Treasury Building

DEPARTMENT OF THE TREASURY
OFFICE OF PUBLIC AFFAIRS

For Immediate Release
March 20, 2003
Contact:
Tara Bradshaw
202-622-2014
 

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TREASURY REQUESTS PUBLIC COMMENT ON PROPOSED REGULATIONS ON FLAVORED MALT BEVERAGES

Today the Treasury Department, through its Alcohol and Tobacco Tax and Trade Bureau (TTB), requests public comment on proposed regulations governing flavored malt beverages.

The proposed regulation would provide that alcohol beverages are to be taxed as beer and regulated as malt beverages only if less than one-half of one percent of the content of the beverage is from alcohol added through the addition of distilled spirits rather than from the brewing process.

The proposed regulations are offered for comment and are not effective at this time. Because of the significance of this proposed standard for the industry, comments are requested on the practicality of producing beverages currently on the market under this proposed standard, on whether there are alternative standards that would be more appropriate for these products, and on the amount of time that would be required to comply with new standards. Finally, comments are requested on whether legislative changes are required.

The rapid growth of this product sector has brought it to the attention of both federal and state regulators. Careful study determined that a large number of these products derive nearly all of their alcohol from flavorings containing distilled spirits rather than from fermentation during brewing, which raised the need to establish additional standards to ensure these products comply with federal statutes. State authorities have specifically requested that Treasury develop a federal standard regulating these products, in part, to discourage a proliferation of varying state standards.

Under applicable federal statutes, beer and malt beverages are taxed and regulated differently than distilled sprits. The principle distinction is whether the alcohol in the product is derived from brewing or distilling. Flavored malt beverages differ from traditional malt beverages and beer in that many of them derive their taste and alcohol content primarily from added flavorings, which typically contain distilled spirits. While the total alcohol content of these products is similar to beer, (4 to 6% percent alcohol by volume), as much as 99% of the alcohol in many of these products is derived from the distilled spirits found in the added flavoring, and not from the brewing process.

The definitions of "beer" and "malt beverage" in the relevant statutes do not properly allow beverages taxed at the beer rate and regulated as malt beverages to contain unlimited amounts of added distilled spirits. Consequently, it is appropriate and necessary to propose clear standards for these products.

In addition, regulations are being proposed to govern the way in which these products may be labeled and advertised, to prevent any confusion between these products and distilled spirits. The proposed regulations would also require that the alcohol content of these products be included on the brand label.

The text of the notice of proposed rulemaking on flavored malt beverages is attached, and will be published in the Federal Register on Monday, March 24, 2003. Click here to view. A set of frequently asked questions is also attached.

FREQUENTLY ASKED QUESTIONS ON THE REGULATION OF MALT BEVERAGES

Q: Hasn't Treasury explicitly allowed added alcohol in flavored malt beverages for some time now?

A: Yes. In 1996, the Bureau of Alcohol, Tobacco, and Firearms, the predecessor agency to TTB, issued a ruling that acknowledged that some flavored malt beverages contained significant amounts of added alcohol, and that these and similar beverages could continue to be produced, but announced at that time that the agency would pursue additional regulation of these products in the future.

Q. Why is any change being proposed in the first place?

A: The rapid growth of this product sector has brought it to the attention of both federal and state regulators. Careful study determined that a large number of these products derive nearly all of their alcohol from flavorings containing distilled spirits rather than from fermentation during brewing, which raised the need to establish additional standards to ensure these products comply with federal statutes. State authorities have specifically requested that Treasury develop a federal standard regulating these products, in part, to discourage a proliferation of varying state standards.

Q: Why is this being done now?

A: Clearly, earlier action to bring certainty in this area would have been preferable. However, this market has evolved in recent years. This matter has received a great deal of careful study and initial consultation with industry, the states, and other affected parties. The industry has been aware that a proposal was coming for over a year, and we have had a steady dialogue with them on the issue throughout that period.

Q: Isn't the proposal really a settled decision and not subject to change?

A: No. The rulemaking process is interactive and open, and this is just the beginning of the formal stage of the process. No changes will take place until after extensive public comment. Proposed rules are often modified or even withdrawn as a result of this open process.
We have solicited comments on alternative approaches, economic impacts, and even potential legislative remedies. Treasury and TTB will carefully evaluate the proposal, all comments, and any suggested alternatives and will adopt the most appropriate standard or approach.

Q: Is this action being taken to increase revenue or at the behest of particular industry or interest groups?

A: No. The proposal is based on a strict reading of the law and the realization that a large number of products are being marketed as malt beverages when in fact the bulk of their alcohol is from added distilled spirits. This action clarifies the law and brings certainty to the marketplace.

Q. Aren't producers who relied on the existing ruling going to be adversely affected?

A: The adoption of this proposed standard could have a significant commercial impact. Consequently, the notice specifically asks for comments on whether products now on the market could be currently produced under the proposed standard, whether alternative standards may be more appropriate, and what appropriate phase-in periods might be.