Labeling of Hard Cider (97-2523)

DEPARTMENT OF THE TREASURY

Bureau of Alcohol, Tobacco and Firearms

27 CFR Parts 4 and 24

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

RIN 1512-AB71

Labeling of Hard Cider (97-2523)

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

the Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Bureau of Alcohol, Tobacco and Firearms (ATF) is proposing

amendments to the labeling rules for hard cider. We are doing so in

response to comments on our temporary rule and notice of proposed

rulemaking on this subject. We are postponing the label compliance date

for that temporary rule by a Treasury decision published in the Rules

section of today's Federal Register.

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

1999.

ADDRESSES: Address written comments to the Chief, Regulations Division,

Bureau of Alcohol, Tobacco, and Firearms, P.O. Box 50221, Washington,

DC 20091-0221. See the Public Participation section of this notice for

ways to send comments. See the Disclosure section of this notice for

the location of our Reading Room.

FOR FURTHER INFORMATION CONTACT: Marjorie D. Ruhf, Regulations

Division, 650 Massachusetts Avenue, NW, Washington, DC 20226; (202)

927-8202; or [email protected].

SUPPLEMENTARY INFORMATION:

Background

On August 21, 1998, ATF issued a temporary rule, T.D. ATF-398 (63

FR 44779), to implement various sections of the Taxpayer Relief Act of

1997, Public Law 105-34 (``the Act''). On the same day, ATF issued a

notice of proposed rulemaking, Notice No. 859 (63 FR 44819), inviting

comments on this temporary rule for a 60 day period. In response to

requests from the industry, ATF reopened the comment period for an

additional 30 days on November 6, 1998, by Notice No. 869 (63 FR

59921).

ATF's Temporary Rule on Labeling of Hard Cider

Section 908 of the Act amended the Internal Revenue Code of 1986

(IRC) to create a new excise tax category for hard cider. The temporary

rule, T.D. ATF-398, implemented this section, including establishing

temporary rules for labeling hard cider. We changed both the IRC and

the Federal Alcohol Administration (FAA) Act labeling rules. We

explained the changes this way:

Since the term ``hard cider'' now has tax significance, no wine

may be designated as ``hard cider'' unless it conforms to the

definition of hard cider in Sec. 24.10 and is eligible for the tax

category of hard cider. The reference to cider in the FAA [Act]

labeling regulations at Sec. 4.21(e)(5) is amended to show that the

term ``hard cider'' is reserved for use in wine eligible for the tax

category of hard cider. A new Sec. 24.257(a)(3)(iv) has been added

to the IRC wine labeling requirements for wine under 7 percent

alcohol by volume to show that wine eligible for the tax category of

hard cider will be marked ``hard cider'' rather than simply ``wine''

under that section.

We set a compliance date of February 17, 1999, for this change, to

allow time for producers to change labels to conform with the temporary

rule.

Basis of Our Temporary Rule

ATF (as a delegate of the Secretary of the Treasury) has general

authority to issue labeling regulations under the IRC, 26 U.S.C

5368(b), which states,

Wine shall be removed in such containers * * * bearing such

marks and labels, evidencing compliance with this chapter, as the

Secretary may by regulations prescribe.

We also have authority under the FAA Act, 27 U.S.C. 205(e), to

prescribe regulations that insure that alcohol beverages are labeled or

marked to ``* * * provide the consumer with adequate information as to

the identity and quality of the products. * * * ''

When the new wine tax category was created and named ``hard

cider,'' we revised the IRC labeling provisions to allow hard cider to

be labeled as such

[[Page 51934]]

without further indication that it is taxed as a wine. Before that

amendment, wines with less than 7 percent alcohol by volume had to be

marked with the word ``wine'' and an appropriate modifier to identify

the tax class. We also amended the FAA Act labeling regulations to

provide that no product could be called ``hard cider'' if it was not

eligible for the tax category of ``hard cider.'' Before the amendment,

the FAA Act regulations had allowed the use of the term ``cider'' for

apple wines in certain circumstances. The term ``hard cider'' was not

addressed.

In short, we required the phrase ``hard cider'' on containers of

wine eligible for the hard cider tax rate and prohibited its use

elsewhere. We believed this would evidence compliance with tax law and

provide the consumer with adequate information as to the identity of

the product.

Public Comments on the Temporary Rule

We received 48 comments in response to the temporary rule and the

notice of proposed rulemaking. Two comments addressed the issue of

semi-generic wine designations (also covered in the temporary rule and

notice), and all the rest concerned the hard cider rules. All the

comments will be discussed in a future final rule. In this document, we

will discuss only the comments concerning labeling of hard cider. Based

on comments we received, we find the temporary rule as originally

issued imposes an unintended and unnecessary burden.

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

Producers who make ciders that are not eligible for the new tax

rate, but who have been using the term ``hard cider'' to describe their

product, wrote to ask us to change our temporary labeling regulations.

Their products include apple wines containing 7 percent or more alcohol

by volume, ciders that contain less than 7 percent alcohol by volume

with other fruit flavors, and ciders that contain 50 percent or less

apple juice. Under the temporary rule, each of these products is

excluded from the definition of cider, and therefore is not entitled to

use the name ``hard cider'' on labels. The producers and other

interested persons submitted the following comments:

Senators Patrick J. Leahy and James M. Jeffords of Vermont, the

principal authors of the provision that reduced the tax on ``hard

cider,'' wrote to ATF to express concern at ATF's interpretation of the

statute. They said:

Prohibiting producers from using this term if their cider

contains more than seven percent alcohol runs counter to this common

understanding of the term. Further the change is somewhat anomalous;

ciders with more than seven percent are, by most people's thinking,

even ``harder'' than those products that you will allow to be

labeled as ``hard cider.'' The rule change will cause consumer

confusion, and could well affect sales of the affected products. We

urge that you not adopt this proposed rule.

Richard G. Burge of Wyder's Cider noted that they will be

``prohibited from calling [their] products `hard cider', which will be

reserved for the handful of apple only fermented ciders that comply.

However, Wyder's ciders have been accepted by the discriminating

consumer and industry professional alike as a high quality cider

alternative to the heavier English styles. Our number two ranking in

the California cider market attests to this fact and to the fine

quality of the product and its legitimacy as a hard cider. We fail to

understand how it is that our hard ciders will not only be unable to

enjoy the lower tax rate, but will also be completely shut out of the

very product category that we helped to establish.* * * We believe the

rules should promote the category, not choke it, and at the very least

should allow non-conforming producers to sell their products as hard

cider.''

Mr. Edward C. Metcalfe, founder and former owner of North River

Winery in Vermont, wrote to give historical information on hard cider.

He said, ``even in the earliest days of cider making, sugar, molasses

or other sweetener was often added to raise the alcohol content to give

the product more kick and to help it keep better under crude storage

conditions. The `harder' a cider was, the higher the alcohol content.

These traditional hard ciders have been made for many years, often with

an alcohol content as high as 12%-14%.'' Mr. Metcalfe expressed concern

that ``the new labeling requirements would make some current commercial

products unsaleable.'' He enclosed labels from the North River winery,

which makes a cider that is 9% alcohol by volume under the brand name

``Metcalfe's Hard Cider,'' a brand name that would be prohibited under

the new rules.

The current owners of North River Winery, Annmary T. Block-Reed and

Clyde A. Reed, also submitted comments on the history of the term

``hard cider'' and noted our regulations ``would be denying what has

been commonly agreed to as the understanding of hard cider for

generations, all over the world.'' They further noted the regulations,

as written, would impose a financial hardship, since they are a small

winery and would need to replace several years' supply of labels.

Finally, several consumers wrote to express concern about ATF's

rules for labeling hard cider. One consumer wrote that ``changing the

definition of the words `hard cider' to only mean ciders which are

under 7% alcohol would be misleading to consumers and would cause

widespread confusion in the marketplace.'' Another said ``I believe

that the general public would not be served well in changing the words

`hard cider' to mean something other than their traditional meaning.''

Comments on Labeling Cider Eligible for the New Tax Rate

Producers of wines eligible for the hard cider tax rate stated they

prefer to use a phrase like ``apple cider'' or ``draft cider'' in their

marketing:

Brian t of Black sesas Fagan Cider Co, L.L.C. asked a

question in his comment: ``Our product label currently says `Goldfinch

Cider'. Does it have to say `Goldfinch Hard Cider' as the main product

name designation, or can we retain `Goldfinch Cider' and note ``hard

cider'' elsewhere on the label?

Paul Thorpe of E&J Gallo Winery (``Gallo'') commented that the

regulations should be amended to allow designation of products in the

hard cider category ``by an equivalent phrase, such as `hard apple

cider' or `hard draft cider.' ``Gallo further suggested that we state a

minimum standard for location and legibility of this required

information. Gallo suggested'' on the label in legible type and

lettering no smaller than 2 millimeters in height.'' They noted this

requirement would be consistent with the general requirements for

mandatory information under the FAA Act regulations for labeling of

wine and beer.

Stephen Swift of Matthew Clark Brands, Ltd., makers of Blackthorn

Fermented Cider, noted they have been describing their product as

``fermented cider'' on labels and in advertising for over 12 years. He

said the term ``hard cider'' ``implies that the product is distilled

(as in hard liquor).''

Roger Daniels of Green Mountain Cidery, makers of Woodchuck Draft

Cider, advocated that ATF should take the following positions: ``(a)

that there are no new regulatory standards or restrictions on the use

of the labeling designation ``hard cider,'' (b) that there are no new

regulatory standards or restrictions with respect to container or

packaging sizes for ``hard cider,'' and (c)

[[Page 51935]]

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

Discussion of Comments

When we drafted the hard cider labeling sections of the temporary

rule, we did not intend to cause a hardship for the industry or

consumers. We intended to maintain the current system of identifying

the tax class of wine by information on the label. The function of

ATF's marking requirement is to insure proper identification of the

wine for tax purposes, and to inform consumers of the identity of the

product. From the comments, we see that the term ``hard cider'' has

broader meaning in the industry and among consumers than the definition

given in the regulations.

In light of these comments, we reviewed our need for tax

identification on the labels of wines. Although much of our work takes

place on wine premises where supplemental information is available to

establish the tax rate of a given lot of wine, we believe there are

times when we must be able to tell the tax rate from looking at the

label alone. For example, we use this information in processing

disaster loss claims, conducting market sampling, and verifying import

and export documentation. Therefore, we will maintain the requirement

that the label must contain sufficient information to establish the tax

rate, but we request comments on ways to provide this information with

the greatest flexibility for the industry.

We note there is some confusion in the industry on whether the wine

labeling rules and standards of fill in 27 CFR part 4 apply to hard

cider less than 7 percent alcohol by volume. They do not. The rules in

part 4 implement the FAA Act, and apply only to wine which contains

``not less than 7 percent and not more than 24 percent of alcohol by

volume.'' That is why hard cider under 7% alcohol by volume is exempt

from ATF's label approval requirements and metric standards of fill.

Instead, wine under 7 percent alcohol is subject to Food and Drug

Administration labeling rules. However, ATF has some wine labeling

jurisdiction under the IRC, which applies to all beverage wine

containing 0.5 percent or more alcohol by volume. The IRC wine labeling

rules are in 27 CFR part 24. These rules do apply to hard cider under 7

percent alcohol by volume.

New Proposed Rule

In this document, we are proposing alternative labeling rules and

requesting public comments. In the Rules section of this issue of the

Federal Register, we are publishing a Treasury decision postponing the

compliance date for the hard cider labeling rules (originally February

17, 1999).

First, we propose to remove the amendment we made to

Sec. 4.21(e)(5) of the Federal Alcohol Administration Act wine labeling

regulations. Part 4 only applies to wines that contain 7%-24% alcohol

by volume. As amended, that section prohibited the use of the term

``hard cider'' on any wine with 7% or more alcohol by volume. We

intended to avoid confusion between these higher alcohol wines and

wines in the new hard cider tax class by this prohibition. After

reviewing the comments, we find this precaution unnecessary. We believe

the required statement of the alcohol content will distinguish the

product from other products properly identified as ``hard cider'' under

the IRC. Since the hard cider tax rate is limited to wines under 7%

alcohol by volume, it will be clear that a product with, say, a 9%

alcohol content is not ``hard cider'' within the meaning of the IRC.

Second, we are proposing to amend the IRC marking requirements in

part 24. When the new tax class of hard cider was established, we

amended the labeling rules to substitute the phrase ``hard cider'' for

the word ``wine'' to identify the tax class. On IRC wine labels, no

single item of information gives the tax class. On conventional wines,

the word ``wine'' and the alcohol content (modified by the word

``carbonated'' or ``sparkling'' if either applies) identify the tax

class.

For products under 7% alcohol by volume, we want to differentiate

between ciders which are eligible for the hard cider tax rate and those

which are taxable as still wine containing not more than 14% alcohol by

volume. Some producers have marketed eligible products as ``draft

cider,'' ``fermented cider'' or ``apple cider'' and do not wish to use

the term ``hard cider'' on labels. Some producers have marketed mixed-

fruit ciders or low-alcohol ciders that are otherwise excluded from the

current definition of hard cider under the name ``hard cider'' and do

not wish to rename their products.

To address these concerns, we propose several changes to 27 CFR

24.257. First, we propose to adopt the minimum and maximum type size

requirements of 27 CFR 4.38. Several commenters asked about the minimum

size for required information under the IRC, because the part 24

regulations are silent on this point. We propose to use the FAA Act

type size requirements because they are already in use by the wine

industry for higher alcohol products. We do not specify placement of

information required in Sec. 24.257, and we do not propose to add any

placement requirement as part of this rulemaking. Products with 7

percent or more alcohol by volume will still be subject to the FAA Act

rules covering placement.

We propose to remove the requirement that the word ``wine'' or the

words ``carbonated wine'' must be ``part of the brand name or in a

phrase in direct conjunction with the brand name.'' Information on the

kind of wine may be anywhere on the label. We also propose to add some

alternative labeling terms to reflect the industry practice of calling

products ``cider'' instead of wine on these labels. In our proposed

regulation, we do not require or restrict the use of words such as

``draft'', ``fermented'' or ``hard'' to identify products in the tax

class of hard cider. We propose, where the words on the label leave

doubt as to the tax class, cider makers must include a reference to the

tax class by section of the law. For example, the temporary rule has a

requirement that hard cider must contain more than 50 percent apple

juice. If a cider contains less than 50 percent apple juice, it is

taxed as a still wine under 14 percent alcohol by volume, but it may

still be called cider. In order to make it clear that this cider is

taxed at $1.07 instead of $0.226, we propose to require that the label

show ``tax class 5041(b)(1) IRC'' or an equivalent phrase. This wording

is adapted from 27 CFR 25.242, on marking nontaxable cereal beverages.

We request industry and consumer suggestions for the best way to show

this information on the container. We also request suggestions for

other ways to differentiate between ciders eligible for the hard cider

tax rate and those which belong in other tax categories without

restricting the use of the name ``hard cider.''

Paperwork Reduction Act

The regulatory sections we propose to amend by this notice contain

collections of information which were previously approved by the Office

of Management and Budget (OMB). Although we propose amending these

sections, the changes are not substantive or material.

Regulatory Flexibility Act

The provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et

seq.) relating to a final regulatory flexibility analysis do not apply

to this proposed rule because the agency was not required to publish a

general notice of proposed rulemaking under 5 U.S.C. 553 or any other

law. Pursuant to 26 U.S.C. 7805(f), ATF will send a copy of this

proposed rule to the Chief Counsel

[[Page 51936]]

for Advocacy of the Small Business Administration for comment on its

impact on small business.

Executive Order 12866

It has been determined that this proposed rule is not a significant

regulatory action as defined by Executive Order 12866. Therefore, a

regulatory assessment is not required.

Public Participation

ATF requests comments on the proposed regulations from all

interested persons. We specifically request comments on the clarity of

the proposed rule and how it may be made easier to understand.

Please include the following in all comments:

ATTN: Notice No. 8

Your name,

Your company affiliation, if it is pertinent to your comment,

Your reason for interest in the project (are you a consumer, grower,

producer?),

Your signature on paper comments sent by mail or facsimile

transmission (FAX).

Address written comments to the Chief, Regulations Division, Bureau

of Alcohol, Tobacco and Firearms, P.O. Box 50221, Washington, DC 20091-

0221.

Fax comments to (202) 927-8525. Be sure fax comments are legible,

on 8\1/2\'' x 11'' paper, and they are 3 pages or less.

E-mail comments to [email protected]. E-mail comments must

contain no attachments, special characters or encryption.

ATF will treat all comments as original written comments. We do not

acknowledge receipt of comments. We will carefully consider all

comments received on or before the closing date. We will also consider

comments received after that date if it is practical to do so, but we

cannot guarantee consideration of comments received after the comment

period closes.

During the comment period, you may request an opportunity to

present oral testimony at a public hearing. However, the Director

reserves the right, in light of all circumstances, to determine if a

public hearing is necessary.

Disclosure

Comments, including the name of the commenter, will be disclosed to

the public. Do not include any material in your comment if you consider

it to be confidential or inappropriate for disclosure to the public.

You may view and copy written comments on this project during

normal business hours in the ATF Public Reading Room, Room 6480, 650

Massachusetts Avenue, NW, Washington, DC.

Drafting Information: Marjorie D. Ruhf, Regulations Division,

Bureau of Alcohol, Tobacco and Firearms drafted this document.

List of Subjects

27 CFR Part 4

Advertising, Consumer protection, Customs duties and inspection,

Imports, Labeling, Packaging and containers, Wine.

27 CFR Part 24

Administrative practice and procedure, Authority delegations,

Claims, Electronic fund transfers, Excise taxes, Exports, Food

additives, Fruit juices, Labeling, Liquors, Packaging and containers,

Reporting and recordkeeping requirements, Research, Scientific

equipment, Spices and flavoring, Surety bonds, Taxpaid wine bottling

house, Transportation, Vinegar, Warehouses, Wine.

Authority and Issuance

Accordingly, we propose to amend chapter I of title 27, Code of

Federal Regulations as follows:

PART 4--LABELING AND ADVERTISING OF WINE

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

as follows:

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

Par. 2. Section 4.21 is amended by revising the third sentence of

paragraph (e)(5) to read as follows:

Sec. 4.21 The standards of identity.

* * * * *

(e) Class 5; fruit wine

* * * * *

(5) * * * Fruit wines which are derived wholly (except for sugar,

water, or added alcohol) from apples or pears may be designated

``cider'' and ``perry,'' respectively, and shall be so designated if

lacking in vinous taste, aroma, and characteristics. * * *

* * * * *

PART 24--WINE

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

as follows:

Authority: 5 U.S.C. 552(a); 26 U.S.C. 5001, 5008, 5041, 5042,

5044, 5061, 5062, 5081, 5111-5113, 5121, 5122, 5142, 5143, 5173,

5206, 5214, 5215, 5351, 5353, 5354, 5356, 5357, 5361, 5362, 5364-

5373, 5381-5388, 5391, 5392, 5511, 5551, 5552, 5661, 5662, 5684,

6065, 6091, 6109, 6301, 6302, 6311, 6651, 6676, 7011, 7302, 7342,

7502, 7503, 7606, 7805, 7851; 31 U.S.C. 9301, 9303, 9304, 9306.

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

as follows:

Sec. 24.257 Labeling wine containers.

(a) The proprietor must label each bottle or other container of

beverage wine prior to removal for consumption or sale. The minimum

type size for information required by this section is: 2 millimeters

for containers of more than 187 milliliters and 1 millimeter for

containers of 187 milliliters or less. The maximum type size for

alcohol content statements is 3 millimeters unless the container is

larger than 5 liters. The label must be securely affixed and show:

(1) The name and address of the wine premises where bottled or

packed;

(2) The brand name, if different from above;

(3) The alcohol content as percent by volume or the alcohol content

stated in accordance with 27 CFR part 4. For wine with less than 7

percent alcohol by volume stated on the label there is allowed an

alcohol content tolerance of plus or minus .75 percent by volume; and

(4) The kind of wine, shown as follows:

(i) If the wine contains 7 percent or more alcohol by volume and

must have label approval under 27 CFR part 4, the kind of wine is the

class, type, or other designation provided in that part.

(ii) If the wine has an exemption from label approval or contains

less than 7 percent alcohol by volume, an adequate statement of

composition may be used instead of the class and type in 27 CFR part 4.

The statement of composition must include enough information to

identify the tax class when viewed with the alcohol content. First, the

wine should be identified by the word ``wine,'' ``mead,'' ``sake,''

``cider'' or ``perry,'' as applicable. If the wine contains more than

0.392 grams of carbon dioxide per 100 milliliters, the word

``sparkling'' or ``carbonated,'' as applicable, must be included in the

statement of composition. If the statement of composition leaves doubt

as to the tax class of the wine, the wine must be marked ``tax class

5041(b)(1) IRC'' or an equivalent phrase. For example, a still wine

marked ``wine'' showing an alcohol content of 16 percent alcohol by

volume would be considered as adequately marked to identify its tax

class as 5041(b)(2). A wine marked ``hard cider'' showing an alcohol

content of 9 percent by volume would be considered as adequately marked

to identify its tax class as 5041(b)(1). However, a wine with an

alcohol content under 7 percent marked

[[Page 51937]]

``hard cider'' and the alcohol content would not be adequately marked

to identify its tax class, so the tax class must be shown.

(5) The net content of the container unless the net content is

permanently marked on the container as provided in 27 CFR part 4.

* * * * *

Dated: June 16, 1999.

John W. Magaw,

Director.

Dated: August 13, 1999.

John P. Simpson,

Deputy Assistant Secretary,

(Regulatory, Tariff and Trade Enforcement).

[FR Doc. 99-24834 Filed 9-24-99; 8:45 am]

BILLING CODE 4810-31-U