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New TTB Ruling: Brewers Don’t Need Certificate of Label Approval for Beer Sold or Shipped in the State Where It Was Bottled

Posted on by Ashley Brandt

Some fun news during CBC.  The first Malt Beverages Ruling of 2013, TTB Ruling 2013-1, is an interesting one.  The actual holding is excerpted verbatim for you below.  Beer made and sold in the same state doesn’t require certificate of label approval.  The other required labeling information for beer removed from the premises, (25 CFR part 27, subpart J), and the health warnings of the Alcoholic Beverage Labeling Act obviously still apply – although the TTB made certain to remind everyone of that fact:

Held: The regulations implementing the FAA Act do not require brewers to obtain a certificate of label approval in order to bottle or pack malt beverages that will not be shipped or delivered for sale or shipment into another State. The regulations do not require a brewer to obtain either a certificate of label approval or a certificate of exemption for a domestically bottled malt beverage that will be sold exclusively in the State in which it was bottled.
Held further: Regardless of whether a domestically bottled malt beverage will be sold in interstate commerce, brewers must comply with all applicable marking, branding and labeling requirements under regulations implementing the Internal Revenue Code of 1986 for all beer removed from the premises, and must comply with the health warning statement requirements imposed by the Alcoholic Beverage Labeling Act with regard to alcoholic beverages manufactured or bottled for sale or distribution in the United States.

Whisky Dispute Poses an Interesting Question About Comparative Advertising Limits

Posted on by Ashley Brandt

Just how far can you go in a commercial pitting your product against a competitor’s?  We may be set to find out soon.

Yesterday a federal judge entered a scheduling order setting an introductory timeline in a comparative advertising case between the makers of Crown Royal and Texas Crown Club whiskies.

The dispute arises over a commercial promoting Texas Crown Club where a cowboy walks into a bar (stop me if you’ve heard this one before) and gets insulted for apparently trying to quench his hankering for a whisky with something in the little purple bag Crown Royal uses to market itself.  Along with a camera-shot of the purple bag in the hand of the cowboy, a lady at the bar is heard to remark “We don’t drink that poison in this neck of the woods.”

In true cliché fashion, the cowboy is tossed from the bar followed by footage of the Texas Crown Club bottle next to a bag resembling the current Texas flag.

Upset with the commercial and the implication about “poison”, Crown Royal’s maker, Diageo, filed this complaint against Mexcor, Inc., the maker of Texas Crown.  While a portion of the complaint deals with trademark dilution, the central allegation relative to the advertising question comes under the guise of claiming that the statement about “poison” was meant to have at least some literal import:

By characterizing CROWN ROYAL whisky as “poison,” Defendant is falsely and misleadingly advertising, through literal statements and by necessary implication, that CROWN ROYAL whisky is a harmful, unsafe, and substandard product, that CROWN ROYAL whisky is inferior to TEXAS CROWN CLUB whisky, that CROWN ROYAL whisky is an inappropriate drink for Texans, or simply that CROWN ROYAL whisky tastes bad. Such advertising violates 15 U.S.C. § 1125(a).

We’d love to show you the commercials to let you decide what you think about all this, but the links to the commercial in the complaint that were previously available on Youtube have been taken down.  We will keep you posted on the developments here as they may end up having broad-reaching implications for comparative advertising.

TTB Updates Website And Offers Clarity for Ingredients and Processes Exempt from Formula Requirements under 27 CFR part 25

Posted on by Ashley Brandt

In a welcome move to further clarify some of the processes and ingredients that do, and do not, require brewers to seek formula approval (approval is necessary when you stray from “traditional” brewing processes), the TTB recently updated the “Other Beer Resources” section of their website.  Rather than force you to hunt for the information, we’ve reproduced it below. 

TTB Statutory Authority

Chapter 51 of the Internal Revenue Code of 1986 (IRC) provides the Secretary of the Treasury with authority to promulgate regulations pertaining to the operation of breweries and the production of beer. TTB administers these provisions pursuant to section 1111(d) of the Homeland Security Act of 2002, codified at 6 U.S.C. 531(d), and the Secretary has delegated various authorities through Treasury Department Order 120-01 (Revised), dated January 21, 2003, to the TTB Administrator to perform the functions and duties in administration and enforcement of these laws.

Under the statutory authority of 26 U.S.C. 5401, 5415, 5555, and 7805(a), TTB prescribes regulations regarding the types of processes and ingredients for which brewers may or may not need to submit formulas.

TTB Regulations Regarding Formula Requirements Non-traditional processes:

TTB regulation 27 CFR 25.55 provides that a brewer must submit a formula for approval by TTB when the brewer intends to produce any fermented product that will be treated by any processing, filtration, or other method of manufacture that is not generally recognized as a traditional process in the production of a fermented beverage designated as "beer," "ale," "porter," "stout," "lager," or "malt liquor."

Examples provided in the regulations:

Brewers must file a formula for a fermented product using any of the following non-traditional processes:

  • Removal of any volume of water from beer;
  • Filtration of beer to substantially change the color, flavor, or character;
  • Separation of beer into different components;
  • Reverse osmosis;
  • Concentration of beer; or
  • Ion exchange treatments.

Brewers are NOT required to submit formulas for the following traditional processes:

  • Pasteurization;
  • Filtration prior to bottling;
  • Filtration in lieu of pasteurization;
  • Centrifuging for clarity;
  • Lagering;
  • Carbonation; or
  • Blending.

Additional Formula Requirements

Brewers must also file a formula for a fermented product:

  • To which flavors or other nonbeverage ingredients (other than hops extract) containing alcohol will be added;
  • To which coloring or natural or artificial flavors will be added;
  • To which fruit, fruit juice, fruit concentrate, herbs, spices, honey, maple syrup, or other food materials will be added; or
  • That is designated as saké, including flavored saké and sparkling saké.

TTB Determinations Regarding Additional Ingredients
and Processes That Do Not Require Formulas

Under 27 CFR § 25.55(f), TTB may determine whether the use of a particular process not listed above requires the brewer to file a formula for approval. TTB may also exempt the use of a particular coloring, flavoring (other than flavorings containing alcohol), or food material from the formula filing requirements.

Below are the ingredients and processes that we have determined are not subject to the formula requirements of § 25.55. Brewers may use the following ingredients and processes without submitting a formula.

Requesting a TTB Determination Regarding a Process or an Ingredient

Processes

A brewer may submit a request, asking TTB to determine whether use of a process that is not already specified in the regulations would require the filing of a formula for approval. When requesting a determination regarding a process, the brewer must include:

  • A detailed description of the proposed process;
  • Evidence establishing that the proposed process is generally recognized as a traditional process in the production of a fermented beverage designated as "beer," "ale," "porter," "stout," "lager," or "malt liquor," and
  • An explanation of the effect of the proposed process on the production of a fermented product.

Brewers may submit requests to the Director, Regulations and Rulings Division, Alcohol and Tobacco Tax and Trade Bureau, 1310 G Street, NW, Box 12, Washington, DC 20005, or via email at Regulations@ttb.gov.

Ingredients

A brewer may submit a request, asking TTB to exempt from the formula requirement a particular coloring, flavoring, or food material for use in the production of beer. When requesting a determination regarding a coloring, flavoring, or food material, the brewer must include:

  • A description of the proposed ingredient;
  • Evidence establishing that the proposed ingredient is generally recognized as a traditional ingredient in the production of a fermented beverage designated as "beer," "ale," "porter," "stout," "lager," or "malt liquor," and
  • An explanation of the effect of the proposed ingredient in the production of a fermented product.

Brewers may submit requests to the Director, Regulations and Rulings Division, Alcohol and Tobacco Tax and Trade Bureau, 1310 G Street, NW, Box 12, Washington, DC 20005, or via email at Regulations@ttb.gov. Please note that the regulations do not authorize TTB to grant exemptions for the use of flavors or other nonbeverage ingredients (other than hops extract) containing alcohol.

Publication of TTB Determinations

If TTB determines that the use of additional ingredients or processes would not require the filing of a formula, the Bureau will identify the ingredient or process, along with any relevant qualifications, on this Web page.

Questions?

For more information on the particular ingredients or processes brewers may use in the production of beer without submitting formulas, contact the Advertising, Labeling and Formulation Division at (866) 927-2533 or via email at ALFD@ttb.gov.

For more information on formula requirements, see 27 CFR 25.55 to 25.58 or contact the Regulations and Rulings Division at (202) 453-1039, Ext. 110 or BeerRegs@ttb.gov.

Court Allows Winery To Proceed On Refund Claim Against the U.S. For Excise Taxes Paid By Bonded Warehouse

Posted on by Ashley Brandt

What entity has the right to pursue a refund for overpayment when a bonded warehouse overpays taxes on a winery’s inventory?  This question about the Small Producers Tax Credit on Wine (26 USC §5041) is at the center of a recent case from the Eastern District of Washington.

K Vintners brought this complaint against the federal government looking to collect a refund for a $433,238.37 overpayment after the taxes were paid by K Vintners bonded warehouseman – Tiger Mountain.

The government moved to dismiss on the grounds that because the taxes were paid by the warehouseman, even though K Vintners had reimbursed the warehouseman for the payment, K Vintners didn’t have the right to make the claim to recover the federal excise taxes on wine that Tiger paid on K Vintners wine.

In this opinion, the Court rejected the argument with some explanation that is a helpful explanation of the bonded warehouse/winery relationship.  In denying the U.S.’ request to dismiss, the court found that Tiger Mountain served only as a “bonded transporter and warehouse for the wine as it travels from producer to retailer and then to the consumer.”  The court noted that Tiger Mountain, was a convenient collection point for the IRS in the stream of commerce, but K Vintners owned the wine and directed its destination for sale. 

On these facts, the court compared the case to an older cotton tax case where the middle-man incurred tax assessment on goods owned by the producer – as a convenient collection point.

The court went so far as to cite to the legislative history of the statute that allows for refunds – 26 USC §6423, which makes specific reference to these types of situations:

This subsection [§6423] also makes provision for cases where the taxpayer is not the owner of the taxed commodity. For example, in the case of distilled spirits withdrawn from internal revenue bond, the tax is paid by the warehouseman holding the spirits, and the warehouseman is therefore the only person entitled to file claim for refund of such tax. However, in many instances he is not the owner of the spirits. In such cases the owner is likely to supply the warehouseman with the amount of the tax to secure the release of the spirits from bond. This subsection recognizes the equities of the owner under these circumstances even though he was not the taxpayer. It permits the warehousemen in these cases to claim the refund or credit where the owner has given his written consent to allowance of the refund to the claimant warehouseman if the owner bore the ultimate burden of the tax or has unconditionally repaid the amount claimed by the person who bore the ultimate burden of the tax.

The agreement (a portion of it was included with the pleadings and can be found here) between the warehouse and the winery even specifically mandated reimbursement because it was a contract from a bonded warehouse and they always mandate reimbursement for taxes paid by the warehouse.  The specific language in this agreement states “Bonded customers will be billed for Federal Taxes on taxable distribution twice monthly.”

It seems pretty clear from the legislative history and the language in §6423 that there shouldn’t have been an issue, but we’ll want to keep monitoring this case as it may provide some insight as to how the government understands the credit.

Challenge to The 3-Tier System Inevitable as Illinois Legislature Introduces Bill to Revoke Anheuser’s Stake in City Beverage

Posted on by Ashley Brandt

Illinois could soon find itself again at the center of the ongoing national debate over the three-tiered system.  And that debate will involve the same two parties as last time.

I’m sure you all recall the 2010-2011 Anheuser Busch case in Illinois where a Federal District Court found that a previous iteration of Illinois’ Liquor Control Act violated the U.S. Constitution’s Commerce Clause by allowing some brewers to distribute if they were in-state brewers and keeping out-of-state brewers from distribution.  The decision came as a result of a suit between the Illinois Liquor Control Commission and Anheuser Busch over Anheuser’s desire to purchase City Beverage, a distributor that it already owned a minority share of.

The legislature responded with the creation of the Craft Brewer’s license which gave small brewers the ability to self-distribute and prohibited large brewers from the privilege.  We wrote about the Court’s denial of the $1.6 Million in attorneys’ fees that Anheuser sought from the State here.

In the end, the Illinois Liquor Control Commission ended the fiasco by ruling last October that Anheuser-Busch could retain a minority stake-hold in Chicago’s City Beverage.  You can read that opinion here.

Trade groups like the Associated Beer Distributors of Illinois, the Illinois Licensed Beverage Association and the Beverage Retailers Alliance of Illinois have argued that it is illegal under the new law for Anheuser-Busch to have any ownership interest in City Beverage.

The State legislature is taking up that debate where, apparently, the Illinois Liquor Control Commission would not.  They’ve introduce a bill that would amend the Liquor Control Act to keep the Commission from issuing a license to any brewer with an interest in a State distributor and that will expressly revoking any such ownership interest between a brewer and a distributor which already exists in the State.

There are currently two tracks for this bill which may make it move faster, one in the House and one in the Senate.  Both bills are identical.  The House Bill – HB 2606 – was introduced on February 21, 2103, and is currently with the rules committee.  The Senate Bill – SB 1855 – was introduced on February 15, 2013, and is currently with the Executive.

The portion of the bill adding the language that will revoke any existing license where the licensee is a brewer with an interest in a distributor starts off with a preamble that appears geared towards any eventual challenge:

The General Assembly hereby restates its commitment to the primary purpose of the Liquor Control Act of 1934, which is to protect the health, safety, and welfare of the People of Illinois through the sound and careful control and regulation of the manufacture, distribution, and sale of alcoholic liquor through independent licensees in a 3-tier regulatory system. The State's 3-tier regulatory system is designed to prevent a manufacturer or non-resident dealer, if the non-resident dealer is also the manufacturer of alcoholic liquors, including a partnership, corporation, subsidiary, limited liability company, trust, agent, affiliate, or other form of business enterprise thereof, from exercising vertical integration between a manufacturer or non-resident dealer, if the non-resident dealer is also the manufacturer of alcoholic liquors, and a distributor, importing distributor, or retailer through any ownership interest or through control.

Again, nothing in this preamble actually says how on earth the “3-tier regulatory system” or the absence of the vertical integration they’re so worried about protects the “health, safety, and welfare of the People.  Or how it effectuates sound and careful control… or how sound and careful control protects the “health, safety, and welfare”… you get my point.  It’s verbage.  And these platitudes might have flown through courts for years as enough to hold that this type of system has a rational basis… but that’s starting to change.  People are wising up and rejecting arguments based on “just-so-stories” about how problems like tied-houses from the 19th and early 20th centuries limited consumer choice.  The idea that 100 years later we couldn’t effectively legislate and then guard against any potential threats like monopolies doesn’t hold water when we have laws that guard against monopolies.

So, what happens when a long-running relationship and business enterprise – heretofore allowed – is deemed verboten by an amended law…  An amazing constitutional case, most likely.  Should this bill be enacted, and should Anheuser-Busch decide to stand up for itself we’re in for one heck of a show.

Copyright © 2013 · All Rights Reserved · Ashley W. Brandt