[Federal Register Volume 82, Number 13 (Monday, January 23, 2017)]
[Rules and Regulations]
[Pages 7653-7666]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-00333]


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DEPARTMENT OF THE TREASURY

Alcohol and Tobacco Tax and Trade Bureau

27 CFR Parts 24 and 27

[Docket No. TTB-2016-0014; T.D. TTB-147; Re: Notice No. 168]
RIN 1513-AC31


Implementation of Statutory Amendments Requiring the Modification 
of the Definition of Hard Cider

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

ACTION: Temporary rule; Treasury decision; cross reference to notice of 
proposed rulemaking.

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SUMMARY: This temporary rule amends the Alcohol and Tobacco Tax and 
Trade Bureau (TTB) regulations to implement changes made to the 
definition of ``hard cider'' in the Internal Revenue Code of 1986 by 
the Protecting Americans from Tax Hikes Act of 2015. The modified 
definition broadens the range of wines eligible for the hard cider tax 
rate. TTB is amending its regulations to reflect the modified 
definition of hard cider effective for products removed on or after 
January 1, 2017, and to set forth new labeling requirements to identify 
products to which the hard cider tax rate applies. The new labeling 
requirements include both a one-year transitional rule and a new 
labeling requirement that takes effect for products removed on or after 
January 1, 2018. TTB is also soliciting comments from all interested 
parties on these amendments through a notice of proposed rulemaking 
published elsewhere in this issue of the Federal Register.

DATES: This temporary rule is effective January 23, 2017.

FOR FURTHER INFORMATION CONTACT: Kara Fontaine, Regulations and Rulings 
Division, Alcohol and Tobacco Tax and Trade Bureau, 1310 G Street NW., 
Box 12, Washington, DC 20005; telephone (202) 453-1039 ext. 103.

SUPPLEMENTARY INFORMATION: 

I. Background

Protecting Americans From Tax Hikes Act of 2015

    On December 18, 2015, the President signed into law the 
Consolidated Appropriations Act, 2016 (Pub. L. 114-113). Division Q of 
this Act is titled the Protecting Americans from Tax Hikes Act of 2015 
(PATH Act). Section 335(a) of the PATH Act amends the Internal Revenue 
Code of 1986 (IRC) at 26 U.S.C. 5041 by modifying the definition of 
hard cider for excise tax classification purposes. Pursuant to section 
335(b) of the PATH Act, the amended definition of hard cider applies to 
such products removed on or after January 1, 2017. The PATH Act does 
not change the tax rate applicable to wine eligible for the hard cider 
tax rate; rather, it broadens the range of products to which the hard 
cider tax rate applies. Among other things, the range of products to 
which the hard cider tax rate applies will include certain sparkling 
and carbonated products and certain products that are subject to the 
requirements of the Federal Alcohol Administration Act (FAA Act).

TTB Authority

    The Alcohol and Tobacco Tax and Trade Bureau (TTB) of the 
Department of the Treasury administers chapter 51 of the IRC, which 
sets forth the Federal excise taxes on wine and related provisions, 
including provisions addressing the production and marking of wine (see 
26 U.S.C. chapter 51). Section 5041 of the IRC (26 U.S.C. 5041) imposes 
six excise tax rates, including the hard cider tax rate, on wines. 
These tax rates are associated with six tax classes that correspond to 
section 5041(b) subparagraphs (1) through (6), as follows:
     Section 5041(b)(1) imposes a tax of $1.07 per wine gallon 
\1\ on still wines containing not more than 14 percent alcohol by 
volume.
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    \1\ The TTB regulations in 27 CFR 24.10 define the term ``wine 
gallon'' as ``a United States gallon of liquid measure equivalent to 
the volume of 231 cubic inches.''
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     Section 5041(b)(2) imposes a tax of $1.57 per wine gallon 
on still wines containing more than 14 percent and not exceeding 21 
percent of alcohol by volume.
     Section 5041(b)(3) imposes a tax of $3.15 per wine gallon 
on still wines containing more than 21 percent and not exceeding 24 
percent of alcohol by volume.
     Section 5041(b)(4) imposes a tax of $3.40 per wine gallon 
on champagne and other sparkling wines.

[[Page 7654]]

     Section 5041(b)(5) imposes a tax of $3.30 per wine gallon 
on artificially carbonated wines.
     Section 5041(b)(6) imposes a tax of $0.226 per wine gallon 
on hard cider.
    With regard to the hard cider tax class, prior to the effective 
date of the hard cider provisions of the PATH Act, section 5041(b)(6) 
defines the term ``hard cider'' as a still wine derived primarily from 
apples or apple concentrate and water, containing no other fruit 
product, and containing at least one-half of 1 percent and less than 7 
percent alcohol by volume. Under section 5041(a), a ``still wine'' is a 
wine containing not more than 0.392 gram of carbon dioxide per 100 
milliliters of wine, with tolerances ``as may be reasonably necessary 
in good commercial practice'' as prescribed by regulation.
    Section 5041(c) allows a credit of up to 90 cents per wine gallon 
for small domestic wine producers on the first 100,000 gallons of wine 
taxed at one of the three still wine tax rates or at the artificially 
carbonated wine tax rate removed for consumption or sale during a 
calendar year, under certain prescribed circumstances. The law allows a 
credit of up to 5.6 cents per wine gallon for small domestic producers 
on wine that is taxed at the hard cider tax rate. Section 5041(c) does 
not provide a credit against taxes imposed under section 5041(b)(4) on 
wine that is taxed at the champagne or other sparkling wine tax rate.
    The tax on wine is determined at the time of removal (generally, 
removal from a bonded wine premises or release from customs custody) 
for consumption or sale (26 U.S.C. 5041(a)). Wine so removed must be in 
containers bearing marks and labels evidencing compliance with the IRC 
as the Secretary of the Treasury may by regulations prescribe (26 
U.S.C. 5368(b)). Proprietors of bonded wine premises and importers must 
keep records, in such a form, and containing such information, as the 
Secretary may by regulations prescribe (26 U.S.C. 5367 and 26 U.S.C. 
5555). Section 7805 of the IRC (26 U.S.C. 7805) provides the Secretary 
with authority to issue regulations to carry out the provisions of the 
IRC.
    In addition to the IRC requirements, wine is subject to the 
requirements of the FAA Act. As defined by the FAA Act, the term 
``wine'' includes apple and pear wine containing at least 7 percent 
alcohol by volume (27 U.S.C. 211(a)(6)). Section 105(e) of the FAA Act, 
codified at 27 U.S.C. 205(e), authorizes the Secretary of the Treasury 
to prescribe regulations for the labeling of wine to, among other 
things, prohibit consumer deception and the use of misleading 
statements on labels and to ensure that the labels provide the consumer 
with adequate information as to the identity and quality of the 
product. The FAA Act generally requires bottlers and importers to 
obtain a TTB certificate of label approval (COLA) prior to bottling 
wine or removing bottled wine from customs custody for sale in 
interstate or foreign commerce. Section 103 of the FAA Act, codified at 
27 U.S.C. 203, also requires that producers, blenders, wholesalers, and 
importers of wine that contains at least 7 percent alcohol by volume 
obtain a ``basic permit'' to engage in such businesses. The Alcoholic 
Beverage Labeling Act of 1988 (ABLA) requires a health warning 
statement to appear on containers of all alcoholic beverages, including 
wine, containing at least one-half of one percent alcohol by volume (27 
U.S.C. 214 and 215).
    TTB administers chapter 51 of the IRC and the FAA Act, and their 
implementing regulations, pursuant to section 1111(d) of the Homeland 
Security Act of 2002, codified at 6 U.S.C. 531(d). The Secretary has 
delegated various authorities through Treasury Department Order 120-01, 
dated December 10, 2013 (superseding Treasury Order 120-01, dated 
January 24, 2003), to the TTB Administrator to perform the functions 
and duties in the administration and enforcement of these laws. 
Regulations that implement the provisions of the IRC, as they relate to 
wine, include regulations in part 24 (27 CFR part 24) for domestic wine 
and part 27 (27 CFR part 27) for imported wine. Regulations that 
implement the provisions of FAA Act, as they relate to wine, include 
regulations in parts 1 and 4 (27 CFR parts 1 and 4). Regulations that 
implement the provisions of ABLA are in part 16 (27 CFR part 16).

II. History of the Regulatory Definition of Hard Cider for Tax Purposes

    The Taxpayer Relief Act of 1997 (TRA), Public Law 105-34, enacted 
on August 5, 1997, added the tax class for wine called ``hard cider'' 
in 26 U.S.C. 5041(b)(6), as shown above. The definition of wine 
eligible for the ``hard cider'' tax classification, as enacted by the 
TRA, was clarified (to specify that ``hard cider'' is a ``still wine'') 
by the Internal Revenue Service Restructuring and Reform Act of 1998, 
Public Law 105-206. This clarification was effective October 1, 1997, 
the same effective date as the hard cider provisions of the TRA.
    On August 21, 1998, pursuant to the TRA, the Bureau of Alcohol, 
Tobacco, and Firearms (ATF), TTB's predecessor agency, published a 
temporary rule in the Federal Register (T.D. ATF-398, 63 FR 44779) 
amending part 24 of the TTB regulations to add a definition of wine 
that was eligible for the new hard cider excise tax rate found in 26 
U.S.C. 5041(b)(6). ATF also issued a concurrent notice of proposed 
rulemaking (Notice No. 859, 63 FR 44819) inviting comments on the 
temporary rule.
    The portion of the temporary rule related to cider generated 
comments on the proposed definition of cider and the labeling rules. In 
particular, many commenters expressed concern that the labeling rules 
for hard cider in T.D. ATF-398 did not allow for the appropriate 
designation of their products. The temporary rule would have changed 
both the IRC and the FAA Act labeling rules to require use of the term 
``hard cider'' on products that are taxable as hard cider, and prohibit 
use of that term on any other wine. In response to the comments ATF 
received regarding T.D. ATF-398, ATF published T.D. ATF-418 (64 FR 
51896) on September 27, 1999, postponing the labeling compliance date 
for the rules in T.D. ATF-398. At the same time, ATF published Notice 
No. 881 (64 FR 51933) to solicit comments on alternative labeling 
rules. ATF subsequently published T.D. ATF-430 (65 FR 57734) on 
September 26, 2000, postponing the labeling compliance date until 
January 31, 2001.
    ATF finalized this temporary rule on November 26, 2001, with the 
publication of T.D. ATF-470 (66 FR 58938). ATF defined the term ``hard 
cider'' in 27 CFR 24.10 as a still wine derived primarily from apples 
or apple concentrate and water (apple juice, or the equivalent amount 
of concentrate reconstituted to the original brix of the juice prior to 
concentration, must represent more than 50 percent of the volume of the 
finished product); containing no other fruit product nor any artificial 
product which imparts a fruit flavor other than apple; containing at 
least one-half of 1 percent and less than 7 percent alcohol by volume; 
having the taste, aroma, and characteristics generally attributed to 
hard cider, and sold or offered for sale as hard cider and not as a 
substitute for any other alcohol product.
    The regulatory definition clarified the statutory definition in two 
respects. First, in the preamble of T.D. ATF-398, ATF explained that it 
interpreted the statutory phrase, ``derived primarily from apples or 
apple concentrate and water,'' to mean that apple juice or the 
equivalent amount of concentrate reconstituted to the original brix of 
the juice prior to concentration must represent more than 50 percent of 
the

[[Page 7655]]

volume of the finished product. (The term ``brix'' in this text refers 
to the quantity of dissolved solids expressed as grams of sucrose in 
100 grams of solution at 60 degrees Fahrenheit. For example, one degree 
Brix is 1 gram of sucrose in 100 grams of solution and represents the 
strength of the solution as percentage by mass.)
    Second, ATF interpreted the statutory phrase ``containing no other 
fruit product'' to mean ``containing no other fruit product nor any 
artificial product which imparts a fruit flavor other than apple.'' As 
explained in the preamble of T.D. ATF-470, this interpretation is based 
on the legislative history of the TRA, which states:

    Once fermented, eligible hard cider may not be altered by the 
addition of other fruit juices, flavor, or other ingredient that 
alters the flavor that results from the fermentation process. Thus, 
for example, cider fermented from apples, but which has raspberry 
flavor added to it prior to bottling and marketing to the public, 
will not be eligible for the 22.6 cents-per gallon tax rate.\2\
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    \2\ See General Explanation of Tax Legislation Enacted in 1997, 
published by the Joint Committee on Taxation (JCS-23-97).

ATF ``d[id] not believe it was Congress's intent to provide a tax 
incentive for use of artificial ingredients in preference to real 
ones.'' See 66 FR 58941.
    The preamble to T.D. ATF-470 also explained that the regulatory 
definition does not preclude the use of flavors such as honey or 
spices, noting that ``[f]lavoring materials will only affect the tax 
classification of hard cider if they are derived from or impart the 
flavor of a fruit other than apple.'' See 66 FR 58941. This position is 
also reflected in current public guidance in the form of an FAQ on the 
TTB Web site. Specifically, FAQ CID24 states that, because the IRC 
provides that the hard cider tax rate under section 5041(b)(6) is not 
available to wines that contain a fruit product other than apple, a 
cider containing either natural or artificial fruit flavors (other than 
apple flavors) is not eligible for the hard cider tax rate of 
22.6[cent] per gallon. Instead, a fruit-flavored cider would be taxed 
at the appropriate wine excise tax rate. (See https://www.ttb.gov/faqs/alcohol_faqs.shtml?Cider#Cider.)
    In the preamble to T.D. ATF-470, ATF also addressed the prohibition 
on ``other fruit products'' with regard to authorized wine treating 
materials that are derived from fruits other than apple, such as tannin 
or citric acid. The preamble explained that the final rule did not 
restrict the use of approved wine treating materials derived from fruit 
in cider, stating that it would be impractical to make a distinction 
between fruit-derived wine treating materials and the same materials 
derived from other sources, unless there were other circumstances that 
indicated the producer was using these materials as flavorings. One of 
those circumstances would be the labeling of the product as being 
``flavored'' with a fruit other than apple.
    ATF noted that, when used as directed in 27 CFR part 24 for natural 
wines, authorized wine treating materials would not impart a fruit 
flavor to wine. However, ATF also noted that some ciders are made under 
approved formulas rather than under the rules for production of natural 
wine in subparts F and L of part 24, and that for formula wines \3\, 
the use of wine treating materials may be approved at a level beyond 
the level authorized in part 24 for stabilizing or adjusting the 
acidity of a natural wine. ATF further noted that while the final rule 
did not place limits on the use of wine treating materials derived from 
fruits other than apple in a formula wine eligible for the hard cider 
tax rate, a formula wine may not contain such treating materials in 
amounts sufficient to impart a fruit flavor other than apple and still 
be taxed as hard cider. For example, if a cider contained more citric 
acid than the amount allowed under subpart L of part 24 for the 
production of natural wine,\4\ and was labeled as ``citrus flavored,'' 
the product would be classified for tax purposes as a still wine under 
14 percent alcohol by volume rather than hard cider.
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    \3\ The TTB regulations at 27 CFR 24.10 define the term 
``formula wine'' as special natural wine, agricultural wine, and 
other than standard wine (except for distilling material and vinegar 
stock) produced on bonded wine premises under an approved formula.
    \4\ Natural wine, under 26 U.S.C. 5381, is the product of the 
juice or must of sound, ripe grapes or other sound, ripe fruit, made 
with such cellar treatment as may be authorized under section 5382 
of the IRC (26 U.S.C. 5382) and containing not more than 21 percent 
by weight of total solids.
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    Finally, ATF recognized that the term ``hard cider'' had broader 
meaning in the industry and among consumers than the definition given 
in the regulations. As a result, ATF stated that it would allow the use 
of the term ``hard cider'' on labels of products that do not belong to 
the hard cider tax class, as long as other information on the label 
allows for the identification of the appropriate tax class.

III. PATH Act's Modification of the IRC Definition of Hard Cider for 
Tax Purposes

    The PATH Act amendments to section 5041 of the IRC change the 
definition of ``hard cider,'' allowing a broader range of products to 
be eligible for the hard cider tax rate. TTB notes that the PATH Act 
did not amend the FAA Act, although the definition of hard cider under 
the PATH Act now includes products to which the FAA Act requirements 
apply.
    Under the PATH Act, effective January 1, 2017, section 5041 of the 
IRC, Imposition and rate of tax, contains a new paragraph (g), which 
defines the term ``hard cider'' as a wine.
    Under the PATH Act, effective January 1, 2017, section 5041 of the 
IRC, Imposition and rate of tax, contains a new paragraph (g), which 
defines the term ``hard cider'' as a wine derived primarily from apples 
or pears, or from apple juice concentrate or pear concentrate and 
water, which contains no fruit product or fruit flavoring other than 
apple or pear. Also, under the revised definition, hard cider cannot 
contain ``more than 0.64 gram of carbon dioxide per hundred milliliters 
of wine, except that the Secretary may by regulations prescribe such 
tolerances to this limitation as may be reasonably necessary in good 
commercial practice.'' In addition, the revised definition states that 
the alcohol content of hard cider may range between at least 0.5 
percent and less than 8.5 percent alcohol by volume.
    The specific changes concerning the hard cider tax rate resulting 
from the PATH Act are discussed individually below.

Increase in Authorized Amount of Carbon Dioxide

    As noted above, prior to the effective date of the hard cider 
provisions of the PATH Act, to be eligible for the ``hard cider'' tax 
rate under the IRC, wine must be, among other things, a ``still wine,'' 
that is, a wine containing not more than 0.392 gram of carbon dioxide 
per 100 milliliters. The modified definition of hard cider allows wine 
that is eligible for the hard cider tax rate to contain no more than 
0.64 gram of carbon dioxide per 100 milliliters of wine. Prior to the 
effective date of the hard cider provisions of the PATH Act, wine with 
a carbon dioxide content greater than 0.392 gram of carbon dioxide per 
100 milliliters of wine is an ``effervescent wine'' and is taxed as 
either ``sparkling wine'' or as ``artificially carbonated wine'' 
depending on the source of the carbon dioxide. Sparkling wine is an 
effervescent wine for which the carbon dioxide has resulted solely from 
the secondary fermentation of the wine within a closed container. 
Artificially carbonated wine is a wine made effervescent by the 
injection of carbon

[[Page 7656]]

dioxide. See Sec.  24.10. Sparkling wine and artificially carbonated 
wine have no maximum level of carbon dioxide.
    The definition of hard cider, as modified by the PATH Act, includes 
certain effervescent wines that contain more than 0.392 gram but no 
more than 0.64 gram of carbon dioxide per 100 milliliters of wine. This 
means that, under the modified definition, certain wines that would 
previously have fallen within the tax classes applicable to sparkling 
wine or artificially carbonated wine will be eligible for the hard 
cider tax rate.

Use of Pears and Pear Concentrate in Addition to Apples and Apple 
Concentrate

    Prior to the effective date of the hard cider provisions of the 
PATH Act, the statutory definition of wine eligible for the hard cider 
tax rate requires that wine be derived primarily from apples or apple 
concentrate and water in order to be eligible for that tax rate. The 
modified definition under the PATH Act provides that wine eligible for 
the hard cider tax rate must be derived primarily from apples or pears 
or from apple juice concentrate or pear juice concentrate and water.
    According to its legislative history,\5\ this amendment was to 
``expand the hard cider definition to include pears, or pear juice 
concentrate and water, in addition to apples and apple juice 
concentrate and water.'' TTB believes that the amendment to the 
definition of hard cider was not intended to prevent the use of apples 
and pears together. In keeping with the current definition of hard 
cider found in part 24 which provides, in part, ``* * * (apple juice, 
or the equivalent amount of concentrate reconstituted to the original 
brix of the juice prior to concentration, must represent more than 50 
percent of the volume of the finished product) * * *,'' TTB is 
interpreting the modified definition to mean that apple juice, pear 
juice, a combination of apple juice and pear juice, or the equivalent 
amount of concentrate reconstituted to the original brix of the juice 
prior to concentration, must represent more than 50 percent of the 
volume of the finished product. In other words, if apple juice and pear 
juice (or the equivalent amount of concentrate reconstituted to the 
original brix of the juice prior to concentration) together represent 
more than 50 percent of the volume of the finished product, this 
requirement is met.
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    \5\ See JCX-144-15, ``Technical Explanation of the Protecting 
Americans From Tax Hikes Act of 2015, House Amendment #2 to the 
Senate Amendment to H.R. 2029 (Rules Committee Print 114-40).''
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Fruit Products and Fruit Flavoring

    Prior to the effective date of the hard cider provisions of the 
PATH Act, the statutory definition of hard cider provides that no fruit 
product other than apple and apple concentrate may be used in wine 
eligible for the hard cider tax rate. As described above, the current 
regulatory definition of hard cider for tax purposes states that, among 
other things, hard cider must contain ``no other fruit product nor any 
artificial product which imparts a fruit flavor other than apple.'' 
Pursuant to the PATH Act, the modified definition of hard cider 
prohibits the use of any ``fruit product or fruit flavoring other than 
apple or pear.''
    With the exception of the inclusion of pear, the prohibition 
against other fruit products or fruit flavorings is similar to the 
current statutory and regulatory text, except that it is even clearer 
than the prior law that wines eligible for the ``hard cider'' tax rate 
may not contain either ``fruit products'' (that is, ingredients derived 
from fruit) or ``fruit flavoring'' (regardless of its source) other 
than apple or pear. This is consistent (aside from the inclusion of 
pear) with TTB's current policy with regard to fruit flavors. 
Accordingly, it is TTB's interpretation that wine is not eligible for 
the hard cider tax rate if it contains any fruit flavoring that imparts 
the flavor of a fruit other than apple or pear. The term ``fruit 
flavoring'' includes a natural fruit flavor, an artificial fruit 
flavor, and a natural flavor that artificially imparts the flavor of a 
fruit that is not contained in that flavor.

Increase in Allowed Alcohol Content

    Prior to the effective date of the hard cider provisions of the 
PATH Act, wine is not eligible for the hard cider tax rate unless it 
contains less than 7 percent alcohol by volume. However, the definition 
of hard cider as modified by the PATH Act increases the allowable 
alcohol content to less than (not equal to) 8.5 percent alcohol by 
volume. The increase in the allowed alcohol content allows a broader 
range of products to be eligible for the hard cider tax rate, including 
products that are subject to the FAA Act labeling and permit 
requirements, which apply to wines that contain at least 7 percent 
alcohol by volume. The PATH Act did not amend the FAA Act, and this 
rule does not amend TTB's FAA Act permit or labeling requirements in 27 
CFR parts 1 and 4, respectively.

IV. Description of Regulatory Changes Regarding Tax Classification and 
Operations

New Regulations Setting Forth Eligibility Criteria for the Hard Cider 
Tax Rate

    As a result of the PATH Act amendments to the definition of hard 
cider, TTB is amending its regulations in part 24 by adding a new 
Subpart P--Eligibility for the Hard Cider Tax Rate. New subpart P 
consists of two new sections, 27 CFR 24.331 and 24.332. Section 24.331 
sets forth the statutory criteria for eligibility for the hard cider 
tax rate for wines removed on or after January 1, 2017, while Sec.  
24.332 elaborates on those criteria. Consistent with the TTB 
interpretation of the statutory text discussed above, Sec.  24.332(a) 
provides that wine will be considered to be derived primarily from 
apples or pears, or from apple juice concentrate or pear juice 
concentrate and water, if the apple juice, pear juice, or combination 
of apple and pear juice, or the equivalent amount of concentrate of 
apple and/or pear juice reconstituted to the original brix of the juice 
prior to concentration, or any combination thereof, represents more 
than 50 percent of the volume of the finished product. Further, Sec.  
24.332(b)(1) provides that wine is not eligible for the hard cider tax 
rate if it contains any fruit product other than apple or pear. 
Consistent with current policy, Sec.  24.332(b)(1) makes clear that a 
fruit product is any material derived or made from any fruit or part of 
a fruit, including but not limited to concentrates, extracts, juices, 
powders, or wine spirits, of any fruit or part of a fruit.
    New Sec.  24.332(b)(2) provides that an authorized wine treating 
material set forth in Sec.  24.246 that is derived from a fruit other 
than apple or pear may be used in the production of wine eligible for 
the hard cider tax rate if it is used for a purpose other than 
flavoring and it is either used in accordance with the wine treating 
materials provisions of Sec.  24.246 (if used in a natural wine), or 
used in amounts insufficient to impart a fruit flavor other than apple 
or pear (if used in a special natural wine or other than standard 
wine). Any written or pictorial reference to a material derived from a 
fruit other than apple or pear (other than the inclusion of a wine 
treating material in an ingredient labeling statement) in the labeling 
or advertising of a wine will be treated as evidence that the wine 
treating material was added for the purpose of flavoring the wine.
    Further, new Sec.  24.332(c) prohibits the use, in wine eligible 
for the hard cider tax rate, of any fruit flavoring that

[[Page 7657]]

imparts the flavor of a fruit other than apple or pear. For purposes of 
this section, a flavoring that imparts the flavor of a fruit other than 
apple or pear includes a natural fruit flavor, an artificial fruit 
flavor, and a natural flavor that artificially imparts the flavor of a 
fruit that is not contained in that flavor.
    The preamble to T.D. ATF-470 provided that honey or spices would 
not disqualify an apple wine from the hard cider tax rate; however, 
language to that effect did not appear in any regulatory text. TTB is 
now incorporating such language in the new Sec.  24.332(c) to make this 
position more easily accessible to industry members and the public. TTB 
has also received questions about the use of pumpkin flavors in cider. 
While pumpkins are botanically classified as fruit, they are treated as 
``vegetables'' for several other purposes.\6\ It has been TTB's 
position that pumpkins are not ``fruit'' for purposes of part 24. 
Instead, wines made from pumpkins are classified as wines made from 
``other agricultural products'' under 26 U.S.C. 5387 and 27 CFR 24.204. 
See, e.g., TTB Ruling 2016-2. Accordingly, in new Sec.  24.332(c), TTB 
clarifies that the use of spices, honey, hops, or pumpkins as a 
flavoring will not make a wine ineligible for the hard cider tax rate.
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    \6\ For example, the United States Department of Agriculture's 
National Nutrient Database for Standard Reference currently lists 
pumpkin in its ``Vegetables and Vegetable Product'' food group.
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    New Sec.  24.332(c) also provides that any written or pictorial 
reference to a fruit flavor other than apple or pear in the labeling or 
advertising of a wine that contains a flavoring will be treated as 
evidence that the wine contains a flavoring that imparts a fruit flavor 
other than apple or pear and thus the wine will not be eligible for the 
hard cider tax rate.
    The new definition in Sec.  24.332, differing from the current 
definition of hard cider in Sec.  24.10, does not require that hard 
cider have the taste, aroma, and characteristics generally attributed 
to hard cider. Nor does it require hard cider to be sold or offered for 
sale as hard cider. With regard to the reference to ``taste, aroma, and 
characteristics generally attributed to hard cider,'' these aspects of 
the definition have been removed because under the PATH Act, wine that 
is eligible for the hard cider tax rate may contain pear, which TTB 
believes is not a characteristic generally attributed to hard cider. 
With regard to the reference to hard cider having to be ``sold or 
offered for sale as hard cider,'' this aspect has been removed because 
a wine that meets the criteria of the hard cider tax class and is 
produced from just pears may be sold as ``perry,'' ``pear wine,'' or 
``hard perry.''

Definitional Changes To Implement the PATH Act

    The IRC at section 5041(a) provides that ``[s]till wines shall 
include those wines containing not more than 0.392 gram of carbon 
dioxide per hundred milliliters * * *.'' Because wine classified as 
hard cider will no longer necessarily be a ``still wine'' after the 
PATH Act amendments take effect, and because hard ciders that are 
defined as ``still wine'' under section 5041(a) are not taxed as 
``still wine'' under section 5041(b), TTB is adding a definition of 
``still hard cider'' to Sec.  24.10, and excluding ``hard cider'' from 
the definition of ``still wine'' in that section. As amended, part 24 
will use the term ``still wine'' to refer to wine containing not more 
than 0.392 gram of carbon dioxide per 100 milliliters of wine that 
falls within one of the three tax classes applicable to still wine set 
forth at section 5041(b)(1), (b)(2), or (b)(3). The term ``still hard 
cider,'' when used in the regulations, is used to denote wine that is 
eligible for the hard cider tax rate at section 5041(b)(6) and that 
contains not more than 0.392 gram of carbon dioxide per 100 
milliliters.
    Similarly, TTB is adding definitions of ``artificially carbonated 
hard cider'' and ``sparkling hard cider'' to describe wine that is 
eligible for the hard cider tax rate at section 5041(b)(6); that 
contains more than 0.392 but not more than 0.64 gram of carbon dioxide 
per 100 milliliters; and that is made effervescent either by artificial 
injection of carbon dioxide or solely by secondary fermentation within 
a closed container. Under this temporary rule, TTB is also excluding 
wine that is eligible for the hard cider tax rate from the definitions 
of ``artificially carbonated wine,'' and ``sparkling wine or 
champagne'' set forth in Sec.  24.10.
    As a result of these definitional changes, there is no need to 
amend the regulations in 27 CFR 24.278(a), which provide that 
``champagne and other sparkling wine'' are not eligible for the tax 
credit for certain small producers. This regulation is based on 26 
U.S.C. 5041(c)(1), which disqualifies ``wine described in subsection 
(b)(4)'' from eligibility for the small producer credit. Wine described 
in section 5041(b)(4) is wine that is taxable at the rate prescribed 
for ``champagne and other sparkling wines.'' This temporary rule 
specifies that the term ``sparkling wine'' does not include hard cider 
that derives its effervescence solely from the secondary fermentation 
in a closed container (and contains no more than 0.64 gram of carbon 
dioxide per 100 milliliters of wine); thus, this wine is not precluded 
from eligibility for the small domestic producers credit described in 
Sec.  24.278.
    These definitional changes also provide that wine that is eligible 
for the lower hard cider tax rate at section 5041(b)(6) is not subject 
to the higher tax rates for ``still wine,'' ``sparkling wine,'' or 
``artificially carbonated wine'' at section 5041(b)(1)-(b)(5).
    TTB is incorporating the terms ``artificially carbonated hard 
cider,'' ``artificially carbonated wine,'' ``sparkling hard cider'' and 
``sparkling wine'' in the definition of ``effervescent wine'' to make 
it clear that, when used in the regulations, ``effervescent wine'' 
includes all four terms. The new definition for the existing term 
``hard cider'' cross-references the new definitions of ``artificially 
carbonated hard cider,'' ``sparkling hard cider,'' and ``still hard 
cider,'' and cites the new eligibility requirements set forth in Sec.  
24.331. TTB is removing the current eligibility criteria included in 
the definition of ``Hard cider'' at Sec.  24.10 that interprets the law 
as it exists prior to the effective date of the hard cider provisions 
of the PATH Act.
    In addition to amending the definition of ``artificially carbonated 
wine'' to exclude wine eligible for the hard cider tax rate, TTB is 
replacing the reference in that definition to wine ``artificially 
charged with carbon dioxide'' with the phrase ``artificially injected 
with carbon dioxide.'' This change is not intended to substantively 
change the provision, but rather to be consistent with the description 
of wine carbonated by the injection of carbon dioxide used in 27 CFR 
24.190. TTB also is amending a cross-reference to the FAA Act that 
appears in the definition of ``cider'' in Sec.  24.10 to make clear 
that 27 CFR 4.21(e)(5) provides information regarding the labeling of 
wine that may be designated as ``cider'' under the FAA Act.

Tolerance and Recordkeeping Requirements for Artificially Carbonated 
Hard Cider and Sparkling Hard Cider

    While there is no maximum allowed carbon dioxide level for wine 
falling within the sparkling wine and artificially carbonated wine tax 
classes, under the modified definition of hard cider, wine is not 
eligible for the hard cider tax rate if it contains more than 0.64 gram 
of carbon dioxide per 100 milliliters. As amended by the PATH Act, 
section 5041(g)(1) authorizes TTB to prescribe through regulation 
``such tolerances to this limitation as may be

[[Page 7658]]

reasonably necessary in good commercial practice.'' Current TTB 
regulations applicable to still wine with added carbon dioxide, at 27 
CFR 24.245, prescribe a tolerance of not more than 0.009 gram per 100 
milliliters where the amount of carbon dioxide in excess of 0.392 gram 
per 100 milliliters is due to mechanical variations that cannot be 
completely controlled under good commercial practice. In this temporary 
rule, TTB sets forth a new section, 27 CFR 24.251, and extends the same 
0.009 gram per 100 milliliters tolerance to artificially carbonated 
hard cider and sparkling hard cider where the amount of carbon dioxide 
in excess of 0.64 gram per 100 milliliters is due to mechanical 
variations or secondary fermentation variations that cannot be 
completely controlled under good commercial practice. This tolerance 
will not be allowed where it is found that the proprietor continuously 
or intentionally exceeds 0.64 gram of carbon dioxide per 100 
milliliters of artificially carbonated hard cider or sparkling hard 
cider or where the variation results from the use of methods or 
equipment determined by the appropriate TTB officer not to be in 
accordance with good commercial practice.
    Apple or pear wine that has in excess of 0.64 gram of carbon 
dioxide per 100 milliliters (unless covered by the allowed tolerance) 
will be classified and taxed at the applicable ``sparkling wine'' or 
``artificially carbonated wine'' rate, see section 5041(b)(4) and 
(b)(5). Accordingly, TTB is amending 27 CFR 24.255(a) to specify that 
proprietors of a bonded wine premises or a taxpaid wine bottling house 
premises are responsible for the correct determination of the amount of 
carbon dioxide in artificially carbonated hard cider or sparkling hard 
cider. TTB is also amending Sec.  24.302 to require that the amount of 
carbon dioxide in artificially carbonated hard cider or sparkling hard 
cider be included in the effervescent wine record, which is required to 
be kept by proprietors who produce or receive effervescent wine in 
bond.

Conforming Amendments

    Other amendments maintain the existing treatment of still wine and 
effervescent wine, and apply certain requirements currently applicable 
to still wine to ``still hard cider'' and certain requirements 
currently applicable to artificially carbonated wine and sparkling wine 
to ``artificially carbonated hard cider'' and ``sparkling hard cider,'' 
respectively. These include amendments to 27 CFR 24.190, 24.191, 
24.192, and 24.193 in subpart G (Production of Effervescent Wine); 27 
CFR 24.225 and 24.234 in subpart K (Spirits); Sec.  24.246 in subpart L 
(Storage, Treatment and Finishing of Wine); 27 CFR 24.266 in subpart M 
(Losses of Wine); Sec. Sec.  24.290 and 24.291 in subpart N (Removal, 
Return and Receipt of Wine); 27 CFR 24.301, 24.302, 24.306, 24.308, and 
24.319 in subpart O (Records and Reports).
    Along with conforming amendments to Sec.  24.245, TTB also is 
removing a reference to ``authorized test procedures'' for determining 
the amount of carbon dioxide in still wine to which carbon dioxide has 
been added. Section 24.245 currently states that ``[t]he proprietor 
shall determine the amount of carbon dioxide added to wine using 
authorized test procedures.'' TTB's predecessor agency, ATF, published 
several authorized test procedures from 1971 to 1983. These are ATF 
Procedure 73-1 (authorizing the enzymatic method, the manometric 
method, and the volumetric method), ATF Procedure 77-2 (authorizing the 
infrared spectrophotometer method), and ATF Procedure 83-2 (authorizing 
the use of an automated thermal conductivity analyzer). Although TTB 
still views these methods as valid, TTB currently uses the enzymatic 
\7\ and titrimetric \8\ method to determine the carbon dioxide levels 
in wine.
---------------------------------------------------------------------------

    \7\ AOAC Official Method of Analysis 964.09 (17th Ed). See also 
https://www.ttb.gov/ssd/pdf/list_of_beverage_methods.pdf.
    \8\ AOAC Official Method of Analysis 988.07 (17th Ed). See also 
https://www.ttb.gov/ssd/pdf/list_of_beverage_methods.pdf.
---------------------------------------------------------------------------

    It is TTB's current policy that producers may use any method that 
has been formally validated (e.g., that underwent a multi-laboratory 
performance evaluation) or that is otherwise scientifically valid to 
determine the carbon dioxide levels in wine. (A scientifically valid 
method is, among other things, accurate, precise, and specific for its 
intended purpose, and it has results that are consistently reliable, 
accurate, and reproducible.) Accordingly, TTB is removing the language 
in Sec.  24.245 that requires proprietors to use ``authorized'' test 
procedures, and is revoking ATF Procedure 73-1, ATF Procedure 77-2, and 
ATF Procedure 83-2.
    Finally, TTB is dividing the current text of 27 CFR 24.270, 
Determination of Tax, into paragraphs (a) and (b), and adding a new 
paragraph (c) to list the tax rates imposed on wine by 26 U.S.C. 
5041(b). With respect to the hard cider tax rate at section 5041(b)(6), 
TTB is referencing the eligibility requirements set forth in new Sec.  
24.331. Also, TTB is incorporating in Sec.  24.270(a) language from the 
definition of ``wine'' in Sec.  24.10, which explains that a product 
containing less than one-half of one percent alcohol by volume is not 
taxable as wine.

V. Labeling of Wine Eligible for the Hard Cider Tax Rate

    As noted above, TTB administers the labeling requirements of both 
the IRC and the FAA Act. TTB bases its labeling requirements in part 24 
on section 5368(b) of the IRC, which gives the Secretary of the 
Treasury general authority to issue labeling regulations that require 
evidence of compliance with tax provisions.

Labeling Requirements Prior to the Effective Date of Hard Cider 
Provisions of the PATH Act

    Current Sec.  24.257 sets forth the requirements for labeling 
containers of wine, including wine eligible for the hard cider tax 
rate, for purposes of the IRC. In general, Sec.  24.257 provides that 
proprietors must label each bottle or other container of beverage wine 
prior to removal for consumption or sale, and the label must show: (1) 
The name and address of the wine premises where the wine is bottled or 
packed, (2) the brand name, if it is different from the name shown in 
the name and address statement; (3) the alcohol content of the wine; 
(4) the kind of wine; and (5) the net contents of the container.
    Current Sec.  24.257 provides that conformity with TTB's FAA Act 
labeling regulations found in part 4 of the TTB regulations is 
sufficient to identify the appropriate tax class. With regard to 
alcohol content, Sec.  24.257(a)(3) provides that a label must state 
the alcohol content as percent by volume or in accordance with part 
4.\9\
---------------------------------------------------------------------------

    \9\ Thus, for wines with less than 7 percent alcohol by volume, 
a numerical statement of the percentage of alcohol by volume must 
appear on the label. 27 CFR 4.32(b)(3) and 4.36 require alcohol 
content statements on labels. TTB notes that pursuant to Sec.  4.36, 
in the case of fruit wine containing at least 7 percent but no more 
than 14 percent or less of alcohol by volume, the alcohol content 
need not be stated if the type designation ``table wine'' or ``light 
wine'' (without a numerical statement of alcohol content) appears on 
the brand label. Because ``hard cider'' is currently defined in part 
24 as wine containing less than 7 percent alcohol by volume, ``table 
wine'' and ``light wine'' designations have been sufficient to 
identify FAA Act wine as ineligible for the hard cider tax rate.
---------------------------------------------------------------------------

    Current Sec.  24.257(a)(4) also sets out parameters for how the 
kind of wine should be presented on a label.\10\ Wine that contains at 
least 7 percent alcohol by volume and requires label approval under the 
FAA Act must be labeled with

[[Page 7659]]

the ``kind'' of wine in accordance with part 4.\11\ See Sec.  
24.257(a)(4)(i).
---------------------------------------------------------------------------

    \10\ TTB notes that 27 CFR 24.259 requires each container larger 
than 4 liters or each case used to remove wine for consumption or 
sale to be durably marked with the kind of wine, stated in 
accordance with Sec.  24.257.
    \11\ Under 27 CFR part 4, wine that requires label approval must 
be labeled ``sparkling'' or ``carbonated,'' if applicable, see 
Sec. Sec.  4.32(a)(2) (requiring the class, type or other 
designation on wine labels), 4.34 and 4.22 (requiring a truthful and 
adequate statement of composition if the wine is not defined in 27 
CFR 4.21), and 4.21 (setting forth standards of identity for wine 
and requiring the words ``sparkling'' or ``carbonated'' when 
applicable).
---------------------------------------------------------------------------

    For wine that contains less than 7 percent alcohol by volume or is 
the subject of a certificate of exemption from the COLA requirements in 
part 4, a statement of composition is required to be on the label in 
order to adequately identify the wine. See Sec.  24.257(a)(4)(ii) and 
(iii).
    The regulations in Sec.  24.257(a)(4)(iv) provide that the 
statement of composition must include enough information to identify 
the tax class when viewed with the alcohol content. There are several 
components to this requirement.
     First, the wine should be identified by the word ``wine,'' 
``mead,'' ``cider,'' or ``perry,'' as applicable.
     Second, if the wine contains more than 0.392 gram of 
carbon dioxide per 100 milliliters, the word ``sparkling'' or 
``carbonated,'' as applicable, must be included in the statement of 
composition.
     Third, if the statement of composition leaves doubt as to 
the tax class of the wine, the wine must be marked with an appropriate 
tax class statement (such as the statement ``tax class 5041(b)(1) 
IRC'').
    Section 24.257(a)(4)(iv) provides examples of labels that would or 
would not leave doubt as to the tax class of the wines. For example, a 
still wine labeled as ``raspberry hard cider'' and ``9 percent alcohol 
by volume'' is adequately marked to designate the tax class specified 
in section 5041(b)(1), which is the tax class for ``still wines 
containing not more than 14 percent of alcohol by volume.'' That 
information is sufficient because the wine is clearly not eligible for 
the hard cider tax rate under current law on two different grounds--it 
contains raspberries or raspberry flavor, and it is 9 percent alcohol 
by volume. This example also illustrates that the terms ``cider'' and 
``hard cider,'' by themselves, do not indicate that a wine is eligible 
for the hard cider tax rate. Thus, the regulations provide the example 
of a still wine marked ``cider'' or ``hard cider'' and ``6 percent 
alcohol by volume.'' Under current regulations, that wine is adequately 
marked if it is eligible for the hard cider tax rate, but if it is not 
eligible for the hard cider tax rate, it is not adequately marked to 
identify its tax class as falling under section 5041(b)(1), so the tax 
class must be shown.
    As mentioned earlier in this preamble, the current regulations were 
issued after ATF received comments in opposition to T.D. ATF-398, which 
would have required use of the term ``hard cider'' on products eligible 
for the hard cider tax rate, and prohibited use of the ``hard cider'' 
designation on products not eligible for the hard cider tax rate, 
including all wines subject to the FAA Act. Accordingly, ATF solicited 
comments on and adopted an alternative proposal, that allowed use of 
the term ``hard cider'' on products over 7 percent alcohol by volume.
    For products under 7 percent alcohol by volume, ATF wanted to 
differentiate between ciders that are eligible for the hard cider tax 
rate and those that are taxable as still wine containing not more than 
14 percent alcohol by volume. Some producers have marketed eligible 
products as ``draft cider,'' ``fermented cider'' or ``apple cider'' and 
did not wish to use the term ``hard cider'' on labels. Some producers 
marketed mixed-fruit ciders or low-alcohol ciders that were otherwise 
excluded from the current definition of hard cider under the name 
``hard cider'' and did not wish to rename their products. Accordingly, 
ATF proposed, where the words on the label leave doubt as to the tax 
class, that cider makers must include a reference to the tax class by 
section of the law. ATF noted that this wording was similar to the 
wording of 27 CFR 25.242, on marking nontaxable cereal beverages. ATF 
requested industry and consumer comments on these proposals.
    In general, the commenters supported ATF's proposal to allow more 
flexibility in naming hard cider and related products. ATF also noted 
that it had requested suggestions for other ways of identifying the tax 
class, but received no suggestions. As a result, the final rule allowed 
the use of the term ``hard cider'' on labels of products that do not 
belong to the hard cider tax class, as long as other information on the 
label allows for the identification of the appropriate tax class.

Need for Revised Labeling Requirements To Implement the PATH Act for 
the Hard Cider Tax Class

    As previously noted, current regulations require wines to be 
labeled with the ``kind'' of wine, and provide that wines that are not 
subject to FAA Act labeling requirements must be labeled with a 
statement of composition that, when viewed with the alcohol content, 
includes enough information to identify the tax class. Under the 
statutory definition of ``hard cider'' as it stood prior to the 
effective date of the hard cider provisions of the PATH Act, this 
flexibility makes sense. Among other things, any wine eligible for the 
``hard cider'' tax rate under current law must be a still wine, and 
must have less than 7 percent alcohol by volume. Thus, wines subject to 
the labeling requirements of the FAA Act are, by definition, ineligible 
for the hard cider tax rate if removed prior to January 1, 2017. 
Similarly, sparkling wines and carbonated wines are, by definition, 
ineligible for the hard cider tax rate.
    Under the definition of hard cider set forth in the PATH Act, wine 
taxed at the hard cider tax rate may contain a higher alcohol content 
(less than 8.5 percent instead of less than 7 percent alcohol by 
volume) and may be effervescent (containing not more than 0.64 gram of 
carbon dioxide per 100 milliliters of wine). Under the modified 
definition, wine may also contain pears in addition to or in place of 
apples. This affects how the product must be labeled to provide 
sufficient information to identify the appropriate tax class.
    For example, under the modified definition of hard cider, wines 
that are subject to the FAA Act labeling regulations may be taxed at 
the hard cider tax rate. The current regulations in Sec.  24.257 do not 
require wines labeled in accordance with the FAA Act to include enough 
information to identify the tax class. Such a requirement was not 
necessary when the definition of hard cider excluded any wines 
containing 7 percent or more alcohol by volume. Because some (but not 
all) apple or pear wines subject to the FAA Act labeling regulations 
may be taxed at the hard cider tax rate under the IRC as modified by 
the PATH Act, it is now necessary to include language in Sec.  24.257 
to require wines (including hard cider) labeled in accordance with the 
FAA Act labeling regulations to also include enough information to 
identify the tax class. A designation such as ``apple table wine'' for 
a wine subject to the FAA Act will no longer suffice to identify 
whether the wine is eligible for the hard cider tax rate, because it 
will not identify whether the wine has less than 8.5 percent alcohol by 
volume.
    Similarly, the hard cider tax class is no longer restricted to 
still wines. Under current regulations, a ``sparkling'' or 
``carbonated'' wine statement suffices to indicate that the wine was 
not eligible for the hard cider tax rate. Under the standards as 
modified by the PATH Act, some, but not all, sparkling and carbonated 
apple and/or pear wines may be eligible for the hard cider tax rate. 
Thus, knowing that an apple and/

[[Page 7660]]

or pear wine is sparkling or carbonated does not resolve the question 
of whether it is eligible for the hard cider rate, and such wines are 
unlikely to be labeled with the exact level of carbon dioxide per 100 
milliliters of wine.
    Finally, the use of terms such as ``apple'' or ``pear'' wine, or 
``cider,'' ``hard cider,'' or ``perry'' may suggest the hard cider tax 
class, but do not necessarily indicate that the product is eligible for 
such a classification. Furthermore, a statement of composition such as 
``apple cider with natural flavors'' or ``honey pear wine'' does not 
necessarily indicate the tax class.

VI. Description of Regulatory Changes Regarding Labeling

    Accordingly, TTB is amending its regulations in parts 24 and 27 to 
require the statement ``Tax class 5041(b)(6)'' on the container of any 
wine for which the hard cider tax rate is claimed. TTB recognizes that 
industry members who currently produce or import hard cider will need 
time to comply with such a requirement, and TTB is therefore providing 
a one-year grace period before the requirement goes into effect.

Amendments to Part 24

    As mentioned above, TTB is amending Sec.  24.257 to impose a new 
labeling requirement for wines eligible for the hard cider tax rate.
    As amended by this temporary rule, Sec.  24.257(a)(4) is 
reorganized. Section 24.257(a)(4)(i) addresses wines that require label 
approval under the FAA Act. Consistent with current regulations, Sec.  
24.257(a)(4)(i)(A), which takes effect for wines removed on or after 
January 1, 2017, provides that if a wine contains 7 percent or more 
alcohol by volume and must have label approval under part 4, the 
required designation of the wine is the class, type or other 
designation provided in part 4. Section 24.257(a)(4)(i)(B) provides 
specific labeling rules for those products taxed at the ``hard cider'' 
tax rate. Section 24.257(a)(4)(i)(B)(1) provides, as part of a 
transitional rule for ``hard cider'' removed on or after January 1, 
2017 and prior to January 1, 2018, that such wines may include the 
statement ``Tax class 5041(b)(6)'' on the label to adequately identify 
the appropriate tax class. For products removed from wine premises on 
or after January 1, 2018, that are taxed at the ``hard cider'' tax 
rate, the designation must also include the statement ``Tax class 
5041(b)(6).'' This statement may appear anywhere on the label.
    With regard to wines, including hard cider, that do not require 
label approval, Sec.  24.257(a)(4)(ii) includes both a rule that takes 
effect for all wines removed on or after January 1, 2017 and additional 
labeling rules for hard cider that take effect for products removed on 
or after January 1, 2018.
    The general rule for wine that does not require label approval 
(either because it is covered by a certificate of exemption from label 
approval or because it contains less than 7 percent alcohol by volume) 
is provided in new Sec.  24.257(a)(4)(ii)(A). This kind of wine must 
bear a designation that includes enough information (when viewed with 
the alcohol content statement) to identify the tax class under section 
5041. The wine must be identified by the term ``wine'' (or a word that 
signifies a type of wine, such as ``cider,'' ``perry,'' or ``mead,'' as 
applicable). If the wine contains more than 0.392 gram of carbon 
dioxide per 100 milliliters, the word ``sparkling'' or ``carbonated,'' 
as applicable, must be included in the designation.
    Section 24.257(a)(4)(ii)(A)(1) provides additional labeling rules 
effective for ``hard cider'' removed from wine premises on or after 
January 1, 2017. These rules provide that the designation for such 
products must be consistent with a hard cider tax classification. For 
example, the designations ``hard cider,'' ``hard perry,'' ``apple 
wine,'' ``pear wine,'' ``apple cider,'' ``apple perry,'' ``apple pear 
wine,'' ``cider,'' and ``perry'' are consistent with a hard cider tax 
classification. The designation ``blueberry cider'' is not consistent 
with a hard cider tax classification, because it indicates that the 
product contains either blueberries or blueberry flavors, which are not 
authorized for use in wine that is eligible for the hard cider tax 
class. If the hard cider contains more than 0.392 gram of carbon 
dioxide per 100 milliliters, the word ``sparkling'' or ``carbonated,'' 
as applicable, must be on the label.
    Section 24.257(a)(4)(ii)(A)(2) provides a transitional rule for 
wines removed on or after January 1, 2017 and prior to January 1, 2018. 
For these wines, a label will not be deemed out of compliance with 
Sec.  24.257(a)(4)(ii)(A) solely because the label does not provide 
enough information to identify whether the wine is eligible for a 
``hard cider'' tax classification. On an optional basis, wines eligible 
for the ``hard cider'' tax class may include the statement ``Tax class 
5041(b)(6)'' on the label to adequately indicate the appropriate tax 
class.
    Section 24.257(a)(4)(ii)(A)(3) provides additional labeling rules 
effective for ``hard cider'' removed from wine premises on or after 
January 1, 2018. The regulations provide that the label must also 
include the statement ``Tax class 5041(b)(6).''
    Finally, TTB modified and moved the existing cross-reference to the 
FDA labeling rules applicable to wines containing less than 7 percent 
alcohol by volume to Sec.  24.257(a)(4)(ii)(B). Similarly, the existing 
cross-reference to the health warning statement requirements found in 
part 16 was modified and moved to Sec.  24.257(a)(6).

Amendments to Part 27

    The amendments to the definition of ``hard cider'' in the PATH Act 
apply to imported wine as well as to wine produced in the United 
States. Accordingly, TTB is amending part 27, which applies to imported 
wine, by adding a new definition of ``hard cider'' to section 27.11. 
Consistent with the definition in part 24, the term ``hard cider'' is 
defined for imported wines as a wine that meets the eligibility 
requirements set forth in Sec.  24.331 for the hard cider tax rate set 
forth in Sec.  24.270.
    The labeling regulations for imported wine in 27 CFR 27.59 are also 
amended by redesignating the existing regulation as Sec.  27.59(a) and 
adding a new Sec.  27.59(b). The new regulation provides that the 
container of any imported wine eligible for the ``hard cider'' tax 
classification set forth in Sec.  24.270 of this chapter must be 
labeled in accordance with the requirements applicable to wine 
containers removed from wine premises under Sec.  24.257(a)(4) of this 
chapter. The regulation also provides a cross-reference to Sec.  24.331 
for the eligibility requirements for the hard cider tax rate. Thus, 
this temporary rule provides that the labeling requirements for 
imported hard cider are the same as the labeling requirements for hard 
cider produced in the United States.

Regulatory Analysis and Notices

Public Participation

    To submit comments on the regulatory provisions contained in this 
temporary rule, including the labeling provisions and any alternatives 
to requiring ``Tax Class 5041(b)(6)'' on the label, please refer to the 
notice of proposed rulemaking on this subject published in the 
``Proposed Rules'' section of this issue of the Federal Register.

Executive Order 12866

    Certain TTB regulations issued under the IRC, including this one, 
are exempt from the requirements of Executive Order 12866, as 
supplemented and reaffirmed by Executive Order 13563. Therefore, a 
regulatory impact assessment is not required.

[[Page 7661]]

Regulatory Flexibility Act

    In accordance with the Regulatory Flexibility Act (5 U.S.C. 601 et 
seq.), TTB certifies that this temporary rule will not have a 
significant economic impact on a substantial number of small entities. 
The temporary rule will not impose, or otherwise cause, a significant 
increase in reporting, recordkeeping, or other compliance burdens on a 
substantial number of small entities.
    The temporary rule implements certain changes made to the Internal 
Revenue Code of 1986 by the Protecting Americans from Tax Hikes Act of 
2015 (see Pub. L. 114-113, Division Q, section 335). These statutory 
changes broaden the definition of hard cider, which means that more 
products will be eligible for the lower rate of tax applicable to hard 
cider. However, to ensure that labels and records adequately reflect 
the correct tax class of hard cider products, the temporary rule 
includes provisions that will require certain labeling changes, and 
will require producers of artificially carbonated hard cider and 
sparkling hard cider to test for carbon dioxide levels and keep records 
of those tests. These requirements flow directly from the new statutory 
criteria for eligibility for the hard cider tax rate. Accordingly, any 
increased burden associated with establishing eligibility for the hard 
cider tax rate flows directly from the statutory changes that prescribe 
the criteria for eligibility. The temporary rule provides industry 
members with a one-year transition period to make the required labeling 
changes, thus reducing the burden on industry members.
    Pursuant to section 7805(f) of the IRC (26 U.S.C. 7805(f)), TTB 
will submit the temporary regulations to the Chief Counsel for Advocacy 
of the Small Business Administration for comment on the impact of the 
temporary regulations on small businesses.

Paperwork Reduction Act

    Nine of the regulatory sections addressed in this temporary rule 
contain collections of information that have been previously 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 1513-0009, 1513-0088, 1513-0092, and 1513-0115. Those 
sections are 27 CFR 24.255, 24.257, 24.266, 24.291, 24.301, 24.302, 
24.306, 24.308, and 24.319. No changes are being made to the existing 
approved information collections.
    In this temporary rule, TTB is proposing two new recordkeeping 
requirements, and TTB has received OMB approval for these two 
requirements under two new OMB control numbers. 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 first new recordkeeping requirement is contained in new 
paragraphs (a)(4)(i)(B)(2) and (a)(4)(ii)(A)(3) of Sec.  24.257 and 
paragraph (b) of Sec.  27.59. Specifically, the new information 
collection will require that industry members who remove wine to which 
the hard cider tax rate applies place a specific statement, ``Tax class 
5041(b)(6),'' on containers of such wine, in order to adequately 
identify the applicable tax rate. Under Sec.  24.257(a)(4)(i)(B)(2) and 
(a)(4)(ii)(A)(3) and Sec.  27.59, this new requirement is imposed on 
such wine removed on or after January 1, 2018. TTB has determined that 
this statement is necessary for the enforcement of the Internal Revenue 
Code, and it is the simplest and clearest way to identify these 
products without any confusion with other tax classes of wine and 
without requiring any other changes to statements that industry members 
may be using or wish to use to identify their products. The delayed 
effective date provides sufficient time for affected industry members 
to bring their labels into compliance with the new requirement.
    In 2015, 457 domestic manufacturers removed wine that was eligible 
for the hard cider tax class from their premises. TTB estimates that in 
addition to those industry members who removed wine eligible for the 
hard cider tax rate from their premises in 2015, potentially 20 percent 
more (or 91 manufacturers for a total of 548) may be interested in 
removing such wine from their premises given the new provisions 
applicable in 2017. Additionally, in 2015, according to U.S. Customs 
and Border Protection entry data, TTB determined that 191 importers 
obtained release from customs custody of products that were identified 
as cider under the Harmonized Tariff Schedule of the United States 
(HTSUS). TTB estimates that in addition to those importers who removed 
cider from customs custody in 2015, another 20 percent (or 38 importers 
for a total of 229 importers) will be interested in importing products 
that fall under that HTSUS code starting in 2017. Accordingly, TTB 
estimates that there are approximately 777 industry members 
(manufacturers and importers combined) who will be required to comply 
with this marking requirement. TTB estimates that each industry member 
will have a one-time burden of one hour to come into compliance with 
this information collection, but that the continued compliance burden 
will be negligible. Therefore, TTB estimates that 777 respondents will 
respond an average of once per year to this information collection, for 
a total estimate annual burden of 777 hours.
    Estimated number of respondents: 777.
    Estimated average total annual burden hours: 777.
    The second new recordkeeping requirement is contained in new 
paragraph (k) of Sec.  24.302. Specifically, the new recordkeeping 
requirement will require proprietors who produce artificially 
carbonated hard cider and sparkling hard cider to maintain a record of 
the amount of carbon dioxide contained in the wine. This new 
requirement is imposed on such wine removed on or after January 1, 
2017. TTB has determined that this recordkeeping requirement is 
necessary for demonstrating compliance with the statutory requirement 
that, to be eligible for the hard cider tax rate, among other things, 
the wine must contain no more than 0.64 gram of carbon dioxide per 100 
milliliters of wine.
    Like the tax class statement requirement, TTB estimates that there 
are 548 domestic manufacturers who must comply with this new 
recordkeeping requirement. TTB's laboratory estimates that it will take 
each industry member on average four hours to test the level of carbon 
dioxide in the wine using either the titrimetric or enzymatic test 
method. TTB also estimates that it will take an additional 15 minutes 
to record the level of carbon dioxide in the wine for a total of four 
hours and 15 minutes to test and record the carbon dioxide for one 
batch of artificially carbonated hard cider or sparkling hard cider. 
TTB is also estimating that each industry member will perform this 
recordkeeping requirement for 25 batches over one year. This equals 
106.25 burden hours for each industry member in one year, for a total 
of 58,225 burden hours.
    Estimated number of respondents: 548.
    Estimated average total annual burden hours: 58,225.
    As noted above, TTB has submitted these new information collection 
requirements to the OMB for review. Comments on this new recordkeeping 
requirement should be sent to OMB at Office of Management and Budget, 
Attention: Desk Officer for the Department of the Treasury, Office of 
Information and Regulatory Affairs, Washington, DC 20503 or by email to

[[Page 7662]]

[email protected]. A copy should also be sent to TTB by any 
of the methods described in the notice of proposed rulemaking related 
to this temporary rule published elsewhere in this issue of the Federal 
Register. Comments on the information collection should be submitted no 
later than March 24, 2017. Comments are specifically requested 
concerning:
     Whether the collection of information submitted to OMB is 
necessary for the proper performance of the functions of the Alcohol 
and Tobacco Tax and Trade Bureau, including whether the information 
will have practical utility;
     The accuracy of the estimated burden associated with the 
collection of information submitted to OMB; and
     How to enhance the quality, utility, and clarity of the 
information to be collected.

Inapplicability of Prior Notice and Public Comment and Delayed 
Effective Date Procedures

    Based on the January 1, 2017, effective date of the PATH Act 
amendments to section 5041 of the IRC, TTB believes that proper 
administration and enforcement of those provisions necessitate the 
immediate adoption of implementing regulations as a temporary rule.
    TTB is issuing this temporary rule without prior notice and comment 
pursuant to authority under section 4(a) of the Administrative 
Procedure Act, as amended (APA) (5 U.S.C. 553(b)). This provision 
authorizes an agency to issue a rule without prior notice and comment 
when a rule is interpretive or when the agency for good cause finds 
that those procedures are ``impracticable, unnecessary, or contrary to 
the public interest.''
    The majority of the regulatory provisions contained in this 
temporary rule are exempt from prior notice and comment because they 
are interpretive.
    TTB finds that it has good cause to dispense with prior notice and 
comment for the substantive provisions of this rule that set forth 
labeling requirements, recordkeeping requirements for artificially 
carbonated hard cider and sparkling hard cider, and a carbon dioxide 
tolerance for artificially carbonated hard cider and sparkling hard 
cider. Because this document implements provisions of law that are 
effective on January 1, 2017, and because immediate guidance is 
necessary to implement these provisions, it is found to be 
impracticable to issue this Treasury decision with prior notice and 
public procedure under 5 U.S.C. 553(b). TTB is also including in this 
temporary rule additional labeling rules effective for ``hard cider'' 
removed from wine premises on or after January 1, 2018 (see Sec.  
24.257(a)(4)(i)(B)(2) and (a)(4)(ii)(A)(3)) and for imported wines 
removed on or after January 1, 2018 (see Sec.  27.59(b)), to provide 
certainty to industry members regarding how they will be required to 
identify the appropriate tax class of their products.
    TTB is issuing this temporary rule without a delayed effective date 
pursuant to authority under section 4(c) of the APA (5 U.S.C. 553(d)). 
TTB finds good cause under 5 U.S.C. 553(d)(3) to dispense with the 
effective date limitation in 5 U.S.C. 553(d). A 30-day delayed 
effective date is impracticable because this temporary rule implements 
statutory changes that are effective after December 31, 2016. 
Accordingly, the effective date of this temporary rule is January 1, 
2017.
    TTB is providing a delayed effective date for the requirement that 
all wine that qualifies for the hard cider tax rate must be labeled 
with ``Tax class 5041(b)(6)'' (see Sec.  24.257(a)(4)(i)(B)(2) and 
(a)(4)(ii)(A)(3) and Sec.  27.59(b)) in order to provide the industry 
with sufficient time to make arrangements for compliance. This 
requirement is effective January 1, 2018.

Drafting Information

    Dana Register and Kara Fontaine of the Regulations and Rulings 
Division drafted this document with the assistance of other Alcohol and 
Tobacco Tax and Trade Bureau personnel.

List of Subjects

27 CFR Part 24

    Administrative practice and procedure, Cider, Claims, Electronic 
funds transfers, Excise taxes, Exports, Food additives, Fruit juices, 
Hard Cider, Labeling, Liquors, Packaging and containers, Reporting and 
recordkeeping requirements, Research, Scientific equipment, Spices and 
flavorings, Surety bonds, Vinegar, Warehouses, Wine.

27 CFR Part 27

    Alcohol and alcoholic beverages, Beer, Cosmetics, Customs duties 
and inspections, Electronic funds transfers, Excise taxes, Imports, 
Labeling, Liquors, Packaging and containers, Reporting and 
Recordkeeping requirements, Wine.

Amendments to the Regulations

    For the reasons discussed in the preamble, TTB is amending 27 CFR 
chapter I, parts 24 and 27 as follows:

PART 24--WINE

0
1. The authority citation for 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, 5121, 5122-5124, 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, 7302, 7342, 7502, 7503, 7606, 7805, 7851; 31 
U.S.C. 9301, 9303, 9304, 9306.


0
2. In Sec.  24.10:
0
a. The definition of ``Artificially carbonated hard cider'' is added in 
alphabetical order;
0
b. The definitions of ``Artificially carbonated wine'', ``Cider'', 
``Effervescent wine'', and ``Hard cider'' are revised;
0
c. The definition of ``Sparkling hard cider'' is added in alphabetical 
order;
0
d. The definition of ``Sparkling wine or champagne'' is revised;
0
e. The definition of ``Still hard cider'' is added in alphabetical 
order; and
0
f. The definition of ``Still wine'' is revised.
    The revisions and additions read as follows:


Sec.  24.10  Meaning of terms.

* * * * *
    Artificially carbonated hard cider. Hard cider artificially 
injected with carbon dioxide and containing more than 0.392 but not 
more than 0.64 gram of carbon dioxide per 100 milliliters.
    Artificially carbonated wine. Wine (other than hard cider) 
artificially injected with carbon dioxide and containing more than 
0.392 gram of carbon dioxide per 100 milliliters.
* * * * *
    Cider. See definitions for hard cider and tax exempt cider. For the 
labeling of wine that may be designated as ``cider'' under the Federal 
Alcohol Administration Act, see Sec.  4.21(e)(5) of this chapter.
* * * * *
    Effervescent wine. A wine containing more than 0.392 gram of carbon 
dioxide per 100 milliliters, including artificially carbonated hard 
cider, artificially carbonated wine, sparkling hard cider, and 
sparkling wine.
* * * * *
    Hard cider. A wine that meets the eligibility requirements set 
forth in Sec.  24.331 for the hard cider tax rate set forth in Sec.  
24.270. See the definitions for artificially carbonated hard cider, 
sparkling hard cider, and still hard cider.
* * * * *
    Sparkling hard cider. Hard cider containing more than 0.392 but not

[[Page 7663]]

more than 0.64 gram of carbon dioxide per 100 milliliters of wine, 
resulting solely from the secondary fermentation of the wine within a 
closed container.
    Sparkling wine or champagne. Wine (other than hard cider) 
containing more than 0.392 gram of carbon dioxide per 100 milliliters 
of wine resulting solely from the secondary fermentation of the wine 
within a closed container.
* * * * *
    Still hard cider. A hard cider containing not more than 0.392 gram 
of carbon dioxide per 100 milliliters.
    Still wine. Wine (other than hard cider) containing not more than 
0.392 gram of carbon dioxide per 100 milliliters.
* * * * *

0
3. Section 24.190 is revised to read as follows:


Sec.  24.190  General.

    (a) Effervescent wine may be made on bonded wine premises. Where 
the effervescence results from fermentation of the wine within a closed 
container, the wine is classified and taxed as sparkling wine or as 
hard cider, as applicable. In such wine, the use of carbon dioxide, 
nitrogen gas, or a combination of both, is permitted to maintain 
counterpressure during transfer and bottling. Wine carbonated by 
injection of carbon dioxide is classified and taxed as artificially 
carbonated wine or as hard cider, as applicable. (For wine to be 
classified and taxed at the hard cider tax rate, it must meet the 
requirements set forth in Sec.  24.331, including the limitation of not 
more than 0.64 gram of carbon dioxide per 100 milliliters.)
    (b) Effervescent wine and any wine used as a base in the production 
of effervescent wine may not have an alcohol content in excess of 14 
percent by volume. However, wine containing more than 14 percent 
alcohol by volume may be used in preparing a dosage for finishing 
effervescent wine.

(Sec. 201, Pub. L. 85-859, 72 Stat. 1383, as amended (26 U.S.C. 
5382))


0
4. Section 24.191 is revised to read as follows:


Sec.  24.191  Segregation of operations.

    Where more than one process of producing effervescent wine is used, 
the appropriate TTB officer may require the portion of the premises 
used for the production and storage of wine made by each process 
(bottle fermenting, bulk fermenting, or injecting carbon dioxide) to be 
segregated as provided by Sec.  24.27.

(Sec. 201, Pub. L. 85-859, 72 Stat. 1381, as amended (26 U.S.C. 
5365))

Sec.  24.192  [Amended]

0
5. Section 24.192 is amended by:
0
a. Adding the words ``or still hard cider'' after the words ``still 
wine'' in the first sentence;
0
b. Removing the words ``sparkling wine or artificially carbonated 
wine'' wherever they appear in the first six sentences of the section 
and adding, in their place, the words ``effervescent wine'';
0
c. Removing the word ``which'' in the sixth sentence and adding, in its 
place, the word ``that''; and
0
d. Adding the words ``or sparkling hard cider'' after the words 
``sparkling wine'' in the last sentence.


Sec.  24.193  [Amended]

0
6. Section 24.193 is amended by:
0
a. Adding the words ``or still hard cider'' after the words ``still 
wine'' in the section heading;
0
b. Removing the words ``Sparkling wine or artificially carbonated 
wine'' and adding, in their place, the words ``Effervescent wine''; and
0
c. Adding the words ``or still hard cider'' after the words ``still 
wine''.


Sec.  24.225  [Amended]

0
7. Section 24.225 is amended by adding the words ``or natural still 
hard cider'' after the words ``still wine''.


Sec.  24.234  [Amended]

0
8. Section 24.234 is amended by removing the words ``sparkling wine, 
artificially carbonated wine'' and adding, in their place, the words 
``effervescent wine''.

0
9. Section 24.245 is revised to read as follows:


Sec.  24.245  Use of carbon dioxide in still wine and still hard cider.

    (a) Use of carbon dioxide. The addition of carbon dioxide to (and 
retention of carbon dioxide in) still wine and still hard cider is 
permitted if at the time of removal for consumption or sale, the still 
wine or still hard cider does not contain more than 0.392 gram of 
carbon dioxide per 100 milliliters of wine.
    (b) Tolerance limit. A tolerance of not more than 0.009 gram per 
100 milliliters to the maximum limitation of carbon dioxide in still 
wine and still hard cider will be allowed where the amount of carbon 
dioxide in excess of 0.392 gram per 100 milliliters is due to 
mechanical variations that cannot be completely controlled under good 
commercial practice. A tolerance will not be allowed where it is found 
by the appropriate TTB officer that the proprietor continuously or 
intentionally exceeds 0.392 gram of carbon dioxide per 100 milliliters 
of wine or where the variation results from the use of methods or 
equipment determined by the appropriate TTB officer to be not in 
accordance with good commercial practice.
    (c) Penalties. Penalties are provided in 26 U.S.C. 5662 for any 
person who, whether by manner of packaging or advertising or by any 
other form of representation, misrepresents any still wine or still 
hard cider to be effervescent wine or a substitute for effervescent 
wine.
    (d) Records. Records for the use of carbon dioxide in still wine 
must be maintained in accordance with Sec.  24.319 of this section.

(Sec. 201, Pub. L. 85-859, 72 Stat. 1331, as amended, 1381, as 
amended, 1407, as amended (26 U.S.C. 5041, 5367, 5662))

Sec.  24.246  [Amended]

0
10. Section 24.246 is amended by removing the words ``sparkling wines'' 
from the description of the use of ammonium phosphate in the 
``Materials and use column'' of the table, and adding, in their place, 
the words ``sparkling wine or sparkling hard cider''.

0
11. Section 24.251 is added immediately after Sec.  24.250 to read as 
follows:


Sec.  24.251  Tolerance for artificially carbonated hard cider and 
sparkling hard cider.

    (a) Tolerance. A tolerance of not more than 0.009 gram per 100 
milliliters to the maximum limitation of carbon dioxide in artificially 
carbonated hard cider and sparkling hard cider will be allowed where 
the amount of carbon dioxide in excess of 0.64 gram per 100 milliliters 
is due to mechanical variations or secondary fermentation variations 
that cannot be completely controlled under good commercial practice. A 
tolerance will not be allowed where it is found by the appropriate TTB 
officer that the proprietor continuously or intentionally exceeds 0.64 
gram of carbon dioxide per 100 milliliters of artificially carbonated 
hard cider or sparkling hard cider or where the variation results from 
the use of methods or equipment determined by the appropriate TTB 
officer to be not in accordance with good commercial practice. (See 
Subpart P of this part for the definition of hard cider for purposes of 
determining eligibility for the hard cider tax rate.)
    (b) Records. See Sec.  24.302 of this chapter for recordkeeping 
requirements.

(Sec. 335, Pub. L. 114-113, 129 Stat. 3109, as amended (26 U.S.C. 
5041)


[[Page 7664]]




Sec.  24.255  [Amended]

0
12. In Sec.  24.255(a), the first sentence is revised by adding, after 
the word ``removed'', the words ``as well as for the correct 
determination of carbon dioxide in artificially carbonated hard cider 
and in sparkling hard cider'', and the Office of Management and Budget 
control number reference is revised by removing the numbers ``1512-0298 
and 1512-0503'' and adding, in their place, the numbers ``1513-0115 and 
1513-0092''.

0
13. Section 24.257 is amended by:
0
a. Revising paragraph (a)(4);
0
b. Adding paragraph (a)(6); and
0
c. Revising the Office of Management and Budget control number 
reference.
    The revisions and addition read as follows:


Sec.  24.257  Labeling wine containers.

    (a) * * *
    (4) An appropriate designation of the kind of wine, as follows:
    (i) Wines that require label approval--(A) General. If the wine 
contains 7 percent or more alcohol by volume and must have label 
approval under 27 CFR part 4, the designation is the class, type, or 
other designation required by that part.
    (B) Labeling rules for wines eligible for the ``hard cider'' tax 
class--(1) Transitional rule for ``hard cider'' removed on or after 
January 1, 2017 and prior to January 1, 2018. On an optional basis, 
wines that are taxed at the ``hard cider'' tax rate may include the 
statement ``Tax class 5041(b)(6)'' on the label to adequately indicate 
the appropriate tax class.
    (2) Additional labeling rules effective for ``hard cider'' removed 
from wine premises on or after January 1, 2018. For wines removed from 
wine premises on or after January 1, 2018 that are taxed at the ``hard 
cider'' tax rate, the label must also include the statement ``Tax class 
5041(b)(6).'' This statement may appear anywhere on the label.
    (ii) Wines that do not require label approval--(A) Adequate 
designation. If the wine is not subject to label approval under 27 CFR 
part 4 because it either is covered by a certificate of exemption from 
label approval or contains less than 7 percent alcohol by volume, its 
label must bear a designation that includes enough information (when 
viewed with the alcohol content statement) to identify the tax class 
under 26 U.S.C. 5041. The wine must be identified by the term ``wine'' 
(or a word that signifies a type of wine, such as ``cider,'' ``perry,'' 
or ``mead,'' as applicable). If the wine contains more than 0.392 gram 
of carbon dioxide per 100 milliliters, the word ``sparkling'' or 
``carbonated,'' as applicable, must be included in the designation.
    (1) Additional labeling rules effective for wines eligible for the 
``hard cider'' tax class. For wines removed from wine premises on or 
after January 1, 2017, that are taxed at the ``hard cider'' tax rate, 
the designation must be consistent with a hard cider tax class. For 
example, the designations ``hard cider,'' ``hard perry,'' ``apple 
wine,'' ``pear wine,'' ``apple cider,'' ``apple perry,'' ``apple pear 
wine,'' ``cider'' and ``perry'' are consistent with the hard cider tax 
class. The designation ``blueberry cider'' is not consistent with the 
hard cider tax class, because it indicates that the product contains 
either blueberries or blueberry flavors, which are not authorized for 
use in wine that is eligible for the hard cider tax class. If the hard 
cider contains more than 0.392 gram of carbon dioxide per 100 
milliliters, the word ``sparkling'' or ``carbonated,'' as applicable, 
must be on the label.
    (2) Transitional rule for wines removed on or after January 1, 2017 
and prior to January 1, 2018. For wines removed on or after January 1, 
2017 and prior to January 1, 2018, a label will not be deemed out of 
compliance with Sec.  24.257(a)(4)(ii)(A) on the sole ground that the 
label does not provide enough information to identify whether the wine 
is eligible for a ``hard cider'' tax classification. On an optional 
basis, wines eligible for the ``hard cider'' tax class may include the 
statement ``Tax class 5041(b)(6)'' on the label to adequately indicate 
the appropriate tax class.
    (3) Additional labeling rules effective for ``hard cider'' removed 
from wine premises on or after January 1, 2018. For wines removed from 
wine premises on or after January 1, 2018, that are taxed at the ``hard 
cider'' tax rate, the label must also include the statement ``Tax class 
5041(b)(6).'' This statement may appear anywhere on the label.
    (B) Cross reference. For additional labeling rules applicable to 
wines containing less than 7 percent alcohol by volume, see the food 
labeling regulations issued by the U.S. Food and Drug Administration.
* * * * *
    (6) Cross reference. For regulations requiring a health warning 
statement on the container of any alcoholic beverage containing not 
less than one-half of one percent alcohol by volume, see part 16 of 
this chapter.
* * * * *

(Approved by the Office of Management and Budget under control 
numbers 1513-0115 and 1513-XXXX)



0
14. Section 24.266 is amended by revising paragraph (b)(2) and the 
reference to the Office of Management and Budget control number, to 
read as follows:


Sec.  24.266  Inventory losses.

* * * * *
    (b) * * *
    (2)(i)(A) Where the loss of wine on bonded wine premises during the 
annual period exceeds three percent of the aggregate volume of wine on-
hand at the beginning of the annual period and the volume of wine 
received in bond during the annual period;
    (B) The loss exceeds six percent of the still wine or still hard 
cider produced by fermentation;
    (C) The loss exceeds six percent of the sparkling wine or sparkling 
hard cider produced by fermentation in bottles;
    (D) The loss exceeds three percent of the special natural wine 
produced under Sec.  24.195 or other wine produced under Sec.  24.218;
    (E) The loss exceeds three percent of the artificially carbonated 
wine or artificially carbonated hard cider produced; or
    (F) The loss exceeds three percent of the bulk process sparkling 
wine or bulk process sparkling hard cider produced.
    (ii) The percentage applicable to each tax class of wine will be 
calculated separately, unless the calculation is impracticable because 
of the mixture of different tax classes by addition of wine spirits or 
blending during the annual period, in which case the percentage will be 
calculated on the aggregate volume. Wine removed immediately after 
production for use as distilling material and on which the usual 
racking, clarifying, and filtering losses are not sustained, will not 
be included in the calculations.
* * * * *

(Approved by the Office of Management and Budget under control 
number 1513-0088)



0
15. Section 24.270 is revised to read as follows:


Sec.  24.270  Determination of tax.

    (a) General. The tax on wine is determined at the time of removal 
from a bonded wine premises for consumption or sale. Section 5041 of 26 
U.S.C., imposes an excise tax, at the rates prescribed, on all wine 
(including imitation, substandard, or artificial wine, and compounds 
sold as wine, which contain 24 percent or less of alcohol by volume) 
produced in or imported into the United States. Wine containing more 
than 24 percent of alcohol by volume is classified as distilled spirits 
and taxed accordingly.

[[Page 7665]]

A wine product containing less than one-half of one percent alcohol by 
volume is not taxable as wine when removed from the bonded wine 
premises.
    (b) Tax determined and paid on the volume of wine. The tax is 
determined and paid on the volume of wine:
    (1) In bottles or other containers filled according to United 
States measure recorded to the nearest 10th gallon; or,
    (2) In bottles or other containers filled according to metric 
measure, on the volume of wine in United States wine gallons to the 
nearest 10th gallon; or
    (3) In the case of pipeline removals, on the volume of bulk wine 
removed recorded to the nearest whole gallon, five-tenths gallon being 
converted to the next full gallon.
    (c) Tax rates imposed on wine. The following taxes are imposed on 
wine:
    (1) Tax class 5041(b)(1). On still wines containing not more than 
14 percent alcohol by volume, $1.07, per wine gallon;
    (2) Tax class 5041(b)(2). On still wines containing more than 14 
percent and not exceeding 21 percent alcohol by volume, $1.57 per wine 
gallon;
    (3) Tax class 5041(b)(3). On still wines containing more than 21 
percent and not exceeding 24 percent alcohol by volume, $3.15 per wine 
gallon;
    (4) Tax class 5041(b)(4). On champagne and other sparkling wines, 
$3.40 per wine gallon;
    (5) Tax class 5041(b)(5). On artificially carbonated wines, $3.30 
per wine gallon; and
    (6) Tax class 5041(b)(6). On hard cider, 22.6 cents per wine 
gallon. See Sec.  24.331 for the definition of hard cider for purposes 
of determining eligibility for the hard cider tax class.
    (d) Small domestic producer tax credit. For eligibility for the 
small producer tax credit, see Sec. Sec.  24.278 and 24.279.

(Sec. 201, Pub. L. 85-859, 72 Stat. 1331, and Sec. 335, Pub. L. 114-
113, 129 Stat. 3109, as amended (26 U.S.C. 5041))

Sec.  24.290  [Amended]

0
16. Section 24.290(a) is amended by adding the words ``or still hard 
cider'' after the words ``still wine'' in the first sentence.


Sec.  24.291  [Amended]

0
17. Section 24.291 is amended:
0
a. In the first sentence of paragraph (a), by adding the words ``or 
still hard cider'' after the words ``still wine''; and,
0
b. In the Office of Management and Budget control number reference, by 
removing the numbers ``1512-0058, 1512-0292 and 1512-0298'', and 
adding, in their place, the numbers ``1513-0009 and 1513-0115''.


Sec.  24.301  [Amended]

0
18. Section 24.301 is amended:
0
a. In the section heading, by adding the words ``and bulk still hard 
cider'' after the words ``still wine'';
0
b. In the first sentence of the introductory text, by adding the words 
``or bulk still hard cider'' after the words ``still wine'' each time 
they appear;
0
c. In the second sentence of the introductory text, by adding the words 
``or for hard cider'' after the words ``still wine'';
0
d. In the third sentence of the introductory text, by adding the words 
``and bulk still hard cider'' after the words ``still wine'';
0
e. In paragraph (b), by adding the words ``or sparkling hard cider'' 
after the words ``sparkling wine''; and
0
f. In the Office of Management and Budget control number reference, by 
removing the number ``1512-0298'' and adding, in its place, the number 
``1513-0115''.

0
19. Section 24.302 is amended by:
0
a. Revising the introductory text and paragraphs (a), (d), (e), (g), 
(i), and (j);
0
b. Adding paragraph (k); and
0
c. Revising the Office of Management and Budget control number 
reference.
    The revisions and addition read as follows:


Sec.  24.302  Effervescent wine record.

    A proprietor who produces or receives effervescent wine in bond 
shall maintain records showing the transaction date and details of 
production, receipt, storage, removal, and any loss incurred. Records 
will be maintained for each specific process used (bulk or bottle 
fermented, injection of carbon dioxide) and by the specific kind of 
wine, e.g., grape, apple, pear, cherry, hard cider. The record will 
contain the following:
    (a) The volume of still wine or still hard cider filled into 
bottles or pressurized tanks prior to secondary fermentation or prior 
to the addition of carbon dioxide;
* * * * *
    (d) The volume of bottle fermented sparkling wine or bottle 
fermented sparkling hard cider in process, transferred and received;
    (e) The volume returned to still wine or still hard cider;
* * * * *
    (g) The volume of finished effervescent wine bottled or packed 
(amount produced);
* * * * *
    (i) An explanation of any unusual transaction;
    (j) If the proprietor is an importer of wine to which the 
provisions of Sec.  27.140 of this chapter apply, any certification or 
other records required at the time of release from customs custody 
under that section; and
    (k) The amount of carbon dioxide in artificially carbonated hard 
cider or sparkling hard cider.

(Sec. 201, Pub. L. 85-859, 72 Stat. 1381, as amended (26 U.S.C. 
5367))


(Approved by the Office of Management and Budget under control 
number 1513-0115 and 1513-XXXX)

Sec.  24.306  [Amended]

0
20. Section 24.306 is amended by adding in the words ``and bulk still 
hard cider'' after the words ``still wine'' in the last sentence, and, 
in the Office of Management and Budget control number reference, by 
removing the number ``1512-0298'' and adding, in its place, the number 
``1513-0115''.


Sec.  24.308  [Amended]

0
21. Section 24.308 is amended by adding the words ``or bottle fermented 
sparkling hard cider'' after the words ``bottle fermented sparkling 
wine'' in the last sentence of paragraph (a), and, in the Office of 
Management and Budget control number reference, by removing the number 
``1512-0298'' and adding, in its place, the number ``1513-0115''.


Sec.  24.319  [Amended]

0
22. Section 24.319 is amended by adding the words ``or still hard 
cider'' after the words ``still wine'', and, in the Office of 
Management and Budget control number reference, by removing the number 
``1512-0298'' and adding, in its place, the number ``1513-0115''.

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23. Subpart P, consisting of Sec. Sec.  24.331 and 24.332, is added to 
read as follows:

Subpart P--Eligibility for the Hard Cider Tax Rate


Sec.  24.331  Wine eligible for the hard cider tax rate.

    A wine removed on or after January 1, 2017 is eligible for the hard 
cider tax rate listed in Sec.  24.270 if:
    (a) It contains no more than 0.64 gram of carbon dioxide per 100 
milliliters of wine;
    (b) It is derived primarily from apples or pears, or from apple 
juice concentrate or pear juice concentrate and water, as described in 
Sec.  24.332(a);
    (c) It contains no fruit product or fruit flavoring other than 
apple or pear, as described in Sec.  24.332(b) and (c); and
    (d) It contains at least one-half of 1 percent and less than 8.5 
percent alcohol by volume.

[[Page 7666]]


(Sec. 335, Pub. L. 114-113, 129 Stat. 3109, as amended (26 U.S.C. 
5041))

Sec.  24.332  Hard cider materials.

    This section pertains to wine that is eligible for the hard cider 
tax rate as set out in Sec.  24.331.
    (a) Apples and pears. Wine will be considered to be derived 
primarily from apples or pears, or from apple juice concentrate or pear 
juice concentrate and water, if the apple juice, pear juice, or 
combination of apple and pear juice, or the equivalent amount of 
concentrate of apple and/or pear juice reconstituted to the original 
brix of the juice prior to concentration, or any combination thereof, 
represents more than 50 percent of the volume of the finished product.
    (b) Fruit products. (1) Wine is not eligible for the hard cider tax 
rate if it contains any fruit product other than apple or pear. A fruit 
product is any material derived or made from any fruit or part of a 
fruit, including but not limited to, concentrates, extracts, juices, 
powders, or wine spirits.
    (2) Notwithstanding the provisions of Sec.  24.332(b)(1), an 
authorized wine treating material set forth in Sec.  24.246 that is 
derived from a fruit other than apple or pear may be used in the 
production of wine otherwise eligible for the hard cider tax rate if it 
is used for a purpose other than flavoring and it is either used in 
accordance with the wine treating materials provisions of Sec.  24.246 
(if used in a natural wine), or used in amounts insufficient to impart 
a fruit flavor other than apple or pear (if used in a special natural 
wine or other than standard wine). In determining whether the use of 
wine treating materials derived from a fruit other than apple or pear 
is for a purpose other than flavoring, TTB will consider such factors 
as the labeling and advertising of the product. Any written or 
pictorial reference to a material derived from a fruit other than apple 
or pear (other than the inclusion of a wine treating material in an 
ingredient labeling statement) in the labeling or advertising of a wine 
will be treated as evidence that the wine treating material was added 
for the purpose of flavoring the wine.
    (c) Flavorings. Wine is not eligible for the hard cider tax rate if 
it contains any fruit flavoring other than apple or pear. For purposes 
of this section, a fruit flavoring other than apple or pear is any 
flavoring that imparts the flavor of a fruit other than apple or pear 
and includes a natural fruit flavor, an artificial fruit flavor, and a 
natural flavor that artificially imparts the flavor of a fruit that is 
not contained in that flavor. In determining whether the use of a 
flavoring imparts the flavor of a fruit other than apple or pear, TTB 
will consider such factors as the labeling and advertising of the 
product. Any written or pictorial reference to a fruit flavor other 
than apple or pear in the labeling or advertising of a wine that 
contains a flavoring will be treated as evidence that the wine contains 
a flavoring that imparts a fruit flavor other than apple or pear and 
thus the wine is not eligible for the hard cider tax rate. The use of 
spices, honey, hops, or pumpkins as a flavoring will not make a wine 
ineligible for the hard cider tax rate.

(Sec. 335, Pub. L. 114-113, 129 Stat. 3109, as amended (26 U.S.C. 
5041))

PART 27--IMPORTATION OF DISTILLED SPIRITS, WINES, AND BEER

0
24. The authority citation for part 27 continues to read as follows:

    Authority: 5 U.S.C. 552(a), 19 U.S.C. 81c, 1202; 26 U.S.C. 5001, 
5007, 5008, 5010, 5041, 5051, 5054, 5061, 5121, 5122-5124, 5201, 
5205, 5207, 5232, 5273, 5301, 5313, 5382, 5555, 6109, 7805.


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25. Section 27.11 is amended by adding the definition of ``Hard cider'' 
in alphabetical order to read as follows:


Sec.  27.11  Meaning of terms.

* * * * *
    Hard cider. A wine that meets the eligibility requirements set 
forth in Sec.  24.331 for the hard cider tax rate set forth in Sec.  
24.270.
* * * * *

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26. Section 27.59 is revised by:
0
a. Designating the current paragraph as paragraph (a);
0
b. Adding a paragraph heading to newly designated paragraph (a);
0
c. Adding paragraph (b); and
0
d. Adding an Office of Management and Budget control number reference.
    The designation and additions read as follows:


Sec.  27.59  Wines.

    (a) General. * * *
    (b) Hard cider. The container of any wine eligible for the ``hard 
cider'' tax class set forth in Sec.  24.270 of this chapter must be 
labeled in accordance with the requirements applicable to wine 
containers removed from wine premises under Sec.  24.257(a)(4) of this 
chapter. (See Sec.  24.331 of this chapter for the eligibility 
requirements for the hard cider tax rate).

(Approved by the Office of Management and Budget under control 
number 1513-XXXX)


    Signed: December 7, 2016.
John J. Manfreda,
Administrator.
    Approved: January 4, 2017.
Timothy E. Skud,
Deputy Assistant Secretary (Tax, Trade and Tariff Policy).
[FR Doc. 2017-00333 Filed 1-19-17; 8:45 am]
BILLING CODE 4810-31-P