continues to 
read as follows:

    Authority:  18 U.S.C. 2342, 26 U.S.C. 5701, 5703, 5704, 5705, 
5708, 5712, 5713, 5721, 5722, 5723, 5741, 5754, 5761, 5762, 5763, 
6301, 6302, 6313, 6404, 7101, 7212, 7342, 7606, 7652, 7805; 31 
U.S.C. 9301, 9303, 9304, 9306.

    Par. 4. Section 275.72b is revised to read as follows:


Sec. 275.72b  Notice for roll-your-own tobacco.

    (a) Product designation. Before removal subject to tax, roll-your-
own tobacco must have adequately imprinted on, or on a label securely 
affixed to, the package, the designation ``roll-your-own tobacco'' or 
``cigarette tobacco'' or ``Tax Class J.''
    (b) Product weight. Before removal subject to tax, roll-your-own 
tobacco must have a clear statement of the actual weight in pounds and 
ounces of the product in the package. This statement must be adequately 
imprinted on, or on a label securely affixed to, the package. (Approved 
by the Office of Management and Budget under control number 1512-0502)
* * * * *

PART 295--REMOVAL OF TOBACCO PRODUCTS AND CIGARETTE PAPERS AND 
TUBES, WITHOUT PAYMENT FOR USE OF THE UNITED STATES

    Par. 5. The authority citation for 27 CFR Part 295 continues to 
read as follows:

    Authority: 26 U.S.C. 5703, 5704, 5705, 5723, 5741, 5751, 5762, 
5763, 7212, 7342, 7606, 7805, 44 U.S.C. 3504(h).

    Par. 6. Section 295.45b is revised to read as follows:


Sec. 295.45b  Notice for roll-your-own tobacco.

    (a) Product designation. Before removal subject to tax, roll-your-
own tobacco must have adequately imprinted on, or on a label securely 
affixed to, the package, the designation roll-your-own tobacco'' or 
``cigarette tobacco'' or ``Tax Class J.''
    (b) Product weight. Before removal subject to tax, roll-your-own 
tobacco must have a clear statement of the actual weight in pounds and 
ounces of the product in the package. This statement must be adequately 
imprinted on, or on a label securely affixed to, the package. (Approved 
by the Office of Management

[[Page 57548]]

and Budget under control number 1512-0502)
* * * * *

    Dated: July 26, 2000.
Bradley A. Buckles,
Director.
    Approved: August 3, 2000.
John P. Simpson,
Deputy Assistant Secretary (Regulatory, Tariff and Trade Enforcement).
[FR Doc. 00-24121 Filed 9-22-00; 8:45 am]
BILLING CODE 4810-31-P