[Federal Register Volume 75, Number 140 (Thursday, July 22, 2010)]
[Rules and Regulations]
[Pages 42605-42607]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-17955]


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DEPARTMENT OF THE TREASURY

Alcohol and Tobacco Tax and Trade Bureau

27 CFR Parts 40, 41, 44, 46, and 71

[Docket No. TTB-2009-0001; T.D. TTB-85; Re: T.D. TTB-75 and Notice No. 
93]
RIN 1513-AB70


Increase in Tax Rates on Tobacco Products and Cigarette Papers 
and Tubes; Floor Stocks Tax on Certain Tobacco Products, Cigarette 
Papers, and Cigarette Tubes; and Changes to Basis for Denial, 
Suspension, or Revocation of Permits

AGENCY: Alcohol and Tobacco Tax and Trade Bureau, Treasury.

ACTION: Final rule; Treasury decision.

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SUMMARY: The Alcohol and Tobacco Tax and Trade Bureau is adopting as a 
final rule, with minor technical changes, temporary regulations that 
implemented certain provisions of the Children's Health Insurance 
Program Reauthorization Act of 2009 (the Act). The regulatory 
amendments involved increases in the Federal excise tax rates on 
tobacco products and cigarette papers and tubes, the floor stocks tax 
provisions of the Act, and the new statutory criteria for denial, 
suspension, or revocation of tobacco permits.

DATES: Effective Date: August 23, 2010.

FOR FURTHER INFORMATION CONTACT: For questions concerning floor stocks 
tax, contact the National Revenue Center, Alcohol and Tobacco Tax and 
Trade Bureau ([email protected], 513-684-3334 or 1-877-TTB-FAQS 
(1-877-882-3277)); for other questions concerning this document, 
contact Amy Greenberg, Regulations and Rulings Division, Alcohol and 
Tobacco Tax and Trade Bureau (202-453-2265).

SUPPLEMENTARY INFORMATION: 

Background

TTB Authority

    Chapter 52 of the Internal Revenue Code of 1986 (IRC) contains 
permit, Federal excise tax payment, and related provisions regarding 
tobacco products and cigarette papers and tubes. The Alcohol and 
Tobacco Tax and Trade Bureau (TTB) has authority to issue, deny, 
suspend, and revoke permits of manufacturers, importers, and export 
warehouse proprietors pursuant to regulations contained in parts 40, 
41, 44, and 71 of title 27 of the Code of Federal Regulations (CFR). 
TTB also collects Federal excise taxes on tobacco products and 
cigarette papers and tubes

[[Page 42606]]

from proprietors of domestic bonded manufacturing premises pursuant to 
regulations contained in 27 CFR part 40; the Bureau of Customs and 
Border Protection (CBP) collects these taxes from importers of these 
products pursuant to regulations contained in title 19 of the CFR. TTB 
also has authority to regulate the importation and exportation of 
tobacco products and cigarette papers and tubes, and the removal of 
tobacco products and cigarette papers and tubes for use of the United 
States, under 27 CFR parts 41, 44 and 45, respectively. Under 27 CFR 
part 46, TTB has authority to administer floor stocks taxes and other 
miscellaneous matters involving these products.

The Children's Health Insurance Program Reauthorization Act of 2009

    The Children's Health Insurance Program Reauthorization Act of 
2009, (the Act), Public Law 111-3, was enacted on February 4, 2009. 
Section 701 of the Act increased the rates of Federal excise tax on 
tobacco products and cigarette papers and tubes removed from the 
factory or from internal revenue bond or from customs custody on or 
after April 1, 2009.
    Section 701 of the Act also imposed a floor stocks tax on taxpaid 
or tax determined tobacco products (other than large cigars described 
in 26 U.S.C. 5701(a)(2)), and on cigarette papers and tubes, held for 
sale on April 1, 2009. The floor stocks tax rate is equal to the 
difference between the new Federal excise tax rate and the immediately 
prior rate. Persons likely to be holding articles for sale that are 
subject to the floor stocks tax include manufacturers, importers, and 
wholesale and retail dealers of these articles. The floor stocks tax 
provisions of section 701 also permit a credit against the floor stocks 
tax of $500 or the amount of tax due, whichever is less, and also 
contain rules for handling articles in foreign trade zones and for 
controlled groups.
    Section 702(b) of the Act amended 26 U.S.C. 5712 and 5713 to expand 
the basis for denial, suspension, and revocation of tobacco permits 
with effect from February 4, 2009.

Publication of Temporary Rule and Notice of Proposed Rulemaking

    Based on the February 4, 2009, enactment and effective date of the 
changes to the criteria for denial, suspension, and revocation of 
permits and the April 1, 2009, effective date of the tax increases and 
floor stocks tax, TTB concluded that proper administration and 
enforcement of those statutory requirements necessitated the immediate 
adoption of implementing regulations as a temporary rule to ensure that 
affected industry members would be able to act pursuant to the new 
regulatory requirements in a timely fashion. Accordingly, on March 31, 
2009, TTB published in the Federal Register (74 FR 14479) a temporary 
rule, T.D. TTB-75, reflecting or implementing the sections of the law 
related to the tax rate increases, the changes to the criteria for 
denial, suspension, and revocation of permits, and the floor stocks 
tax. The temporary regulations took effect on the date of publication.
    In the temporary rule, TTB amended the tobacco and cigarette papers 
and tubes regulations in parts 40, 41, 44, and 46 to reflect the new 
excise tax rates, provided examples of computations using the new tax 
rates, and revised subpart I of part 46 to implement the new floor 
stocks tax imposed by the Act. TTB also included the expanded basis for 
denial, suspension and revocation of tobacco permits in the pertinent 
sections of the TTB regulations, that is, in Sec. Sec.  40.74, 40.332, 
41.198, 44.92, 44.162, 71.46, and 71.49b.
    In the Supplementary Information section of T.D. TTB-75, TTB 
provided a detailed summary of the changes brought about by sections 
701 and 702(b) of the Act and also outlined the considerations that TTB 
applied while drafting the regulatory changes set forth in the 
temporary rule. In conjunction with the publication of T.D. TTB-75, TTB 
also published a notice of proposed rulemaking, Notice No. 93, in the 
Federal Register (74 FR 14506) on March 31, 2009. This notice invited 
the submission of public comments on the new regulations prescribed in 
T.D. TTB-75, with the comment period closing on June 1, 2009.

Discussion of Comments

    TTB received seven comments on the temporary rule during the public 
comment period. Four of the commenters were individuals who did not 
indicate any organizational affiliation. The comments of these four 
individuals primarily concerned the terms of the legislation rather 
than any TTB interpretation reflected in the implementing regulations, 
and for this reason they are not pertinent to this final rule document. 
However, one of these commenters also posed two questions, which we 
describe and respond to below:
     Would using cigarette papers for marijuana affect the tax 
rate? No. The tax applies to the product as it is removed from the 
manufacturing facility, and is not affected by the end use of the 
product.
     What is a cigarette tube? A cigarette tube is defined in 
26 U.S.C. 5702 as a cigarette paper made into a hollow cylinder for use 
in making cigarettes.
    Two commenters were tobacco company representatives. These 
commenters posed questions or submitted comments concerning marking and 
reporting requirements for ``roll-your-own'' tobacco. As noted in T.D. 
TTB-75, section 702(d) of the Act expanded the definition of ``roll-
your-own'' tobacco to include tobacco for making cigars and tobacco for 
use as wrappers for cigars, effective April 1, 2009. The questions and 
comments on the definition of ``roll-your-own'' tobacco from these two 
commenters are not addressed in this final rule document because the 
definition change at issue and the related regulatory changes are the 
subject of a separate rulemaking, T.D. TTB-78, published in the Federal 
Register (74 FR 29401) on June 22, 2009.
    Finally, the American Legacy Foundation, which identified itself as 
a national, independent public health foundation, commented that TTB's 
large cigar reporting rules should be amended to define cigarillos and 
provide for reporting of cigarillos separate from other large cigars. 
This commenter stated that ``more refined information would make a 
valuable contribution to both tax and public health policy.''
    Since T.D. TTB-75 and Notice No. 93 did not address any changes to 
reporting categories, it would be inappropriate to consider any changes 
related to this issue in this final rule document. TTB may consider 
changes to its reporting requirements in the future if it finds it 
necessary to make such changes to protect the revenue.

Changes to the Temporary Regulations

    As a result of a review of the temporary rule after its 
publication, TTB determined that it is necessary to include the 
following changes in this final rule document to correct errors that 
appeared in the regulatory texts contained in T.D. TTB-75:
     In 27 CFR 41.35, we are inserting the word ``tubes'' in 
place of ``papers'' in the chart showing the old and new tax rates for 
cigarette tubes.
     In 27 CFR 41.81(c)(4)(iii), 41.106(a)(6), and 41.110(f), 
we are inserting ``of more than'' in place of ``equal to or more 
than''. This change conforms the regulatory language to the statutory 
language in 26 U.S.C. 5701(a)(2).
     In 27 CFR 44.92, we are redesignating paragraphs (a)(2)(A)

[[Page 42607]]

through (a)(2)(C) as (a)(2)(i) through (a)(2)(iii).

Impact of T.D. TTB-78 on This Final Rule

    As noted above, T.D. TTB-78 implemented other amendments made by 
the Act and included changes to the heading and text of Sec.  40.25a 
and to the text of Sec.  41.30, which superseded the regulatory 
amendments made by T.D. TTB-75. Accordingly, the T.D. TTB-75 amendments 
to these provisions are not adopted as part of this final rule action. 
In addition, T.D. TTB-78 revised the title and authority citation for 
part 41, and therefore we reflect the new title and authority citation 
in this final rule.

Adoption of Final Rule

    Based on the rulemaking history outlined above, TTB has determined 
that, with the exception of the provisions superseded by T.D. TTB-78 
noted above, the temporary regulations published in T.D. TTB-75 should 
be adopted as a final rule, with the corrections discussed above.

Regulatory Flexibility Act

    Pursuant to the requirements of the Regulatory Flexibility Act (5 
U.S.C. chapter 6), we certify that these regulations will not have a 
significant economic impact on a substantial number of small entities. 
Any revenue effects of this rulemaking 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. Accordingly, a 
regulatory flexibility analysis is not required. Pursuant to 26 U.S.C. 
7805(f), the temporary regulation was submitted to the Chief Counsel 
for Advocacy of the Small Business Administration for comment on its 
impact on small business, and we received no comments.

Executive Order 12866

    It has been determined that this rule is not a significant 
regulatory action as defined in E.O. 12866. Therefore, a regulatory 
assessment is not required.

Paperwork Reduction Act

    TTB has provided estimates of the burdens that the collections of 
information contained in these regulations impose, and the estimated 
burdens has been reviewed and approved by the Office of Management and 
Budget (OMB) in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507) and assigned control numbers 1513-0129 and 1513-0030.
    Under the Paperwork Reduction Act of 1995, 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 OMB control 
number.
    Comments concerning suggestions for reducing the burden of the 
collections of information in this document should be directed to Mary 
A. Wood, Alcohol and Tobacco Tax and Trade Bureau, at any of these 
addresses:
     P.O. Box 14412, Washington, DC 20044-4412;
     202-453-2686 (facsimile); or
     [email protected] (e-mail).

Drafting Information

    Marjorie D. Ruhf of the Regulations and Rulings Division drafted 
this document. Other employees of the Alcohol and Tobacco Tax and Trade 
Bureau participated in its development.

List of Subjects

27 CFR Part 41

    Cigars and cigarettes, Claims, Customs duties and inspection, 
Electronic funds transfers, Excise taxes, Imports, Labeling, Packaging 
and containers, Puerto Rico, Reporting and recordkeeping requirements, 
Surety bonds, Tobacco, Virgin Islands, Warehouses.

27 CFR Part 44

    Aircraft, Armed Forces, Cigars and cigarettes, Claims, Customs 
duties and inspection, Excise taxes, Exports, Foreign trade zones, 
Labeling, Packaging and containers, Reporting and recordkeeping 
requirements, Surety bonds, Tobacco, Vessels, Warehouses.

The Regulatory Amendment

0
Accordingly, for the reasons discussed in the preamble and with the 
exception of the amendments to Sec. Sec.  40.25a and 41.30, the 
temporary regulations published in the Federal Register at 74 FR 14479 
on March 31, 2009, as T.D. TTB-75, are adopted as a final rule with the 
changes as discussed above and set forth below:

PART 41--IMPORTATION OF TOBACCO PRODUCTS, CIGARETTE PAPERS AND 
TUBES, AND PROCESSED TOBACCO

0
1. The authority citation for part 41 continues to read as follows:

    Authority:  26 U.S.C. 5701-5705, 5708, 5712, 5713, 5721-5723, 
5741, 5754, 5761-5763, 6301, 6302, 6313, 6402, 6404, 7101, 7212, 
7342, 7606, 7651, 7652, 7805; 31 U.S.C. 9301, 9303, 9304, 9306.


Sec.  41.35  [Amended]

0
2. In the table in Sec.  41.35, in the column headed, ``Product,'' the 
word ``papers'' is removed and the word ``tubes'' is added in its place 
wherever it appears.


Sec.  41.81  [Amended]

0
3. In Sec.  41.81, the first sentence of paragraph (c)(4)(iii) is 
amended by removing the words ``equal to or more than'' and adding, in 
their place, the words ``of more than''.


Sec.  41.106  [Amended]

0
4. In Sec.  41.106, paragraph (a)(6) is amended by removing the words 
``equal to or more than'' wherever they appear and adding, in their 
place, the words ``of more than''.


Sec.  41.110  [Amended]

0
5. In Sec.  41.110, paragraph (f) is amended by removing the words 
``equal to or more than'' wherever they appear and adding, in their 
place, the words ``of more than''.

PART 44--EXPORTATION OF TOBACCO PRODUCTS AND CIGARETTE PAPERS AND 
TUBES, WITHOUT PAYMENT OF TAX, OR WITH DRAWBACK OF TAX

0
6. The authority citation for part 44 continues to read as follows:

    Authority:  26 U.S.C. 448, 5701-5705, 5711-5713, 5721-5723, 
5731-5734, 5741, 5751, 5754, 6061, 6065, 6151, 6402, 6404, 6806, 
7011, 7212, 7342, 7606, 7805; 31 U.S.C. 9301, 9303, 9304, 9306.


Sec.  44.92  [Amended]

0
7. Section 44.92 is amended by redesignating paragraphs (a)(2)(A) 
through (a)(2)(C) as paragraphs (a)(2)(i) through (a)(2)(iii).

    Signed: July 1, 2010.
John J. Manfreda,
Administrator.
    Approved: July 1, 2010.
Timothy E. Skud,
Deputy Assistant Secretary (Tax, Trade, and Tariff Policy).
[FR Doc. 2010-17955 Filed 7-21-10; 8:45 am]
BILLING CODE 4810-31-P