New Changes to TTB's Cider Laws Beginning January 2017
September 30, 2016
The Federal agency known as the Alcohol and Tobacco Tax and Trade Bureau (TTB) has a degree of regulatory authority over hard cider producers throughout the country. In particular, Section 5041 of Title 26 of the Internal Revenue Code imposes an excise tax payable to TTB on the production and removal of hard cider products. With this year’s cider season in full swing, many producers are now gearing up to take advantage of the updated hard cider definition in § 5041 that will be effective on January 1, 2017.
Historically, the definition of “hard cider” has been surprisingly elusive, especially within the context of federal alcohol regulation. And although it may only appear to be an issue of semantics, a slight variance to the ingredients of this alcoholic beverage can drastically affect its excise tax rate. For example, the current law set forth in 26 U.S.C. § 5041 indicates that only “hard cider . . .derived primarily from apples or apple concentrate and water, containing no other fruit product” can qualify for the hard cider tax rate of $0.226 per wine gallon. This means that adding a fruit product other than apple to an otherwise “hard cider” would result in an excise tax rate increase to $1.07 per wine gallon.
This will all be changing soon thanks to the recent passage of the Cider Industry Deserves Equal Regulation Act (referred to as the “CIDER Act”). This is big news for the cider industry, as the old law seemed out of sync with the market and generally meant paying a higher tax rate to the TTB for products that seemingly should be enjoying a tax rate similar to beer products.
The CIDER Act expands the fruit profile of “hard cider” to include pears, pear juice concentrate, and pear flavor, making it possible for cideries to include a pear cider or traditional perry on the menu without automatically pushing themselves into a higher tax rate. The new definition will also allow producers to bring their production up to speed with the consumer taste for a carbonated cider, as it indicates that the term “hard cider” may contain up to 0.64 grams of carbon dioxide per hundred milliliters. Producers and cider enthusiasts will also be intrigued by the law’s increase in maximum alcohol percentage, which gets boosted up to 8.5%.
For producers already operating with a TTB basic permit (such as producers whose ciders already reach the current 7% ABV threshold, which require a basic permit under the FAA Act), there should be relatively few permit hurdles to jump through before implementing these new provisions. However, producers whose ciders did not require the basic permit (because of not reaching the 7% mark) may find themselves unprepared to produce a higher alcohol cider, as the FAA Act permit requirement will still apply to products that reach the 7% or above mark.
Since the TTB basic permit process can take several months, it may be advantageous to take a look at your current permits to determine whether you may need to begin the application process, which will incorporate your existing bond and registration.