62506 Federal Register / Vol. 71, No. 206 / Wednesday, October 25, 2006 / Proposed Rules 

DEPARTMENT OF THE TREASURY 

Alcohol and Tobacco Tax and Trade 

Bureau 

27 CFR Parts 40, 41, 44, and 45 

[Notice No. 65] 

RIN 1513–AB34 

Tax Classification of Cigars and 

Cigarettes (2006R–276P) 

AGENCY: Alcohol and Tobacco Tax and 

Trade Bureau, Treasury. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Department of the 

Treasury and the Alcohol and Tobacco 

Tax and Trade Bureau are proposing 

changes to the regulations that govern 

the classification and labeling of cigars 

and cigarettes for Federal excise tax 

purposes under the Internal Revenue 

Code of 1986. The proposed regulatory 

changes contained in this document 

address concerns that TTB has regarding 

the adequacy of the current regulatory 

standards for distinguishing between 

cigars and cigarettes. The document also 

summarizes and responds to three 

petitions received by TTB requesting 

rulemaking action regarding the 

classification of cigars and cigarettes, 

with particular reference to the 

distinction between little cigars and 

cigarettes. The proposals contained in 

this document clarify the application of 

existing statutory definitions and update 

and codify administrative policy in 

order to provide clearer and more 

objective product classification criteria. 

These clarifications are intended to 

reduce possible revenue losses through 

the misclassification of cigarettes as 

little cigars. In addition, these 

clarifications should facilitate the 

determination of payments under the 

Master Settlement Agreement. 

DATES: We must receive your written 

comments on or before December 26, 

2006. 

ADDRESSES: You may send comments to 

any of the following addresses: 

• Director, Regulations and Rulings 

Division, Alcohol and Tobacco Tax and 

Trade Bureau, (Attn: Notice No. 65), 

P.O. Box 14412, Washington, DC 20044– 

4412. 

• 202–927–8525 (facsimile). 

• nprm@ttb.gov (e-mail). 

• http://www.ttb.gov/tobacco/ 

tobacco_rulemaking.shtml (An online 

comment form is posted with this notice 

on our Web site). 

• http://www.regulations.gov (Federal 

e-rulemaking portal; follow instructions 

for submitting comments). 

You may view copies of this notice, 

the related rulemaking petitions, and 

any comments we receive on this 

proposed rule by appointment at the 

TTB Information Resource Center, 1310 

G Street, NW., Washington, DC 20220. 

To make an appointment, call 202–927– 

2400. You may also access copies of this 

notice and any comments we receive on 

this proposal online at http:// 

www.ttb.gov/tobacco/ 

tobacco_rulemaking.shtml. 

FOR FURTHER INFORMATION CONTACT: 

Linda Wade Chapman, Regulations and 

Rulings Division, Alcohol and Tobacco 

Tax and Trade Bureau, 1310 G Street, 

NW., Suite 200–E, Washington, DC 

20220; telephone 202–927–8210; or email Linda.Chapman@ttb.gov. 

SUPPLEMENTARY INFORMATION: 

Background 

Statutory Provisions 

Chapter 52 of the Internal Revenue 

Code of 1986 (IRC) sets forth the Federal 

excise tax and related provisions that 

apply to tobacco products manufactured 

in, or imported into, the United States. 

Section 5702(c) of the IRC (26 U.S.C. 

5702(c)) defines the term ‘‘tobacco 

products’’ as ‘‘cigars, cigarettes, 

smokeless tobacco, pipe tobacco, and 

roll-your-own tobacco.’’ In addition, 

sections 5702(a) and (b) of the IRC 

define the terms ‘‘cigar’’ and ‘‘cigarette’’ 

as set forth below: 

Sec. 5702. Definitions. 

When used in this chapter— 

(a) Cigar. 

‘‘Cigar’’ means any roll of tobacco wrapped 

in leaf tobacco or in any substance containing 

tobacco (other than any roll of tobacco which 

is a cigarette within the meaning of 

subsection (b)(2)). 

(b) Cigarette. 

‘‘Cigarette’’ means— 

(1) any roll of tobacco wrapped in paper or 

in any substance not containing tobacco, and 

(2) any roll of tobacco wrapped in any 

substance containing tobacco which, because 

of its appearance, the type of tobacco used in 

the filler, or its packaging and labeling, is 

likely to be offered to, or purchased by, 

consumers as a cigarette described in 

paragraph (1). 

The distinction between cigars and 

cigarettes is important for Federal tax 

purposes because the rate of tax varies 

from one product class to another. 

Section 5701 of the IRC (26 U.S.C. 5701) 

prescribes the following rates of tax for 

cigars and cigarettes: 

Sec. 5701. Rate of tax. 

(a) Cigars. 

On cigars, manufactured in or imported 

into the United States, there shall be imposed 

the following taxes: 

(1) Small cigars. On cigars, weighing not 

more than 3 pounds per thousand, $1.828 

cents per thousand ($1.594 cents per 

thousand on cigars removed during 2000 or 

2001); 

(2) Large cigars. On cigars weighing more 

than 3 pounds per thousand, a tax equal to 

20.719 percent (18.063 percent on cigars 

removed during 2000 or 2001) of the price for 

which sold but not more than $48.75 per 

thousand ($42.50 per thousand on cigars 

removed during 2000 or 2001). 

Cigars not exempt from tax under this 

chapter which are removed but not intended 

for sale shall be taxed at the same rate as 

similar cigars removed for sale. 

(b) Cigarettes. 

On cigarettes, manufactured in or imported 

into the United States, there shall be imposed 

the following taxes: 

(1) Small cigarettes. On cigarettes, 

weighing not more than 3 pounds per 

thousand, $19.50 per thousand ($17 per 

thousand on cigarettes removed during 2000 

or 2001). 

(2) Large cigarettes. On cigarettes, weighing 

more than 3 pounds per thousand, $40.95 per 

thousand ($35.70 per thousand on cigarettes 

removed during 2000 or 2001); except that, 

if more than 61/2 inches in length, they shall 

be taxable at the rate prescribed for cigarettes 

weighing not more than 3 pounds per 

thousand, counting each 23/4 inches, or 

fraction thereof, of the length of each as one 

cigarette. 

Section 7805 of the IRC (26 U.S.C. 

7805) gives the Secretary of the Treasury 

the general authority to issue 

regulations to carry out the provisions of 

the IRC. In addition, section 5722 of the 

IRC (26 U.S.C. 5722) gives the Secretary 

authority to require from manufacturers 

or importers of tobacco products reports 

containing such information, in such 

form and at such times, as the Secretary 

may prescribe by regulations. Finally, 

section 5723(a) of the IRC (26 U.S.C. 

5723(a)) gives the Secretary authority to 

prescribe regulatory standards for the 

packaging of tobacco products. Further, 

section 5723(b) of the IRC gives the 

Secretary the authority to prescribe 

regulations requiring marks, labels, and 

notices on every package of tobacco 

products. 

Regulatory Provisions 

Regulations implementing the tobacco 

product provisions of Chapter 52 of the 

IRC are contained in 27 CFR parts 40 

(manufacture of tobacco products and 

cigarette papers and tubes), 41 

(importation of tobacco products and 

cigarette papers and tubes), 44 

(exportation of tobacco products and 

cigarette papers and tubes, without 

payment of tax, or with drawback of 

tax), and 45 (removal of tobacco 

products and cigarette papers and tubes, 

without payment of tax, for use of the 

United States). These regulations are 

administered by the Alcohol and 

Tobacco Tax and Trade Bureau (TTB). 

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Federal Register / Vol. 71, No. 206 / Wednesday, October 25, 2006 / Proposed Rules 62507 

Sections 40.11, 41.11, 44.11, and 

45.11 of the TTB regulations (27 CFR 

40.11, 41.11, 44.11, and 45.11) include 

definitions of cigars and cigarettes that 

follow the statutory definitions without 

further elaboration. The tax rates 

imposed on cigars under the IRC are 

reflected in §§ 40.21 and 41.31 of the 

TTB regulations (27 CFR 40.21 and 

41.31) and the IRC tax rates imposed on 

cigarettes are reflected in §§ 40.23 and 

41.32 of the TTB regulations (27 CFR 

40.23 and 41.32). 

The TTB regulations that set forth 

notice requirements for packages of 

cigars are found at 27 CFR 40.214, 

41.73, 44.186, 44.253, and 45.44. These 

regulations provide that before removal 

subject to tax (§§ 40.214 and 41.73) or 

before removal from a factory (§ 44.186) 

or before withdrawal from a customs 

warehouse (§ 44.253) or before removal 

(§ 45.44), every package of cigars must 

have adequately imprinted on it, or on 

a label securely affixed to it, the 

designation ‘‘cigars’’, the quantity of 

cigars contained in the package, and for 

small cigars, the classification of the 

product for tax purposes (that is, either 

‘‘small’’ or ‘‘little’’). The TTB 

regulations that set forth cigarette notice 

requirements are found at 27 CFR 

40.215, 41.74, and 45.45. These 

regulations provide that before removal 

subject to tax (§§ 40.215 and 41.74) or 

before removal (§ 45.45), every package 

of cigarettes must have adequately 

imprinted on it, or on a label securely 

affixed to it, the designation 

‘‘cigarettes,’’ the quantity of cigarettes in 

the package, and the classification for 

tax purposes (that is, for small 

cigarettes, either ‘‘small’’ or ‘‘Class A’’, 

and for large cigarettes, either ‘‘large’’ or 

‘‘Class B’’). 

Current Standards and Methods Used 

To Differentiate Between Little Cigars 

and Cigarettes for Excise Tax Purposes 

In connection with the administration 

of Chapter 52 of the IRC, TTB’s 

predecessor agency, the Bureau of 

Alcohol, Tobacco and Firearms (ATF), 

published ATF Ruling 73–22 and 

Procedures 73–5 and 76–2 to provide 

the tobacco industry and the public at 

large with the Agency’s official 

interpretation and guidance with regard 

to the classification of cigars and 

cigarettes for excise tax purposes. A 

ruling published by ATF or TTB 

represents an Agency interpretation of 

applicable statutes or regulations or 

other statement of Agency policy. A 

published procedure provides technical 

guidance on how to fulfill a regulatory 

requirement, for example by providing 

detailed analytical criteria that the 

Agency uses to assess compliance with 

the regulation in question. The ruling 

and two procedures in question, and 

TTB’s adherence to them, are discussed 

below. 

ATF Ruling 73–22 

ATF Ruling 73–22 was published in 

1973 to update the criteria for 

determining whether a tobacco product 

wrapped in a ‘‘substance containing 

tobacco’’ is a cigar or cigarette for tax 

purposes. This ruling restated the basic 

provisions of, and superseded, Revenue 

Ruling 69–198, C.B. 1969, pg. 1,359 

(Internal Revenue). Specifically, Ruling 

73–22 amplified the three fundamental 

factors that govern the classification of 

little cigars: the wrapper, the filler, and 

the product packaging and labeling. 

With regard to the wrapper material 

used to manufacture cigars, Ruling 73–

22 states the following: 

The legislative history concerning Public 

Law 89–44 indicates the terms ‘‘substance 

containing tobacco’’ as used in 26 U.S.C. 

5702 and ‘‘reconstituted tobacco’’ were used 

synonymously. In the trade and in general 

terminology, ‘‘reconstituted tobacco’’ is 

ground or pulverized tobacco mixed with 

various adhesive agents and/or cellulose 

fibers derived from tobacco or other sources 

and formed into sheets. 

For a wrapper material to be considered a 

‘‘substitute [sic] containing tobacco’’ as used 

in 26 U.S.C. 5702(a), the finished wrapper 

must (1) be approximately two-thirds or more 

tobacco which did not in the reconstitution 

process lose its tobacco character (e.g., taste, 

aroma, identifiable chemical components), 

and (2) be of a color consistent with that of 

the natural leaf tobaccos traditionally used as 

a wrapper for American cigars. 

Ruling 73–22 states that a 

combination of other factors must be 

considered in determining whether a 

product wrapped in a ‘‘substance 

containing tobacco’’ is a cigar or a 

cigarette. With regard to the filler 

tobacco, the ruling goes on to state: 

For a product to be a cigar the filler must 

be substantially of tobaccos unlike those in 

ordinary cigarettes and must not have any 

added flavorings which would cause the 

tobaccos to have the taste or aroma generally 

attributed to cigarettes. The inclusion of fluecured or aromatic (Oriental) tobaccos—which 

traditionally have been the primary 

constituents of cigarette filler—can 

contribute significantly to making a product 

cigarette-like, and if the product also is of the 

typical cigarette size and shape, has a typical 

cigarette-type filter, and is in a cigarette-type 

package, the inclusion of these tobaccos 

could cause the product to be classified as a 

cigarette rather than a cigar. Conversely, if a 

product is made predominantly of cigar-type 

tobaccos with distinctive cigar taste and 

aroma, if it does not resemble a cigarette 

(such as most large cigars do not), and if it 

is not to be marketed in a cigarette-type 

package, it would probably be classified as a 

cigar. 

Ruling 73–22 states the following 

with reference to the issue of whether 

the product is likely to be offered to, or 

purchased by, consumers as a cigarette: 

Two other factors which are relevant under 

the Code in determining the tax category of 

a product are whether the product is likely 

to be offered to, or purchased by, consumers 

as a cigarette. It is, therefore, important that 

the package for a product to be offered as a 

cigar conspicuously declare it to be a cigar 

and that all marketing materials and 

advertising clearly present the product to the 

consumer as a cigar and not as a cigarette. 

There must be no representations or 

implications on the package or in other 

merchandising or advertising materials 

which tend to negate the tax declaration that 

the product is a cigar. If the package for a 

cigar product is comparable to the traditional 

20-cigarette soft (cup) pack or the similar 

hard pack, the declaration ‘‘cigars’’, ‘‘small 

cigars’’, or ‘‘little cigars’’ must appear in 

direct conjunction with, parallel to, and in 

substantially the same conspicuousness of 

type and background as the brand name each 

time the brand name appears. A conspicuous 

‘‘cigar’’ declaration must appear on the front, 

back, and bottom panels of such a typical 

cigarette-type package even if the brand name 

does not appear on any of these panels. 

Cartons must similarly declare the product to 

be a cigar in conjunction with the brand 

name and a conspicuous cigar declaration 

must appear on each panel of the carton 

which is likely to be visible in a retail sale 

display. 

TTB continues to apply the principles 

reflected in Ruling 73–22 in preparing 

responses to requests from 

manufacturers, importers and other 

parties for advance rulings or other 

advice on the tax classification of cigars 

and cigarettes. 

Ruling 73–22 is available on the TTB 

Web site at http://www.ttb.gov. 

ATF Procedure 73–5 

In 1973, ATF published Procedure 

73–5, the purpose of which was to set 

forth some basic analytical methods for 

use by ATF in determining if specific 

reconstituted tobacco material is 

acceptable as a cigar wrapper, and to 

determine if a product wrapped in such 

material is a cigar or cigarette for tax 

purposes. Specifically, Procedure 73–5 

established analytical examinations and 

tests to provide objective information 

for use with other relevant factors in: (1) 

Distinguishing between those materials 

that contained sufficient tobacco to be 

classified as reconstituted tobacco and 

those that did not, (2) differentiating 

between the filler tobaccos typically 

used in cigars and those generally used 

in cigarettes, and (3) determining if a 

smoking product wrapped in 

reconstituted tobacco is taxable as a 

cigar or as a cigarette under the IRC. 

The examinations and tests provided 

in Procedure 73–5 are as follows: 

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62508 Federal Register / Vol. 71, No. 206 / Wednesday, October 25, 2006 / Proposed Rules 

WRAPPER EXAMINATIONS AND TESTS

Color ........................................................ Visual examination with general description and statement as to whether it is in the range of natural 

leaf tobaccos traditionally used as a wrapper for American cigars. 

Composition ............................................. Microscopic examination for tobacco particles, vegetable fibers, mineral particles, adhesives, other 

substances. 

Cellulose Fibers ....................................... Microscopic examination may be reported as none, few, numerous; or chemical tests may be used. 

Texture ..................................................... Microscopic examination described as rough, smooth, etc. 

Tensile Strength ...................................... Instrumentation can be used, but usually only a physical manipulation of stretching, tearing, etc. Generally reported as degree of dry and wet tensile strength. 

Paper-like Qualities ................................. Subjective evaluation based on appearance, tensile strength, number of fibers, general visual character, and evaluation of chemical composition as shown later. 

Taste ........................................................ Degree of tobacco-like character. 

Burning .................................................... Described as more characteristic of tobacco or of paper. 

Fragments of Tobacco ............................ Microscopic examination, described as large, small, pulverized, none, etc. 

Percent moisture. 

Percent total ash. 

Percent acid insoluble ash. 

Percent sodium. 

Percent potassium. 

Percent calcium. 

Other elements may be determined. 

pH of water extract. 

Percent nicotine. 

Sequential Differential Solvent Extractions as described in Section 7.08. 

FILLER EXAMINATIONS AND TESTS

Composition ............................................. Microscopically observed character of filler, expressed as relative proportions of basic tobacco types. 

Taste ........................................................ Tobacco character, described as heavily fermented type, fire-cured type, etc., and other descriptives 

such as added menthol, etc. 

Odor before smoking ............................... Expressed as to kind of tobacco product character, such as mild cigar-like, etc. 

Odor when smoking ................................ Expressed as to kind of tobacco product character such as mentholated cigarette-like, etc. 

Percent moisture. 

Percent total ash. 

Percent acid insoluble ash. 

Percent sodium. 

Percent potassium. 

Percent calcium. 

Other elements may be determined. 

pH of water extract. 

Percent nicotine. 

Sequential Differential Solvent Extractions as described in Section 7.08. 

PRODUCT EXAMINATIONS AND TESTS

Diameter .................................................. In millimeters to the nearest tenth. 

Length (Including filter) ............................ In millimeters to the nearest tenth. 

Weight of 1,000 (Including filters) ........... In pounds to nearest hundredth. 

Added distinctive flavorings not otherwise reported, such as any included in the filter. 

pH of smoke. 

Opinions of cigarette smokers. 

Procedure 73–5 is available in its 

entirety on the TTB Web site at http:// 

www.ttb.gov. 

ATF Procedure 76–2 

ATF Procedure 76–2 was published in 

1976 to supersede, in part, ATF 

Procedure 73–5. 

Specifically, this procedure sets forth 

an updated sequential solvent extraction 

method to replace the one contained in 

Procedure 73–5. The updated method 

was essentially the same as the method 

it replaced except that the instructions 

were amplified and the standards were 

redetermined on a residue-free solvent 

basis. The decision to update the 

method was based in part on 

information received from some 

industry members to the effect that the 

method contained in Procedure 73–5 

was not sufficiently specific for it to be 

effectively employed in their 

laboratories. In addition, it was noted 

that the extractive procedure used in the 

method did not account for the 

possibility of varying residues from the 

solvents themselves, thus leading to 

erroneous test results. The solvents used 

in the sequential solvent extraction 

method under Procedure 76–2 are as 

follows: 

• Petroleum Ether; 

• Tetrahydrofuran; 

• Acetonitrile; 

• 95% Ethanol; and 

• Dioxane—20% Water. 

Procedure 76–2 is available in its 

entirety on the TTB Web site at http:// 

www.ttb.gov. 

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Federal Register / Vol. 71, No. 206 / Wednesday, October 25, 2006 / Proposed Rules 62509 

1Zook, C., Patel, P., LaCourse, W., & Ralapati, S., 

J. Agric. Food Chem., Vol. 44, No. 7, 1996, 

Characterization of Tobacco Products by HighPerformance Anion Exchange ChromatographyPulsed Amperometric Detection. 

2Clarke, M., J.AOAC International, Vol. 85, No. 

1, 2002, Quantitation of Nicotine in Tobacco 

Products by Capillary Electrophoresis. 

3Abdallah, F. ‘‘Blending Concepts. ABC Blend 

Development and Maintenance’’, Tobacco Reporter, 

April 2003, pp. 72–78. 

4Leffingwell, J. ‘‘Chemical Constituents of 

Tobacco Leaf and Differences among Tobacco 

Types’’, February 2001. 

Current Analytical Procedures 

TTB has in recent years supplemented 

most of the methodologies contained in 

ATF Procedures 73–5 and 76–2 with 

other more efficient methodologies. In 

particular, TTB no longer uses the 

sequential solvent extraction method to 

test tobacco products. With regard to 

analyzing the filler tobaccos used in 

cigars and cigarettes, TTB has adopted 

a less labor intensive analytical method 

that does not require use of the toxic 

solvents used in the sequential solvent 

extraction method. Although this 

method, titled ‘‘Characterization of 

Tobacco Products by High-Performance 

Anion Exchange ChromatographyPulsed Amperometric Detection,’’ was 

published in the Journal of Agricultural 

and Food Chemistry in 1996, it has not 

been published as an Agency procedure. 

The published abstract for this method 

is as follows: 

A simple and reproducible method has 

been developed for the classification of 

cigarette versus cigar tobacco. Although the 

tobacco used for both cigars and cigarettes 

may be of the same natural origin, tobacco 

types and processing parameters alter the 

relative amounts of natural constituents (e.g., 

carbohydrates). In this method, 

carbohydrates are obtained by water 

extraction. The extracts are then analyzed 

using high-performance anion exchange 

chromatography followed by pulsed 

amperometric detection. The relative 

amounts of glucose, fructose, and sucrose 

between cigarette and cigar tobaccos are used 

for their characterization. Complete analysis 

of a tobacco product is achieved in less than 

60 min.1

In addition to the method mentioned 

above, ATF developed a method to 

determine the quantity of nicotine in 

tobacco products, specifically in cigar 

and cigarette wrapper materials. This 

method was not published as an Agency 

procedure, but was published in the 

Journal of AOAC International under 

the title ‘‘Quantitation of Nicotine in 

Tobacco Products by Capillary 

Electrophoresis,’’ in 2002. The 

published abstract for this method is as 

follows: 

A simple and rapid capillary 

electrophoresis (CE) method was developed 

for the quantitation of nicotine in commercial 

tobacco products. The method involves a 6 

min run at 30 kV, using a 50mM phosphate 

buffer (pH 2.5), paraquat as internal standard, 

and UV detection at 260 nm. Nicotine was 

extracted from tobacco products in <15 min. 

Recoveries from spiked extracts were >95%, 

and the extraction efficiencies of water, 1M 

HCl, 1M acetic acid, 5mM phosphate buffer 

(pH 2.5), and 1% triethanol amine were 

similar. Nicotine concentrations in 67 

samples of cigarettes, cigars, and bidis varied 

between 0.37 and 2.96% (w/w). An 

established gas chromatography/mass 

spectrometry method using toluene 

extraction consistently yielded lower 

nicotine values than the CE method. 

Experimental evidence suggests that this is 

due to insufficient extraction of nicotine by 

toluene.2

Total Reducing Sugars Study 

Over the last several years, TTB has 

seen an increase in the number of 

tobacco products labeled ‘‘Little Cigars’’

submitted to the Agency by members of 

the U.S. tobacco industry, importers, 

and other Federal agencies requesting 

letter rulings or other advice regarding 

the proper classification of the products 

under the IRC. In light of this increased 

interest in the tax classification of little 

cigars, and because of a desire to 

improve the efficacy of the analytical 

standards discussed above, TTB decided 

to explore other analytical avenues that 

might provide a more reliable standard 

for distinguishing between cigars and 

cigarettes. 

We found that U.S. manufacturers 

conduct analyses of their tobacco 

products with a flow analyzer, which 

has been specifically designed, 

developed, and validated for analysis of 

target tobacco components, including 

total reducing sugars and nicotine 

(‘‘total reducing sugars’’ encompasses 

all monosaccharides and disaccharides). 

Since this instrument has become a 

widely used and accepted analytical 

tool within the tobacco industry, we 

concluded that it would be appropriate 

for our inquiry. 

Accordingly, in 2005, TTB obtained 

an Astoria 2 + 2 Flow Analyzer from 

Astoria-Pacific International in order to 

conduct a study of cigar and cigarette 

samples obtained for testing. Our study 

was grounded on the fact that cigars and 

cigarettes contain different blends of 

tobacco’cigarettes are made primarily 

from flue-cured or light air-cured 

(burley) and oriental (Turkish) tobaccos, 

whereas cigars are usually made from 

air-cured and fermented tobaccos. Many 

of the significant chemical differences 

between cigar and cigarette tobaccos are 

related to the curing and/or 

fermentation processes used to 

manufacture them. 

One of the most significant chemical 

differences between cigars and 

cigarettes is the level of total reducing 

sugars, which varies significantly 

depending on the processing of the filler 

material. Flue-cured tobaccos, which are 

high in reducing sugars, are 

predominant in cigarettes sold in the 

U.S. market.3 Furthermore, sugar is 

often added directly to cigarette filler 

tobaccos to ‘‘balance’’ smoke flavor.4 In 

contrast, cigars are manufactured from 

processed tobaccos that contain 

relatively low levels of sugars. 

Therefore, TTB surmised that 

comparing the sugar content in the filler 

tobacco used in cigars to the sugar 

content in the filler tobacco used in 

cigarettes might yield a clear and 

objective line of distinction between 

these two classes of tobacco products. 

In the study, TTB analyzed 93 

products labeled either as ‘‘cigars’’

(large cigars and little or small cigars) or 

as ‘‘cigarettes.’’ The products were 

analyzed to determine the quantity of 

total reducing sugars in each product 

using an Astoria 2 + 2 Flow Analyzer. 

In the study, sucrose was converted to 

a monosaccharide in order to result in 

a total reducing sugars value for each 

product. 

Products were chosen for the study 

based largely on recent sales history in 

the domestic market. For cigarettes, 

products were obtained of the five 

largest manufacturers whose combined 

market share totals approximately 90 

percent of the domestic market. 

Approximately 140 cigarette products 

were collected for analysis, and to date, 

47 have been analyzed for total reducing 

sugars. For cigars, products were also 

obtained of the manufacturers with the 

most significant domestic presence. In 

all, 190 cigars and little cigar products 

were obtained, of which 46, to date, 

have been analyzed for total reducing 

sugars. 

The 93 analyzed samples were 

selected to provide a robust 

representative sample of the domestic 

marketplace for both cigars and 

cigarettes. Specifically, samples of 

‘‘cigarettes’’ were chosen to ensure that 

the most common brand descriptors 

were represented (full flavor, mild, 

light, ultra light, menthol) as well as 

some of the less common descriptors, 

such as natural cigarettes. The tested 

‘‘cigars’’ were chosen to reflect the 

diversity of the product lines (flavored, 

machine rolled, premiums, and little 

cigars). In addition, the little cigars used 

in the study were those that closely 

resembled cigarettes in length, diameter, 

and uniformity of the cylinder and in 

having a filter. While it is anticipated 

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62510 Federal Register / Vol. 71, No. 206 / Wednesday, October 25, 2006 / Proposed Rules 

that future additions to the data set will 

provide greater insight into the chemical 

differences among these products, it is 

not expected that more data will 

significantly alter the overall results of 

the study. 

Each tobacco product was prepared 

for analysis by separating the wrapper 

material from the filler and drying the 

filler at 90° C for one hour in a 

convection oven. The filler was then 

ground into a coarse powder using a 

Wiley Mill equipped with a 20 mesh 

screen and transferred to airtight 

containers. Approximately 100 mg of 

the ground fill material was accurately 

weighed into a flask and mixed with 

100 milliliters of a 1% acetic acid 

solution. Extraction of sugars from the 

ground fill material was facilitated by 

agitation using a wrist action shaker for 

1⁄2 hour. The mixture was then filtered 

(to remove the remaining solid material) 

using Whatman 114V pleated filter 

paper and poured into sample vials. 

Three sample vials were prepared for 

each tobacco sample. 

The total reducing sugars results 

obtained for each tobacco sample were 

the average of nine injections into the 

flow analyzer (three injections for each 

of the three sample vials prepared for 

each tobacco sample). The results 

obtained by using this method were 

reported as percent by weight. Further, 

the method accurately reports the 

percentage weight of reducing sugars in 

each sample at levels from 2% to 40% 

by weight. As expected, the cigar 

samples showed levels below 2%. 

Because the values for reducing sugars 

found in cigars are below 2%, the TTB 

laboratory could not report those values 

with the exactitude reportable for values 

within the 2% to 40% range. 

Consequently, any value below 2% for 

total reducing sugars will be reported as 

‘‘<2%.’’ However, even though 2% is 

the smallest percentage of total reducing 

sugars that can be quantitatively 

determined with suitable precision and 

accuracy using this method, the values 

obtained for cigars are still valid for the 

purpose of distinguishing cigars from 

cigarettes using total reducing sugars. 

Statistical analyses of the results of the 

study are summarized in the table 

below. 

Sample Range (% by 

weight) 

Mean (% by 

weight) 

Interval 

@ 99% 

Cigars ............................................................................................................................................... Below 2 ....... Below 2 ....... *n/a 

Little cigars ....................................................................................................................................... Below 2 ....... Below 2 ....... *n/a 

Cigarettes ......................................................................................................................................... 7.47 to 17.94 11.85 ........... ±0.85 

*n/a = not applicable. 

The results obtained for total reducing 

sugars for the cigars tested differed 

greatly from the results obtained for 

cigarettes tested. The data obtained from 

the study is listed in the chart below 

according to tax class and sample 

number. 

TOTAL REDUCING SUGARS (TRS) 

STUDY RESULTS

Sample number 

TRS 

(percent by 

weight) 

Large Cigars 

1 ................................................ 0.4 

2 ................................................ 0.5 

3 ................................................ 0.6 

4 ................................................ 0.8 

5 ................................................ 0.8 

6 ................................................ 0.6 

7 ................................................ 0.7 

8 ................................................ 0.6 

9 ................................................ 0.6 

10 .............................................. 0.3 

11 .............................................. 0.5 

12 .............................................. 0.7 

13 .............................................. 0.9 

14 .............................................. 0.7 

15 .............................................. 0.5 

16 .............................................. 0.7 

17 .............................................. 0.6 

18 .............................................. 0.5 

19 .............................................. 0.6 

20 .............................................. 0.5 

21 .............................................. 0.4 

22 .............................................. 0.4 

23 .............................................. 0.8 

24 .............................................. 0.7 

25 .............................................. 0.6 

26 .............................................. 0.3 

27 .............................................. 0.3 

28 .............................................. 0.5 

TOTAL REDUCING SUGARS (TRS) 

STUDY RESULTS—Continued 

Sample number 

TRS 

(percent by 

weight) 

29 .............................................. 0.5 

Little Cigars 

31 .............................................. 1.2 

32 .............................................. 1.3 

33 .............................................. 1.1 

34 .............................................. 0.8 

35 .............................................. 1.0 

36 .............................................. 1.0 

37 .............................................. 1.2 

38 .............................................. 0.5 

39 .............................................. 0.7 

40 .............................................. 1.4 

41 .............................................. 0.6 

42 .............................................. 0.8 

43 .............................................. 0.8 

44 .............................................. 1.5 

45 .............................................. 0.5 

46 .............................................. 1.6 

47 .............................................. 1.0 

Sample number 

TRS 

(percent by 

weight) 

Uncertainty 

(+/¥) 

Cigarettes 

51 ...................... 7.47 0.12 

52 ...................... 8.38 0.41 

53 ...................... 7.61 0.15 

54 ...................... 7.71 0.14 

55 ...................... 9.19 0.15 

56 ...................... 9.82 0.09 

57 ...................... 9.80 0.15 

58 ...................... 10.06 0.09 

59 ...................... 11.09 0.08 

60 ...................... 11.31 0.41 

61 ...................... 10.42 0.16 

Sample number 

TRS 

(percent by 

weight) 

Uncertainty 

(+/¥) 

62 ...................... 10.64 0.23 

63 ...................... 10.89 0.45 

64 ...................... 10.90 0.15 

65 ...................... 10.31 0.16 

66 ...................... 9.43 0.14 

67 ...................... 11.38 0.12 

68 ...................... 11.93 0.18 

69 ...................... 11.28 0.18 

70 ...................... 11.14 0.17 

71 ...................... 13.51 0.26 

72 ...................... 13.75 0.16 

73 ...................... 12.63 0.22 

74 ...................... 13.74 0.19 

75 ...................... 13.41 0.21 

76 ...................... 12.43 0.17 

77 ...................... 12.06 0.09 

78 ...................... 11.49 0.21 

79 ...................... 11.28 0.07 

80 ...................... 11.57 0.16 

81 ...................... 11.50 0.16 

82 ...................... 11.40 0.22 

83 ...................... 13.52 0.12 

84 ...................... 11.21 0.28 

85 ...................... 12.73 0.10 

86 ...................... 11.86 0.21 

87 ...................... 13.57 0.15 

88 ...................... 12.27 0.22 

89 ...................... 13.74 0.25 

90 ...................... 13.76 0.10 

91 ...................... 12.61 0.23 

92 ...................... 16.44 0.24 

93 ...................... 11.74 0.30 

94 ...................... 14.46 0.73 

95 ...................... 14.44 0.32 

96 ...................... 17.21 0.26 

97 ...................... 17.94 0.36 

The following is a graphical 

representation of the study results listed 

above. 

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62512 Federal Register / Vol. 71, No. 206 / Wednesday, October 25, 2006 / Proposed Rules 

Petitions for Rulemaking 

After TTB began developing a plan to 

clarify and amplify its regulations 

pertaining to the classification of cigars 

and cigarettes, the Agency received 

three petitions for rulemaking 

concerning this issue. One petition, 

including a later follow-up to that 

petition, was submitted by the Cigar 

Association of America, Inc. (CAA). 

Another petition came from the 

Lorillard Tobacco Company (Lorillard) 

and the R.J. Reynolds Tobacco Company 

(RJR). The third petition, which 

included a later amendment to that 

petition, was submitted by 39 States and 

one U.S. territory. 

CAA Petition 

On December 19, 2005, the CAA 

submitted a petition to TTB specifically 

requesting rulemaking on little cigars in 

order to ‘‘maintain the integrity of the 

little cigar class.’’ In this petition, the 

CAA urged TTB to expedite its 

proposed rule to distinguish between 

cigars and cigarettes due to what the 

CAA believes is widespread confusion 

within the tobacco industry concerning 

how to classify little cigars and 

cigarettes for Federal regulatory and tax 

purposes. 

In their petition, the CAA stated that 

since the signing of the Master 

Settlement Agreement (MSA) by the 

several States and the cigarette 

companies in 1998, it has witnessed a 

proliferation of new brands of domestic 

and imported little cigars entering the 

U.S. market. Further, the CAA stated 

that there is confusion in many of the 

States, whose attorneys general believe 

that little cigars are cigarettes in 

disguise, specifically designed to 

circumvent the provisions of the MSA. 

Hence, the CAA stated that the 

distinction between little cigars and 

cigarettes is an issue requiring Federal 

action and that TTB should assume the 

leadership role in this area. 

Lorillard-RJR Petition 

The Lorillard-RJR petition, dated 

January 9, 2006, requested that TTB 

amend its regulations regarding the 

classification of little (small) cigars. The 

petitioners stated that they propose 

these changes because current 

regulatory and interpretive ruling 

standards ‘‘do not adequately focus the 

resources of TTB on the many new 

products that have entered the 

marketplace.’’ The petitioners went on 

to state: 

Lorillard and R.J. Reynolds believe that 

changes in the regulations governing little 

cigars are necessitated by the increased 

differential between tobacco product 

categories with respect to taxes, fees and 

assessments paid. The relative burden faced 

by cigarettes has increased by a far greater 

amount than cigars in recent years, creating 

an economic advantage for the little cigar 

classification. In addition, companies 

participating in the ‘‘Master Settlement 

Agreement’’ (‘‘MSA’’) must make payments 

to the States based on sales of cigarettes, not 

cigars. As a result of these and other factors, 

since the signing of the MSA a number of 

tobacco products have been introduced into 

the domestic market and are being 

improperly packaged, labeled, and classified 

as little cigars in order to bypass federal and 

state tax burdens, reporting requirements, 

and MSA payments. 

In a few short years, the tobacco market has 

changed substantially. A large number of 

products have been introduced and marketed 

as ‘‘little cigars,’’ yet they are packaged like 

cigarettes, and in many cases have the look, 

taste, flavorings, and characteristics of 

cigarettes. Yet they are much less expensive, 

avoiding the taxes and MSA burdens 

imposed upon cigarettes. 

The petitioners highlighted several 

reasons why they believe that it is 

important for TTB to update its 

regulations governing the classification 

of little cigars and cigarettes. They noted 

the following regarding the changes in 

domestic invoice volume for little cigars 

and cigarettes: 

In 1998, the domestic invoice volume for 

little cigars was 1,638,000,000 units. By 2004, 

this volume had risen to 2,702,000,000 units, 

an increase of 64.96%. By contrast, domestic 

cigarette volume was 22,755,000,000 packs in 

1998. By 2004, domestic volume had fallen 

to 18,922,000,000 packs, a decrease of 

16.84%. 

The petitioners further stated: 

In recent years, lines have been blurred in 

the marketing of cigarettes and little cigars. 

For example, little cigars are increasingly 

sold in packs of 20, much like cigarettes, 

with packs that are similar in size to a pack 

of cigarettes. 

In addition to the decrease in 

domestic sales of cigarettes, the 

petitioners stated that the monetary 

obligations provided in the MSA have 

increased the financial burden on 

cigarette makers whereas little cigar 

makers are unaffected since cigars, little 

and large, are not covered under the 

MSA. The petitioners noted in this 

regard that the financial impact of 

compliance with the MSA has been 

estimated to be 50 cents per pack. 

Further, the petitioners state that State 

excise taxes on cigarettes have increased 

significantly over the last several years. 

These tax increases, when combined 

with MSA payments, have driven up the 

cost of cigarettes, thus further widening 

the cost differential between little cigars 

and cigarettes. To rectify the problems 

identified in the petition and 

highlighted above, the petitioners 

request that TTB initiate a number of 

specific actions. 

The first action requested is that TTB 

publish a notice of proposed rulemaking 

to update the existing regulations that 

pertain to the classification of little 

cigars and cigarettes. The petitioners 

request several specific regulatory 

changes described in more detail below. 

The petitioners urged TTB to take 

steps beyond ATF Ruling 73–22 to 

strengthen the reporting requirements 

placed on manufacturers and importers 

of little cigars. The petitioners stated: 

ATF Ruling 73–22 specifically allows the 

TTB to ‘‘reappraise and update the criteria’’

for defining cigars or cigarettes due to 

‘‘[c]hanging technology and merchandising 

methods.’’ Therefore, the ruling provides the 

TTB with the explicit authority to amend the 

regulations governing cigars in light of 

changes in the marketplace. While we believe 

that the factors in ATF Ruling 73–22 

continue to provide a logical basis for the 

classification of little cigars and cigarettes, 

we also believe that the non-binding and 

voluntary nature of the reporting 

requirements under this Ruling are no longer 

effective in the current marketplace. 

We think a more targeted approach by TTB 

will better serve to promote effective 

enforcement and reduce current market 

confusion of little cigars. This approach, 

outlined below, should include an additional 

disclosure requirement for new brands that 

may be contributing to potential consumer 

confusion. 

In addition, the petitioners requested 

that TTB distinguish between little cigar 

brands marketed prior to the signing of 

the MSA and those that appeared on the 

market only after the MSA, by creating 

a presumption ‘‘in favor of those little 

cigar brands marketed prior to the 

existence of the financial disincentives 

created by the MSA.’’ While those 

brands would still be subject to 

monitoring and challenge as under 

existing regulations, there would be a 

rebuttable presumption that such brands 

continue to comply with all TTB 

requirements, and are likely to be 

offered to, and purchased by, consumers 

as little cigars. 

Further, the petitioners urged TTB to 

establish a certification procedure for 

post-MSA little cigar brands. The 

petitioners proposed the following in 

this regard: 

For those little cigar brands initially 

marketed after the signing of the MSA 

(November 23, 1998), a certification 

requirement should be created. Such 

certification would require each 

manufacturer (under 27 CFR Part 40) or 

importer (under 27 CFR Part 41) to certify to 

the TTB that each of the factors set forth in 

ATF Ruling 73–22 have been satisfied with 

respect to such brand. For enforcement 

purposes, each of the seven conditions 

currently required for an advanced ruling 

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should be included in the certification 

submission to TTB. 

We recommend that this certification be 

made a one time requirement for post-MSA 

brands. In addition, any material change in 

the appearance, type of tobacco used in the 

filler, and packaging and labeling of the 

product would trigger a recertification 

process. New brands marketed after the 

completion of the rulemaking would also be 

required to comply with the certification 

process. 

However, we do not recommend that the 

certification process include any affirmative 

action by the TTB in order for the brand to 

be eligible for entering into commerce. In 

other words, there would not be a preapproval process prior to the marketing of a 

post-MSA brand. Rather, the certification 

submissions would form the basis for an 

initial level of TTB analysis and review, 

focusing on those products in the 

marketplace where the most significant 

classification issues are likely to exist. 

The petitioners also requested that 

TTB amend the regulations to provide 

for a third party challenge procedure. 

This procedure would be open to any 

party to demonstrate that tobacco 

products introduced into commerce as 

‘‘small’’ or ‘‘little’’ cigars do not meet 

the regulatory criteria established by 

TTB. 

Finally, the petitioners requested that 

any efforts to modernize the TTB 

regulations be done in conjunction with 

the U.S. Customs and Border Protection 

as they relate to tobacco product 

imports. In addition, the petitioners 

recommended the inclusion of postMSA presumption and certification 

requirements in 27 CFR part 41. 

CAA Petition Follow-Up 

On February 21, 2006, the CAA 

submitted a letter with reference to its 

December 19, 2005, petition. This letter 

is directed to certain issues raised in the 

Lorillard-RJR petition. 

The CAA states in this letter that the 

Lorillard-RJR proposal does not offer 

much in the way of establishing 

standards for distinguishing between 

little cigars and cigarettes, but instead 

focuses on compliance and enforcement 

issues pertaining to these two products. 

The CAA further states that the 

Lorillard-RJR proposal would impose 

regulatory requirements on one small 

segment of the tobacco industry that 

would exceed those imposed on the rest 

of the industry. The CAA notes in this 

regard that the domestic sales volume 

figures for little cigars and cigarettes 

provided in the Lorillard-RJR petition 

are misleading because the petition uses 

‘‘units,’’ or individual sticks, for little 

cigars and ‘‘packs’’ for cigarettes, which 

suggests that the cigarette industry is ten 

times the size of the little cigar industry 

when, in fact, it is over 200 times the 

size. 

The CAA goes on to state: 

The cigarette company proposal also 

fundamentally mischaracterizes the little 

cigar industry by suggesting incorrectly that 

little cigars are a recent phenomenon. Little 

cigars have been on the market for almost 40 

years and, because they were first made on 

old cigarette machines, have always had a 

superficial resemblance to cigarettes. Little 

cigars, however, have always differed from 

cigarettes, in both composition and 

marketing. They are made of cigar—not 

cigarette—tobacco, they are wrapped in leaf 

tobacco or in reconstituted tobacco (the 

material approved by BATF/TTB for use on 

cigar making equipment), and they are 

clearly labeled and promoted as little cigars. 

While it is true that there are new entrants 

in the little cigar market since the finalization 

of the MSA, it is unreasonable to suggest that 

all little cigars, or even all those introduced 

since 1998, are suspect. 

For two reasons, the CAA opposes the 

Lorillard-RJR proposal for a compliance 

and enforcement approach. First, the 

proposal does not provide any new 

guidance on how to distinguish between 

little cigars and cigarettes but rather 

suggests that the factors in ATF Ruling 

73–22 continue to provide a logical 

basis for the classification of these 

products. The CAA argues that Ruling 

73–22 needs to be supplemented and 

that, until this is done, it is premature 

to consider compliance and 

enforcement procedures. 

The CAA then states: 

Second, even with new guidance in place, 

the cigarette company proposal for 

compliance and enforcement is unacceptable. 

It would create a ‘‘presumption’’ in favor of 

little cigars marketed prior to the Master 

Settlement Agreement of November 23, 1998. 

This ‘‘presumption,’’ however, is 

meaningless, since pre-MSA brands would 

‘‘still be subject to monitoring and challenge 

as under existing regulations.’’ More 

importantly, the unstated corollary to the 

favorable presumption for pre-MSA little 

cigars is that there will be a presumption 

against little cigars first marketed after the 

MSA. The implication is that any such 

product will be presumed to be a cigarette 

unless the manufacturer can demonstrate 

otherwise. The tax, customs, MSA and other 

implications of this presumption are unstated 

but the results would certainly include chaos 

and confusion, as products move between 

categories. This negative presumption would 

apparently apply to pre-MSA brands as to 

which there is any material change in 

appearance, type of tobacco used in the filler, 

or packaging and labeling of the product. A 

change in any one of these characteristics 

would reverse the favorable presumption, 

temporarily re-classifying a little cigar as a 

cigarette. 

The CAA also opposes the LorillardRJR proposal that TTB create a 

certification procedure for post-MSA 

little cigar brands, arguing that it is 

premature to discuss ‘‘certification’’ of a 

product as a little cigar without 

knowing what test is to be used. Under 

the Lorillard-RJR proposal, all of the 

seven conditions specified in ATF 

Ruling 73–22 for an advance ruling 

would have to be included in the 

certification, which would also apply to 

pre-MSA brands if there is any material 

change in the product or packaging. The 

CAA asserts that such an approach is 

tantamount to a pre-approval scheme, as 

it would result in immediate review and 

inspection of a product coming to 

market, without any basis for such 

action. 

Finally, the CAA takes issue with the 

Lorillard-RJR proposal for a ‘‘third party 

challenge procedure,’’ arguing that such 

a procedure would be an invitation to 

those with a variety of interests to force 

little cigar manufacturers to continually 

defend their products from unwarranted 

and unjustified attack. In addition, the 

CAA noted that because under Federal 

statute the tax status of any particular 

product must be held in confidence by 

TTB, Federal legislation would be 

required for TTB to create and 

implement such a third party challenge 

procedure. 

The 23 States Joint Petition and 

Amendment 

On April 24, 2006, the States of 

Montana, Wisconsin, Oklahoma, Utah, 

Oregon, South Dakota, Vermont, 

California, Louisiana, Delaware, New 

York, Arizona, Arkansas, Nebraska, 

West Virginia, New Mexico, Rhode 

Island, Wyoming, Nevada, Kentucky, 

Idaho, Hawaii, and Pennsylvania (the 

petitioner States) submitted a petition to 

TTB requesting the repeal of the 

definitions of ‘‘cigar’’ and ‘‘cigarette’’ as 

provided in 27 CFR 40.11, 41.11, 44.11, 

and 45.11. The petitioner States also 

propose new rules defining ‘‘cigar’’ and 

‘‘cigarette’’ as used in 26 U.S.C. 5702 

and new procedural rules for cigar and 

cigarette rulings. The petitioner States 

say that they take an active role in 

protecting the health and safety of their 

citizens. They also state that they find 

that the tax classification of cigars and 

cigarettes allows products that are 

actually cigarettes to be taxed and sold 

as cigars. Further, the petitioner States 

maintain that this is a growing trend 

and that it endangers the integrity of the 

Federal and State tax systems in 

addition to the MSA. They also state 

that the trend places the health and 

safety of U.S. citizens, especially 

youths, at risk. Specifically, the 

petitioner States address the following 

topics in their petition: 

• Public Health; 

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62514 Federal Register / Vol. 71, No. 206 / Wednesday, October 25, 2006 / Proposed Rules 

• Federal Definition of Cigar and 

Cigarette; 

• Lost Tax Revenues; 

• Evasion of MSA Payments; 

• Evasion of State Escrow and 

Cigarette Directory Laws; 

• Health Warnings and Ingredient 

Reporting; 

• Confusion in the Marketplace; and 

• Proposed New Rules. 

Public Health 

The petitioner States address several 

concerns regarding the effect that little 

cigars have on public health. They state 

that young people are beginning to 

smoke little cigars at a higher rate than 

they smoke cigarettes. Thus, the 

petitioner States are afraid that this 

increase will reverse the gains they have 

made in lowering the rate of cigarette 

smoking in this segment of the 

population. They also allege that young 

people have greater access to little cigars 

than cigarettes, because in many states 

cigarettes are required to be sold in 

packages of 20 sticks or more, whereas 

there is no such requirement for little 

cigars. The petitioner States assert that 

little cigars that are sold in packages of 

less than 20 sticks, such as packages of 

eight sticks, five sticks, or one stick, 

would be less expensive and thus more 

accessible for younger buyers than a 

package of 20 sticks. They also note that 

the flavors such as strawberry, cherry, 

and vanilla used in some little cigars 

make these products attractive to the 

young. 

The petitioner States also address the 

general health effects of cigars. 

Specifically, they state that ‘‘[C]igar 

smokers face a risk of death from 

laryngeal, oral or esophageal cancer that 

is 4 to 10 times greater than the risk 

faced by nonsmokers.’’

The petitioner States argue that sales 

of little cigars are on the increase and 

that in some instances the marketing of 

these products can be misleading. 

Specifically, they state that ‘‘[L]ittle 

Cigar makers have encouraged smokers 

to identify Little Cigars as cigarettes 

through their marketing practices.’’

Federal Definition of Cigar and Cigarette 

The petitioner States included the 

following points concerning the 

evolution of the Federal definitions of 

cigar and cigarette: 

Traditionally cigars have been wrapped in 

a leaf of tobacco. Cigars are made of air-cured 

tobacco that is aged and subjected to a multistep fermentation process that reduces sugar 

content. Traditionally, cigars are also 

unflavored. Cigar smoke is not intended to be 

inhaled, so traditionally cigars do not have 

integrated filters. Sometimes, however, cigars 

have a mouthpiece made of plastic or wood 

that is intended to keep stray pieces of 

tobacco out of the mouth. In the United 

States, cigars come in many styles and sizes. 

Small cigars generally have straight bodies 

and weigh between 1.3 and 2.5 grams each. 

Large cigars vary greatly in size and shape. 

They can contain from 5 to 17 grams of 

tobacco. 

Traditionally cigarettes have been wrapped 

in paper. Cigarettes are made of flue-cured 

tobaccos, not fermented tobaccos. Cigarette 

smoke is intended to be inhaled into the 

lungs, consequently some cigarettes have 

cellulose acetate filters or other integrated 

filters that are intended to filter some of the 

tar out of the smoke. Cigarette manufacturers 

often add sugar to enhance the flavor of the 

cigarette smoke. They generally range from 

68–121 mm. in length and are generally of 

less than 28 ring gauge. 

Prior to 1965, ‘‘Cigar’’ as used in 26 U.S.C. 

5702 was defined as ‘‘any roll of tobacco 

wrapped in tobacco’’ and ‘‘Cigarette’’ was 

defined as ‘‘any roll of tobacco, wrapped in 

paper or any substance other than tobacco.’’

26 U.S.C.S. 5702. 

With the advent of reconstituted tobacco, 

it became possible to machine wrap cigars in 

a mixture of paper and tobacco. 

Reconstituted tobacco is ground tobacco 

mixed with various adhesives and cellulose 

fibers. This blurred the line between a cigar 

and a cigarette. In 1965, Congress enacted 

Public Law 89–44 which amended the 

definitions of cigar and cigarette to those we 

have today. The legislative history of Public 

Law 89–44 describes how technology created 

the problem of distinguishing between cigars 

and cigarettes. 

The petitioner States also included 

the following statement from the 

legislative history of Public Law 89–44 

to describe the nature of the problem of 

distinguishing between cigars and 

cigarettes that led to the legislation: 

The introduction of reconstituted 

(homogenized) tobacco for use as a wrapper 

for rolls of tobacco had created problems 

regarding the existing distinction between a 

cigar and a cigarette. Reconstituted tobacco 

can be used to wrap rolls of tobacco that 

closely resemble cigarettes. Moreover, it 

possesses many of the properties of paper, 

including suitability for use in high-speed 

cigarette manufacturing machinery. 

The petitioner States further argued as 

follows based on the legislative history 

and the wording of the amended 

definitions: ‘‘Clearly Congress intended 

that ‘‘cigarette’’ would include a 

product wrapped in something that 

contains tobacco if it was likely to be 

sold as or purchased as a cigarette.’’

The petition noted the issuance of 

Revenue Ruling 69–198, which was 

subsequently superseded by ATF Ruling 

73–22. The petition then stated the 

following regarding the difficulties with 

Ruling 73–22: 

There are several difficulties with Rev. Rul. 

73–22. The Ruling assumes that products that 

are likely to be sold as or purchased as 

cigarettes will not be if they are labeled as 

cigars. This has led to rolls of tobacco that 

are filtered, appear to be cigarettes in brown 

wrapper and packaged in a traditional 

cigarette pack, are being taxed and sold to 

consumers as cigars because they are labeled 

as little cigars. But recent surveys on youth 

use of little cigars and the manufacturers’

own statements show that ‘‘Little Cigars’’ are 

being purchased in lieu of cigarettes. ‘‘Little 

Cigars’’ are advertised to consumers as 

cigarette alternatives and consumers are selfidentifying ‘‘Little Cigars’’ as cigarettes. 

Consumers recognize that a product that 

looks like a cigarette, is filtered to be inhaled 

like a cigarette, and is packaged like a 

cigarette is, in fact, a cigarette. Unscrupulous 

manufacturers have exploited the loopholes 

in Ruling 73–22 by self-classifying cigarettes 

as cigars. This intentional, unscrupulous 

misclassification of cigarettes as cigars has 

resulted not only in damage to the public 

health but also in significant lost revenues 

and confusion in the marketplace. 

Lost Tax Revenues 

The petitioner States allege in their 

petition that the Federal government 

and the States are losing significant tax 

revenues because cigarettes are 

improperly taxed as cigars. On the 

Federal front, with the excise tax rate for 

small cigars at 4 cents per pack or 40 

cents per carton and that the rate for 

cigarettes at 39 cents per pack or $ 3.90 

per carton, there is tax difference of 

$3.50 per carton. Further, the petitioner 

States suggest the following with regard 

to lost Federal tax revenue: 

From 1999 to 2005, the total little cigars 

sales (domestic, PR & imported) increased by 

over 1.7 billion sticks, or 79%. During this 

same time period cigarette sales decreased by 

over 20%. The States believe that consumers 

are buying the cigarettes that are 

intentionally misclassified as much cheaper 

‘‘Little Cigars’’ in order to avoid the high 

cigarette prices. If we assume that this 

increase is all due to the improperly labeled 

products, the federal excise taxes lost total 

$34 million, based upon the applicable tax 

rate of $3.90 per carton. 

Almost as much federal excise taxes are 

lost even if the shorter time period, from 

2002 to 2005, is selected. From 2002 to 2005, 

‘‘Little Cigar’’ sales increased over 1.6 billion 

sticks, or 69%. The federal excise taxes lost 

on this increase, at $3.90 per carton, total $32 

million. 

Evasion of MSA Payments 

The petitioner States point out that 

the MSA payments to the States are 

based on the sales of cigarettes and not 

cigars. Further, they state that because 

MSA payments are calculated based on 

the Federal excise taxes paid for 

cigarettes, little cigars are not included 

in the calculation of MSA payments. 

The petitioner States argue that this 

creates a financial incentive to shift a 

product classification from a cigarette to 

a cigar to avoid making MSA payments. 

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They note that the MSA payment for 

2005 was $4.25 per carton. 

Evasion of State Escrow and Cigarette 

Directory Laws 

The petitioner States point out that 

the tobacco product manufacturers that 

did not join the MSA (referred to as 

non-participating manufacturers) still 

must make annual payments into 

escrow accounts held by the MSA 

signatory States; in 2005 the escrow 

amount per carton was $4.16. The 

payments are based on the 

manufacturer’s sales of products 

stamped as cigarettes in each State, and 

the State Directory laws list the names 

of the manufacturers who make escrow 

payments and thus are allowed to sell 

their products in the State. However, 

cigars are not subject to the escrow 

requirements. Therefore, the petitioner 

States allege that when a cigarette 

manufacturer is sanctioned for failing to 

make escrow payments, the 

manufacturer simply repackages its 

cigarettes as ‘‘Little Cigars’’ and 

continues to sell them in the State. 

Health Warnings and Ingredient 

Reporting 

The petitioner States state that the 

Federal Cigarette Labeling and 

Advertising Act (FCLAA) administered 

by the Federal Trade Commission (FTC) 

requires health warning labels and 

ingredient reporting for cigarettes but 

that no such requirement exists for 

cigars. The petitioner States further note 

that in 2000 the FTC and the seven 

largest cigar manufacturers entered into 

an agreement to place warning labels on 

their cigars. They argue that one of the 

warning labels included in the 2000 

settlement, ‘‘Cigar smoking can cause 

cancers of the mouth and throat, even if 

you do not inhale’’, would be highly 

misleading if the product in question 

were actually a cigarette and not a cigar 

because the warning in question 

assumes that the consumer will not 

inhale when smoking the product. 

Confusion in the Marketplace 

The petitioner States point out that 

several States have looked at ‘‘Little 

Cigars’’ and have determined that they 

are cigarettes as defined by the State for 

state tax purposes. The petitioner States 

further contend that ‘‘[i]f the States 

change their tax definitions without a 

corresponding change in the TTB 

regulations, the inconsistencies between 

the two definitions cause tremendous 

confusion in the marketplace.’’ To clear 

up this confusion, the petitioner States 

propose that TTB revise its definitions 

of cigar and cigarette so that the 

products can be treated consistently 

under both State law and Federal law. 

Further, they suggest that TTB ‘‘take the 

lead to establish clear, objective, non-lab 

dependent standards that create a clear 

federal regulatory framework into which 

the states may integrate their laws.’’

The States’ Proposed New Rules 

The petitioner States included three 

proposed new rules designed to: (1) 

Preserve the integrity of the cigar 

classification, (2) fairly define cigarettes 

based upon their design characteristics, 

and (3) set forth a procedure for 

determining if a product is a cigar or a 

cigarette under Federal law. The States’

proposed new rules were outlined in the 

petition as follows: 

Proposed New Rule I—Cigar. 

A cigar is a roll of tobacco that: 

1. Is wrapped in 100% natural leaf tobacco; 

or 

2. (a) Is wrapped in any substance that 

contains 75 percent or more tobacco which 

did not in the reconstitution process lose its 

tobacco character (taste, aroma, identifiable 

chemical components) and is of a color 

consistent with that of the natural leaf 

tobaccos traditionally used as a wrapper for 

American cigars; and 

(b) Is not a cigarette within the meaning of 

[New Rule II]. 

Proposed New Rule II—Cigarette. 

A cigarette is a roll of tobacco that: 

1. Is wrapped in paper or any substance 

not containing tobacco; or 

2. Is wrapped in a substance containing 

tobacco, and is likely to be offered to, or 

purchased by, consumers as a cigarette. A 

roll of tobacco wrapped in a substance 

containing tobacco (other than 100 percent 

natural tobacco leaf) shall be considered to be 

likely to be offered to, or purchased by, 

consumers as a cigarette if any of the 

following are true: 

a. It has a cellulose acetate or other 

integrated filter; 

b. The tobacco used in the filler contains 

flue-cured or unfermented tobaccos or has 

flavor additives; 

c. The tobacco in the filler, binder, or 

wrapper contains any sucrose; 

d. The packaging does not clearly and 

conspicuously declare that the product is a 

cigar; 

e. The appearance, packaging and/or 

labeling of the product meets three or more 

of the following criteria: 

i. The product is sold in packs containing 

twenty or twenty-five sticks; 

ii. The product is available for sale in 

cartons of 10 packs; 

iii. The product is sold in soft packs, hard 

packs, flip-top boxes, clam shells, or other 

cigarette-type boxes; 

iv. The product weighs less than three 

pounds per thousand sticks; or 

v. The product is the diameter and length 

of a commercially-manufactured cigarette; 

f. The product is marketed or advertised to 

consumers as a cigarette or cigarette 

substitute; or 

g. It contains any other indicia that the 

product fits within the definition of cigarette 

in 26 U.S.C. 5702(b). 

Proposed New Rule III—Procedure. 

1. A manufacturer shall request an advance 

ruling from the bureau as to any product a 

manufacturer or importer wishes to market as 

a cigar. 

2. The bureau shall make an advance 

ruling as to whether a product is a cigar 

within the meaning of 26 U.S.C. 5702(a), 

using the criteria above and the 

characteristics of the tobacco product, its 

packaging and labeling, and the totality of the 

circumstances. 

3. Along with a request for determination, 

the manufacturer shall submit the following: 

a. The package and any larger consumer 

container such as the carton, or the detailed 

graphics for these if they have not been 

printed; 

b. A statement of the merchandising theme 

and copies of all advertising that mentions or 

depicts the product and point of sale 

merchandising material for the product; 

c. A statement under penalty of perjury 

that the merchandising and advertising 

materials submitted are of the exact, actual 

advertising that will be used in the United 

States; 

d. A statement under penalty of perjury 

that the manufacturer will obtain a new 

ruling from the Bureau if any material 

modifications are made to the marketing or 

advertising of the product prior to any 

change in the existing marketing or 

advertising; 

e. A statement of composition of the 

wrapper including the type, geographic 

origin, treatment, age, and percentage of each 

tobacco used; 

f. 2,500 square inches (17 square feet) of 

the wrapper material; 

g. A statement of all the materials, 

chemicals, and additives and proportion of 

each used in the binder, and the production 

process; 

h. 400 sticks of the finished product (if 

weighing not more than 10 pounds a 

thousand), or 200 sticks of the finished 

product (if weighing more than 10 pounds a 

thousand); 

i. A statement under penalty of perjury of 

all the materials, chemicals, and additives 

and proportion of each used in the filler and 

the production process, including, but not 

limited to, the proportion of fermented aircured tobacco, flue-cured tobacco and 

unfermented tobacco; 

j. A statement under penalty of perjury that 

the samples submitted are of the exact, actual 

product that will be sold in the United States; 

and 

k. A statement under penalty of perjury 

that the manufacturer will obtain a new 

ruling from the Bureau if any modifications 

are made to the composition or ingredients 

of the product prior to sales of any modified 

product. 

4. If the manufacturer requests a ruling, the 

manufacturer shall submit all other relevant 

evidence required to enable the bureau to 

make a ruling. Pending a ruling by the 

Bureau, the manufacturer may only sell its 

product as a cigarette and comply with all 

laws applicable to cigarettes; such sales may 

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occur only after the manufacturer notifies the 

revenue departments of the states where the 

product will be sold that a ruling by the 

Bureau is still pending. 

5. Not later than January 1, 2007, the 

Bureau shall develop and publish on its 

Internet Web site a directory listing of all 

rulings by the Bureau regarding the 

classification of a tobacco product as a cigar 

or as a cigarette, including the name and 

address of the manufacturer requesting the 

product classification, the product brand 

family and if the trademark for the brand 

family is not owned by the manufacturer, the 

name and address of the owner of the 

trademark. 

On May 18, 2006, the Assistant 

Attorney General for the State of 

Montana, Kelly M. O’Sullivan, 

submitted an amendment to the petition 

submitted by the 23 States on April 24, 

2006. The amendment was submitted to 

add an additional 16 States and one 

territory to the original petition, 

bringing the supporters of this petition 

to 39 States and one territory, as 

follows: Alaska, Arizona, Arkansas, 

California, Connecticut, Delaware, 

Georgia, Hawaii, Idaho, Illinois, Iowa, 

Kansas, Kentucky, Louisiana, Maine, 

Maryland, Massachusetts, Michigan, 

Minnesota, Montana, Nebraska, Nevada, 

New Mexico, New Jersey, New York, 

North Carolina, Oklahoma, Oregon, 

Pennsylvania, Rhode Island, South 

Carolina, South Dakota, Tennessee, 

Utah, Vermont, Washington, West 

Virginia, Wisconsin, Wyoming, and 

Guam. 

In addition, the petition amendment 

included more recent information 

pertaining to the consumption of little 

cigars and cigarettes. Specifically, the 

petition amendment states: 

Since the States filed our petition with the 

TTB, the following official information from 

the United States government, U.S. 

Department of Agriculture, Tobacco Outlook 

has come to our attention. While cigarette 

consumption has continued to decline, small 

cigar consumption increased significantly in 

2005 over 2004. ‘‘Consumption of little cigars 

reached 4,037 million cigars, compared with 

2,917 million in 2004. Popularity of little 

cigars increased in part due to lower tax rates 

than cigarettes and because Master 

Settlement Agreement payments are not 

assessed on small cigars as they are with 

cigarettes.’’ [U.S. Dep’t of Agriculture, 

Tobacco Outlook. Wash., DC: U.S. Dep’t of 

Agric., Econ. Res. Serv., 2005, p. 2. The 

Tobacco Outlook and accompanying tables 

are available at: usda.mannlib.cornell.edu/ 

reports/erssor/specialty/tbs-bb/2006/ 

tbs260.pdf.] Data compiled from reports of 

the Bureau of Alcohol, Tobacco and 

Firearms, and the Bureau of the Census 

indicate that per capita consumption of small 

cigars increased from 10.4 small cigars per 

person in 2003 to 12.1 small cigars in 2004 

and 17.2 small cigars in 2005, an increase of 

65% since 2003 and an increase of 42% in 

the most recent year. 

The petition amendment concludes with 

the following statement: 

We believe it is obvious that the majority 

of this astonishing growth is due to the fact 

that cigarettes are being passed off as ‘‘little 

cigars’’ and that, absent effective action by 

this agency, this dangerous and illegal 

activity will only intensify * * * The States 

urge the TTB to act now to adopt new rules 

and regulations that clearly classify as a 

cigarette through specific, objective criteria, 

products that are properly a cigarette—

namely ‘‘any roll of tobacco wrapped in any 

substance containing tobacco which, because 

of its appearance, the type of tobacco used in 

the filler, or its packaging and labeling, is 

likely to be offered to, or purchased by, 

consumers as a cigarette.’’ The States also 

request that TTB adopt policies and 

procedures for classification which prevent 

manufacturers from self-classifying their 

cigarettes as cigars in order to avoid the 

attendant federal and state regulations, laws, 

taxes and payments. 

The Need for Regulatory Changes 

Based on the considerations that led 

to the total reducing sugars study 

discussed above, and in light of the 

uncertainties and other problems 

outlined in the three petitions 

summarized above, TTB believes that a 

pressing need for regulatory 

improvements exists. TTB notes in this 

regard that the only extant regulatory 

standard for distinguishing between 

cigars and cigarettes consists of the 

definitions of these terms, which merely 

repeat the statutory definitions. The 

only other published source for 

guidance in this area is ATF Ruling 73–

22, which does not have the same force 

and effect as a regulation. 

We also must emphasize that tax 

administration under the IRC is the only 

appropriate basis for the regulatory 

changes proposed in this document. 

Although the CAA, Lorillard-RJR, and 

the petitioner States petitions stress the 

significance of the signing of the Master 

Settlement Agreement (MSA), in 

particular regarding the alleged effect of 

the MSA on the marketing of little 

cigars, we note that TTB has no 

jurisdiction to act under the MSA. 

Similarly, although the petitioner States 

cited a number of public health issues 

in their petition, such issues are clearly 

outside the scope of Chapter 52 of the 

IRC. Accordingly, the proposed 

regulatory amendments contained in the 

document are directed only to enforcing 

the provisions of Chapter 52 of the IRC. 

Basic Interpretative Principles 

TTB recognizes that the statutory 

definitions of ‘‘cigar’’ and ‘‘cigarette’’

are controlling and are not susceptible 

to modification by regulation. 

Accordingly, we must operate within 

those definitions in amending the 

regulations to clarify the distinction 

between cigars and cigarettes for tax 

purposes. This being said, TTB has 

authority to interpret those definitions 

and determine how they are applied to 

specific products. Several basic 

interpretations of those definitions 

underlie the regulatory changes 

proposed in this document. 

One interpretation concerns the effect 

of the usage of the terms ‘‘leaf tobacco’’

and ‘‘substance containing tobacco’’ in 

these definitions. It is the position of 

TTB that a ‘‘roll of tobacco’’ that is 

wrapped in ‘‘leaf tobacco’’ must be 

classified as a cigar and never as a 

cigarette. This position is based on the 

fact that whereas both definitions 

include a reference to a ‘‘substance 

containing tobacco’’ when referring to 

the wrapper material, the term ‘‘leaf 

tobacco’’ appears as a wrapper reference 

only in the ‘‘cigar’’ definition. The terms 

‘‘leaf tobacco’’ and ‘‘substance 

containing tobacco’’ were introduced 

when the definitions were amended in 

1965 (prior to that amendment, the cigar 

definition referred to a roll of tobacco 

wrapped in ‘‘tobacco’’ and the cigarette 

definition referred to a roll of tobacco 

wrapped in ‘‘paper or any substance 

other than tobacco’’). The fact that 

Congress chose not to use the new 

wrapper term ‘‘leaf tobacco’’ in the 

cigarette definition is evidence of an 

intent to restrict it to a cigar wrapper 

context. 

As a corollary to the rule stated above, 

a distinction must be made between 

‘‘leaf tobacco’’ and a ‘‘substance 

containing tobacco.’’ This is necessary 

both because the statutory definition of 

‘‘cigar’’ uses both terms in the 

disjunctive (thus making an implicit 

distinction between them) and because 

including leaf tobacco within the 

meaning of ‘‘substance containing 

tobacco’’ would allow a ‘‘cigarette’’ to 

have a wrapper consisting of leaf 

tobacco, contrary to the rule stated 

above. 

Similarly, it is the position of TTB 

that a ‘‘roll of tobacco’’ that is wrapped 

in a ‘‘substance not containing tobacco’’

must be classified as a cigarette and 

never as a cigar. This position is based 

on two factors: (1) The presence of 

tobacco in the wrapper (either as ‘‘leaf 

tobacco’’ or in a ‘‘substance containing 

tobacco’’) is a prerequisite to 

classification as a cigar under the cigar 

definition; and (2) only the first of the 

two cigarette definitions refers to a 

‘‘substance not containing tobacco.’’

Finally, and most important, it is the 

position of TTB that, in the case of a 

‘‘roll of tobacco’’ that is wrapped in a 

‘‘substance containing tobacco,’’ the 

statutory definition of ‘‘cigar’’ requires a 

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threshold determination of whether the 

product in question is a cigarette; if it 

is, it must be treated as a cigarette for 

tax purposes. We note in this regard that 

a ‘‘roll of tobacco’’ wrapped in a 

‘‘substance containing tobacco’’ is 

potentially classifiable either as a cigar 

or as a cigarette, because those words 

are used both in the ‘‘cigar’’ definition 

and in the second ‘‘cigarette’’ definition. 

However, the words ‘‘other than any roll 

of tobacco which is a cigarette within 

the meaning of subsection (b)(2)’’ in the 

statutory definition of ‘‘cigar’’ require 

the reader first to determine whether it 

is described by the second definition of 

‘‘cigarette.’’ If it is so described, it must 

be classified as a cigarette 

notwithstanding the fact that it also 

meets the description of a ‘‘roll of 

tobacco * * * wrapped in any 

substance containing tobacco’’

contained in the definition of ‘‘cigar.’’

Issues Raised in the Petitions 

TTB has carefully reviewed the 

comments and recommendations made 

in the three submitted petitions. In 

addition to our general agreement with 

all of the petitioners regarding the need 

for regulatory action to clarify the 

distinction between cigars and 

cigarettes, we note the following with 

regard to the tax-related points made in 

the petitions. 

Creation of an MSA-Based Presumption 

TTB does not concur with the 

Lorillard-RJR petition suggestion to 

create a (rebuttable) presumption in 

favor of those little cigar brands 

marketed prior to the MSA, for two 

reasons. First, the adoption of such a 

presumption would give the MSA an 

inappropriate role in tax classification. 

As indicated above, TTB’s regulatory 

authority proceeds from the IRC, not the 

MSA. TTB also agrees with the 

observation made by the CAA in its 

response to the Lorillard-RJR petition 

that such a presumption could lead to 

confusion, particularly as products 

move from one category to another or 

are subjected to a material change in 

composition or presentation. 

Certification for Post-MSA Brands 

TTB does not agree with the LorillardRJR suggestion to require a one-time 

certification for post-MSA brands, for 

the same reason that an MSA-based 

presumption would not be appropriate. 

However, TTB does not agree with the 

CAA assertion that it would be 

premature to consider the certification 

concept because it is not known what 

‘‘test’’ is to be used. For reasons set forth 

in more detail below, we believe that, 

with the adoption of improved, 

objective regulatory standards for 

distinguishing between cigars and 

cigarettes, a properly designed 

certification procedure could provide a 

workable solution for manufacturers, 

importers, and TTB. 

Third Party Challenge Procedure 

TTB agrees with the CAA that the 

third party product classification 

challenge procedure suggested in the 

Lorillard-RJR petition would be 

unworkable. Such a challenge 

procedure would put TTB in the 

position of having to mediate a dispute 

involving private parties, a position that 

TTB should not occupy. Moreover, any 

role that TTB might perform in such a 

dispute would inevitably involve the 

issue of disclosure of tax return 

information, which in most cases is 

prohibited under 26 U.S.C. 6103. We 

should point out, however, that any 

person, including a competitor, may 

refer information to us about a 

manufacturer’s or importer’s improperly 

classified tobacco product. 

Coordination With Customs and Border 

Protection 

TTB agrees with the suggestion in the 

Lorillard-RJR petition regarding 

coordination with Customs and Border 

Protection (CBP) on regulatory changes 

as they affect imported products. We 

consulted with CBP in connection with 

the drafting of this document, and we 

will continue to closely coordinate with 

CBP on our regulatory and related 

actions as they relate to import 

transactions falling under the 

jurisdiction of CBP. 

Proposed New Rules To Define Cigars 

and Cigarettes 

While TTB agrees with the suggestion 

of the petitioner States that specific new 

rules are necessary to clarify the 

distinction between cigars and 

cigarettes, we do not agree with their 

proposed new definitions approach, 

because, as noted above, the IRC 

definitions control and cannot be 

changed by regulatory action. Rather, 

we believe that the proper approach is 

to set forth specific rules that interpret 

and apply the IRC definitions for tax 

classification purposes. The 

acceptability of the specific rules 

suggested by the petitioner States is 

addressed below in the discussion of the 

proposed regulatory texts set forth in 

this document. 

Proposed Advance Ruling Procedure 

TTB is opposed to the new advance 

ruling procedure proposed by the 

petitioner States, because this would 

improperly shift the burden of tax 

compliance from the taxpayer to the 

Government. We believe that the 

following statement from ATF Ruling 

73–22 continues to reflect the proper 

agency position on this issue: 

Manufacturers and importers have the 

initial responsibility for (1) determining 

whether material intended for use as a 

wrapper for rolls of tobacco is a ‘‘substance 

containing tobacco,’’ (2) determining whether 

a roll of tobacco wrapped in such material 

has the characteristics of a cigar or a 

cigarette, (3) knowing whether the product is 

likely to be offered to or purchased by 

consumers as a cigar or a cigarette, and (4) 

paying the tax at the proper rate. 

However, we no longer believe that the 

advance ruling procedure referred to in 

ATF Ruling 73–22 is the best way to 

ensure compliance. Rather, we believe 

that a procedure involving the advance 

submission of a written tax 

classification certification to TTB is the 

best approach because it places the 

initial responsibility where it lies under 

the IRC, that is, with the manufacturer 

or importer. The certification procedure 

that TTB proposes is discussed in more 

detail later in this document. 

Status of ATF Ruling 73–22 and ATF 

Procedures 73–5 and 76–2 

With the exception of the reference to 

the advance ruling procedure, TTB is in 

substantial agreement with the 

standards and statements contained in 

ATF Ruling 73–22. However, as noted 

above, it is preferable to have tax 

classification standards reflected in the 

text of a regulation rather than in a 

guidance document that was not the 

subject of public notice and comment 

procedures. Accordingly, we propose to 

incorporate the substance of ATF Ruling 

73–22 in the regulations, with the result 

that ATF Ruling 73–22 will be 

superseded in its entirety upon 

adoption of the proposed regulatory 

changes as a final rule. 

With regard to ATF Procedures 73–5 

and 76–2, TTB notes that the tobacco 

industries in the United States and 

abroad have changed the way they 

manufacture and market their products, 

and this may be especially true for little 

cigars. As a result of these changes and 

in view of the technological advances 

made with regard to the analytical 

instrumentation used to examine 

tobacco products, TTB believes it will 

be necessary to update the analytical 

standards it uses to evaluate these 

products. Moreover, the new standards 

proposed in this document rely in part 

on the results of the total reducing 

sugars study discussed above, which 

requires an analytical approach not 

covered by the existing Procedures. We 

are publishing elsewhere in this issue of 

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62518 Federal Register / Vol. 71, No. 206 / Wednesday, October 25, 2006 / Proposed Rules 

the Federal Register a notice describing 

the analytical methodology that TTB 

uses to determine the total reducing 

sugar content of tobacco products. 

Discussion of the Proposed 

Amendments 

We are proposing to amend parts 40, 

41, 44, and 45 to clarify the tax 

classification of cigars and cigarettes, 

with particular emphasis on the 

adoption of standards in the regulations 

to distinguish between these two classes 

of products. The proposed amendments, 

which are essentially the same for each 

part, involve: 

(1) The addition of two new 

definitions in §§ 40.11, 41.11, 44.11, and 

45.11 and, in each current definition of 

‘‘cigar’’ and ‘‘cigarette,’’ the inclusion of 

a cross-reference to the new clarifying 

classification provisions. 

(2) The addition of two new sections 

in each part (§§ 40.12 and 40.13, 41.12 

and 41.13, 44.12 and 44.13, and 45.12 

and 45.13), the first one of which in 

each part sets forth the clarifying 

classification rules and the second of 

which requires a cigar manufacturer or 

importer to submit a classification 

certification to TTB; and 

(3) The addition of a new paragraph 

(b) setting forth additional notice 

requirements for cigars in §§ 40.214, 

41.73, 44.186, 44.253, and 45.44. 

The following specific points are 

noted regarding the proposed regulatory 

amendments. 

New Definitions 

The two new definitions cover two 

terms, ‘‘substance containing tobacco’’

and ‘‘substance not containing tobacco,’’

the first of which appears in the existing 

statutory and regulatory definitions of 

‘‘cigar’’ and ‘‘cigarette’’ and the second 

of which is only in the ‘‘cigarette’’

definition. We included both because 

including only one of them would not 

in all cases clarify the meaning (scope) 

of the other defined term. The 

‘‘substance containing tobacco’’

definition refers specifically (but not 

exclusively) to ‘‘reconstituted tobacco’’

based on the significance of this 

material in this context, as discussed 

earlier in this document. 

The two definitions incorporate the 

two-thirds rule, rather than the 75 

percent standard proposed by the 

petitioner States (see the description of 

the two-thirds rule in the discussion of 

ATF Ruling 73–22 earlier in this 

preamble). We note in this regard that 

the two-thirds rule is familiar to the 

trade and has been the standard since 

ATF Ruling 73–22 was issued, and our 

experience since 1973 does not support 

any change in this standard. 

The proposed definitions do not 

include the additional two criteria in 

ATF Ruling 73–22 requiring that the 

reconstituted tobacco not lose its 

tobacco character (e.g. taste, aroma, 

identifiable chemical components) and 

be of a color consistent with that of the 

natural tobacco leaf tobaccos 

traditionally used as a wrapper for 

American cigars. This criterion was also 

reflected in the superseded Revenue 

Ruling 69–198 that was issued after the 

1965 statutory amendments to the 

definitions of cigars and cigarettes in 

order to help implement those changes 

to the law. TTB believes that these 

standards are too subjective and should 

not be included in the proposed 

definitions, which aim to establish an 

objective standard. 

Finally, the two definitions refer to 

‘‘leaf or other fibrous material from the 

plant Nicotiana tabacum or the plant 

Nicotiana rustica’’ because the former is 

the plant most commonly associated 

with ‘‘tobacco’’ (see, for example, 

Webster’s Third New International 

Dictionary of the English Language, 

unabridged, 1993, Merriam Webster, 

Inc. Springfield, MA) and because we 

understand that the latter is also used in 

tobacco products on a more limited 

scale. 

Classification of Cigars and Cigarettes 

The ‘‘classification of cigars and 

cigarettes’’ section added to each part 

reflects the classification principles that 

we outlined earlier in this document. In 

addition, it incorporates a ‘‘3.0 percent 

by weight of total reducing sugars’’

standard as a dividing line between the 

two classes of products, with cigars at 

or below that level and cigarettes above 

it. This reflects the results of our total 

reducing sugar study, which yielded a 

clear, objective criterion to distinguish 

between these products that we believe 

is more complete than the ‘‘contains any 

sucrose’’ standard for a cigarette 

suggested by the petitioner States 

because, as explained earlier, sucrose is 

captured in the total reducing sugar 

values disclosed in the study. The 

proposed standards for classification as 

a cigarette also incorporate some 

specific criteria from both the petitioner 

States petition and ATF Ruling 73–22. 

The ‘‘cigar certification’’ section 

added to each part requires a 

manufacturer or importer of cigars to 

have filed with TTB’s National Revenue 

Center a certification that the product in 

question meets the rules for 

classification as a cigar prior to removal 

of the product. This certification reflects 

the principle stated in ATF Ruling 73–

22, and reaffirmed in this document, 

that it is the legal obligation of the 

taxpayer to initially determine the tax 

status of a tobacco product. TTB 

believes that, with the adoption of the 

classification standards proposed in this 

document, manufacturers will be in a 

much better position to do that. 

Manufacturers will also be able to assess 

more readily whether a change in the 

formulation or manufacturing process 

for their products results in a change in 

their tax classification. The new section 

in each case also requires the 

submission of a new certification if 

there is a change to a previously 

certified product. 

Notice Requirements for Cigars 

Finally, the new paragraph (b) added 

to the cigar notice requirements in the 

four parts reflects primarily the terms of 

ATF Ruling 73–22. These additional 

notice requirements are intended to 

ensure that a cigar is fully and clearly 

marked as such, so that it would not be 

‘‘likely to be offered to, or purchased by, 

consumers as a cigarette’’ within the 

meaning of the second cigarette 

definition. 

Effective Date Considerations 

In addition to soliciting comments on 

the proposed regulatory text 

amendments set forth below and on the 

position of TTB on the issues discussed 

in the preamble of this document, we 

invite comments on whether, and if so 

for what period, a delayed effective date 

should apply to any final rule action on 

this matter. Noting in particular the 

proposed new pre-removal cigar 

certification procedure, we are 

interested in knowing whether a 

delayed effective date would be needed 

to afford manufacturers and importers 

sufficient time to obtain all of the facts 

necessary to execute and file a proper 

certification. 

Public Participation 

Comments Sought 

TTB requests comments on the 

proposed amendments to our 

regulations discussed in this notice from 

anyone interested. Please submit your 

comments by the closing date shown 

above in this notice. Your comments 

must include this notice number (Notice 

No. 65) and your name and mailing 

address. Your comments must be legible 

and written in language acceptable for 

public disclosure. We do not 

acknowledge receipt of comments, and 

we consider all comments as originals. 

Submitting Comments 

You may submit comments in one of 

five ways: 

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Federal Register / Vol. 71, No. 206 / Wednesday, October 25, 2006 / Proposed Rules 62519 

• Mail: You may send written 

comments to TTB at the address listed 

in the ADDRESSES section. 

• Facsimile: You may submit 

comments by facsimile transmission to 

202–927–8525. Faxed comments must—

(1) Be on 8.5- by 11-inch paper; 

(2) Contain a legible, written 

signature; and 

(3) Be no more than five pages long. 

This limitation assures electronic access 

to our equipment. We will not accept 

faxed comments that exceed five pages. 

• E-mail: You may e-mail comments 

to nprm@ttb.gov. Comments transmitted 

by electronic mail must—

(1) Contain your e-mail address; 

(2) Reference this notice number on 

the subject line; and 

(3) Be legible when printed on 8.5- by 

11-inch paper. 

• Online form: We provide a 

comment form with the online copy of 

this notice on our Web site at http:// 

www.ttb.gov/tobacco/ 

tobacco_rulemaking.shtml. Select the 

‘‘Send comments via e-mail’’ link under 

this notice number. 

• Federal e-rulemaking portal: To 

submit comments to us via the Federal 

e-rulemaking portal, visit http:// 

www.regulations.gov and follow the 

instructions for submitting comments. 

You may also write to the 

Administrator before the comment 

closing date to ask for a public hearing. 

The Administrator reserves the right to 

determine whether to hold a public 

hearing. 

Confidentiality 

All submitted material is part of the 

public record and subject to disclosure. 

Do not enclose any material in your 

comments that you consider 

confidential or inappropriate for public 

disclosure. 

Public Disclosure 

You may view copies of this notice, 

the related rulemaking petitions, and 

any comments we receive on this 

proposal by appointment at the TTB 

Information Resource Center at 1310 G 

Street, NW., Washington, DC 20220. 

You may also obtain copies at 20 cents 

per 8.5- by 11-inch page. Contact the 

TTB information specialist at the above 

address or by telephone at 202–927–

2400 to schedule an appointment or to 

request copies of comments. 

We will post this notice and any 

comments we receive on this proposal 

on the TTB Web site. All name and 

address information submitted with 

comments, including e-mail addresses, 

will be posted. We may omit 

voluminous attachments or material that 

we consider unsuitable for posting. In 

all cases, the full comment will be 

available in the TTB Information 

Resource Center. To access the online 

copy of this notice and the submitted 

comments, visit http://www.ttb.gov/ 

tobacco/tobacco_rulemaking.shtml. 

Select the ‘‘View Comments’’ link under 

this notice number to view the posted 

comments. 

Paperwork Reduction Act 

The collection of information 

contained in this notice of proposed 

rulemaking has been submitted to the 

Office of Management and Budget 

(OMB) for review in accordance with 

the Paperwork Reduction Act of 1995 

(44 U.S.C. 3507). An agency may not 

conduct or sponsor, and a person is not 

required to respond to, a collection of 

information unless the collection of 

information displays a valid control 

number. 

The current information collections 

are in §§ 40.214, 44.186, 44.253, and 

45.44, which was approved under OMB 

control number 1513–0101 and 

included notice requirements for all 

cigars. The estimated average burden for 

the current information collections is 

one hour. The new information 

collection requirements are in new 

§§ 40.214(b), 41.73, 44.186(b), 44.253(b), 

and 45.44(b) and involves notice 

requirements for all exported cigars and 

additional notice requirements for all 

small cigars. This information is 

required to ensure proper excise 

payment of taxes on tobacco products. 

The likely respondents are businesses or 

other for-profit institutions, including 

partnerships, associations, and 

corporations. 

The notice information currently 

required to be displayed on cigar labels 

is minimal. It is information that is 

maintained by manufacturers as part of 

cost and quality control measures. Cigar 

manufacturers and importers do not 

expend significant time or expense 

collecting or providing the notice 

information. Accordingly, the new 

collection of information will not result 

in an increased burden on respondents. 

Comments on the collection of 

information may be sent by e-mail to 

OMB at 

Alexander_T._Hunt@omb.eop.gov, or by 

paper mail to Office of Management and 

Budget, Attention: Desk Officer for the 

Department of the Treasury, Office of 

Information and Regulatory Affairs, 

Washington, DC 20503. A copy should 

also be sent to TTB by any of the 

methods previously described. 

Comments should be submitted 

within the time frame that comments 

are due regarding the substance of the 

regulation. 

Comments are invited on: (a) Whether 

the collections of information are 

necessary for the proper performance of 

the functions of the agency, including 

whether the information shall have 

practical utility; (b) the accuracy of the 

agency’s estimate of the information 

collection burden; (c) ways to enhance 

the quality, utility, and clarity of the 

information to be collected; (d) ways to 

minimize the information collection 

burden on respondents, including 

through the use of automated collection 

techniques or other forms of information 

technology; and (e) estimate of capital or 

start up costs and costs of operations, 

maintenance, and purchase of services 

to provide information. 

Regulatory Flexibility Act 

Pursuant to the requirements of the 

Regulatory Flexibility Act (5 U.S.C. 

chapter 6), we certify that this notice of 

proposed rulemaking will not have a 

significant economic impact on a 

substantial number of small entities. 

The proposed regulations primarily 

codify and clarify existing 

administrative tax classification 

principles and practices. Accordingly, a 

regulatory flexibility analysis is not 

required. Pursuant to section 7805(f) of 

the Internal Revenue Code of 1986, we 

will submit this notice of proposed 

rulemaking to the Chief Counsel for 

Advocacy of the Small Business 

Administration for comment on its 

impact on small businesses. 

Executive Order 12866 

This proposed rule is not a significant 

regulatory action as defined by 

Executive Order 12866. Therefore, it 

requires no regulatory analysis. 

Drafting Information 

The principle author of this document 

is Linda Wade Chapman, Regulations 

and Rulings Division, Alcohol and 

Tobacco Tax and Trade Bureau. 

List of Subjects 

27 CFR Part 40 

Cigars and cigarettes, Claims, 

Electronic funds transfers, Excise taxes, 

Imports, Labeling, Packaging and 

containers, Reporting and recordkeeping 

requirements, Surety bonds, Tobacco. 

27 CFR Part 41 

Cigars and cigarettes, Claims, Customs 

duties and inspection, Electronic funds 

transfers, Excise taxes, Imports, 

Labeling, Packaging and containers, 

Puerto Rico, Reporting and 

recordkeeping requirements, Surety 

bonds, Tobacco, Virgin Islands, 

Warehouses. 

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62520 Federal Register / Vol. 71, No. 206 / Wednesday, October 25, 2006 / Proposed Rules 

27 CFR Part 44 

Aircraft, Armed forces, Cigars and 

cigarettes, Claims, Customs duties and 

inspection, Excise taxes, Exports, 

Foreign trade zones, Labeling, Packaging 

and containers, Reporting and 

recordkeeping requirements, Surety 

bonds, Tobacco, Vessels, Warehouses. 

27 CFR Part 45 

Administrative practice and 

procedure, Authority delegations 

(Government agencies), Cigars and 

cigarettes, Excise taxes, Labeling, 

Packaging and containers, Reporting 

and recordkeeping requirements, 

Tobacco. 

Proposed Amendments to the 

Regulations 

For the reasons discussed in the 

preamble, we propose to amend 27 CFR 

parts 40, 41, 44, and 45 as set forth 

below. 

PART 40—MANUFACTURE OF 

TOBACCO PRODUCTS AND 

CIGARETTE PAPERS AND TUBES 

1. The authority citation for part 40 

continues to read as follows: 

Authority: 26 U.S.C. 5142, 5143, 5146, 

5701, 5703–5705, 5711–5713, 5721–5723, 

5731, 5741, 5751, 5753, 5761–5763, 6061, 

6065, 6109, 6151, 6301, 6302, 6311, 6313, 

6402, 6404, 6423, 6676, 6806, 7011, 7212, 

7325, 7342, 7502, 7503, 7606, 7805; 31 U.S.C. 

9301, 9303, 9304, 9306. 

2. In § 40.11, a new sentence is added 

at the end of the definition of ‘‘Cigar,’’

a new sentence is added at the end of 

paragraph (2) in the definition of 

‘‘Cigarette,’’ and new definitions of 

‘‘Substance containing tobacco’’ and 

‘‘Substance not containing tobacco’’ are 

added in alphabetical order, to read as 

follows: 

§ 40.11 Meaning of terms. 

* * * * * 

Cigar. * * * For classification rules 

applicable to cigars, see § 40.12. 

Cigarette. * * * 

(2) * * * For classification rules 

applicable to cigarettes, see § 40.12. 

* * * * * 

Substance containing tobacco. 

Reconstituted tobacco sheet or any other 

material, other than leaf tobacco, at least 

two-thirds by weight of which consists 

of tobacco leaf or other fibrous material 

from the plant Nicotiana tabacum or the 

plant Nicotiana rustica. 

Substance not containing tobacco. 

Paper or any other material of which 

less than two-thirds by weight consists 

of tobacco leaf or other fibrous material 

from the plant Nicotiana tabacum or the 

plant Nicotiana rustica. 

* * * * * 

3. New §§ 40.12 and 40.13 are added 

to read as follows: 

§ 40.12 Classification of cigars and 

cigarettes. 

The rules set forth in this section 

control in determining whether a 

tobacco product is classified as a cigar 

or as a cigarette for purposes of this part. 

(a) Classification of cigars. (1) 

General. A tobacco product is classified 

as a cigar if: 

(i) It consists of a roll of tobacco 

wrapped in leaf tobacco; or 

(ii) It consists of a roll of tobacco that 

contains no more than 3.0 percent by 

weight of total reducing sugars and that 

is wrapped in a substance containing 

tobacco, and it is not classifiable as a 

cigarette under paragraph (a)(2) of this 

section. 

(2) Cigarette classification 

precedence. A tobacco product 

consisting of a roll of tobacco wrapped 

in a substance containing tobacco is 

classified as a cigarette rather than as a 

cigar if it is described in paragraph 

(b)(2) or (b)(3) of this section. 

(b) Classification of cigarettes. A 

tobacco product is classified as a 

cigarette if: 

(1) It consists of a roll of tobacco 

wrapped in paper or in any substance 

not containing tobacco; 

(2) It consists of a roll of tobacco that 

contains more than 3.0 percent by 

weight of total reducing sugars and that 

is wrapped in a substance containing 

tobacco; or 

(3) It consists of a roll of tobacco 

wrapped in a substance containing 

tobacco; and—

(i) It is put up in a package that bears 

a product designation or tax 

classification specified in § 40.215; 

(ii) It has a typical cigarette size and 

shape, has a cellulose acetate or other 

cigarette-type integrated filter, or is put 

up in a traditional cigarette-type 

package that does not bear all of the 

notice requirements for cigars specified 

in § 40.214; or 

(iii) It has a filler primarily consisting 

of flue-cured, burley, oriental, or 

unfermented tobaccos or has a filler 

material yielding the smoking 

characteristics of any of those tobaccos. 

§ 40.13 Cigar certification. 

(a) Submission. In the case of a 

tobacco product classified as a cigar 

under § 40.12(a)(1)(ii), the manufacturer 

must have filed a tax classification 

certification with TTB before removal of 

the product subject to tax. The 

manufacturer must sign, date, and file 

the certification with the National 

Revenue Center, Alcohol and Tobacco 

Tax and Trade Bureau, 550 Main Street, 

Cincinnati, Ohio 45202. The 

certification must be in the following 

form: 

I, lll lll ll (name of person 

executing certification) of 

llllllllll (name and 

address of manufacturer) hereby certify 

under penalty of perjury that the 

product designated 

llllllllll (brand and style 

of product) ll complies with ll 

does not comply with (check one) the 

rules for classification as a cigar set 

forth in 27 CFR 40.12. 

llllllllll (Signature and 

Date). 

(b) Change in product. If, after the 

filing of a certification for a product 

under paragraph (a) of this section, there 

is any change in the composition or 

presentation of that product, the 

manufacturer must file a new 

certification that: 

(1) The product complies with the 

rules for classification as a cigar; or 

(2) The product does not comply with 

the rules for classification as a cigar. 

4. Section 40.214 is revised to read as 

follows: 

§ 40.214 Notice for cigars. 

(a) General. Before removal subject to 

tax, every package of cigars shall have 

adequately imprinted on it, or on a label 

securely affixed to it: 

(1) The designation ‘‘cigars’’; 

(2) The quantity of cigars contained in 

the package; and 

(3) For small cigars, the classification 

of the product for tax purposes (i.e., 

either ‘‘small’’ or ‘‘little’’). 

(b) Additional notice for small cigars. 

In addition to the notice required under 

paragraph (a) of this section, the 

following notice requirements apply to 

small cigars put up in a package that is 

comparable to a traditional cigarettetype package: 

(1) The declaration ‘‘cigars’’, ‘‘small 

cigars’’, or ‘‘little cigars’’ must appear in 

direct conjunction with, parallel to, and 

in substantially the same 

conspicuousness of type and 

background as the brand name each 

time the brand name appears; 

(2) A conspicuous ‘‘cigars’’, ‘‘small 

cigars’’, or ‘‘little cigars’’ declaration 

must appear on the front, back, and 

bottom panels of the package even if the 

brand name does not appear on one or 

more of these panels; and 

(3) A carton containing multiple 

packages must bear the declaration 

‘‘cigars’’, ‘‘small cigars’’, or ‘‘little 

cigars’’ in conjunction with the brand 

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Federal Register / Vol. 71, No. 206 / Wednesday, October 25, 2006 / Proposed Rules 62521 

name and on each panel of the carton 

that is likely to be visible in a retail sale 

display. 

PART 41—IMPORTATION OF 

TOBACCO PRODUCTS AND 

CIGARETTE PAPERS AND TUBES 

5. The authority citation for part 41 

continues to read as follows: 

Authority: 18 U.S.C. 2342; 26 U.S.C. 5701, 

5703, 5704, 5705, 5708, 5712, 5713, 5721–

5723, 5741, 5754, 5761–5763, 6301, 6302, 

6313, 6404, 7101, 7212, 7342, 7606, 7651, 

7652, 7805; 31 U.S.C. 9301, 9303, 9304, 9306. 

6. In § 41.11, a new sentence is added 

at the end of the definition of ‘‘Cigar,’’

a new sentence is added at the end of 

paragraph (2) in the definition of 

‘‘Cigarette,’’ and new definitions of 

‘‘Substance containing tobacco’’ and 

‘‘Substance not containing tobacco’’ are 

added in alphabetical order, to read as 

follows: 

§ 41.11 Meaning of terms. 

* * * * * 

Cigar. * * * For classification rules 

applicable to cigars, see § 41.12. 

Cigarette. * * * 

(2) * * * For classification rules 

applicable to cigarettes, see § 41.12. 

* * * * * 

Substance containing tobacco. 

Reconstituted tobacco sheet or any other 

material, other than leaf tobacco, at least 

two-thirds by weight of which consists 

of tobacco leaf or other fibrous material 

from the plant Nicotiana tabacum or the 

plant Nicotiana rustica. 

Substance not containing tobacco. 

Paper or any other material of which 

less than two-thirds by weight consists 

of tobacco leaf or other fibrous material 

from the plant Nicotiana tabacum or the 

plant Nicotiana rustica. 

* * * * * 

7. New §§ 41.12 and 41.13 are added 

to read as follows: 

§ 41.12 Classification of cigars and 

cigarettes. 

The rules set forth in this section 

control in determining whether a 

tobacco product is classified as a cigar 

or as a cigarette for purposes of this part. 

(a) Classification of cigars. (1) 

General. A tobacco product is classified 

as a cigar if: 

(i) It consists of a roll of tobacco 

wrapped in leaf tobacco; or 

(ii) It consists of a roll of tobacco that 

contains no more than 3.0 percent by 

weight of total reducing sugars and that 

is wrapped in a substance containing 

tobacco, and it is not classifiable as a 

cigarette under paragraph (a)(2) of this 

section. 

(2) Cigarette classification 

precedence. A tobacco product 

consisting of a roll of tobacco wrapped 

in a substance containing tobacco is 

classified as a cigarette rather than as a 

cigar if it is described in paragraph 

(b)(2) or (b)(3) of this section. 

(b) Classification of cigarettes. A 

tobacco product is classified as a 

cigarette if: 

(1) It consists of a roll of tobacco 

wrapped in paper or in a substance not 

containing tobacco; 

(2) It consists of a roll of tobacco that 

contains more than 3.0 percent by 

weight of total reducing sugars and that 

is wrapped in a substance containing 

tobacco; or 

(3) It consists of a roll of tobacco 

wrapped in a substance containing 

tobacco, and—

(i) It is put up in a package that bears 

a product designation or tax 

classification specified in § 41.74; 

(ii) It has a typical cigarette size and 

shape, has a cellulose acetate or other 

cigarette-type integrated filter, or is put 

up in a traditional cigarette-type 

package that does not bear all of the 

notice requirements for cigars specified 

in § 41.73; or 

(iii) It has a filler primarily consisting 

of flue-cured, burley, oriental, or 

unfermented tobaccos or has a filler 

material yielding the smoking 

characteristics of any of those tobaccos. 

§ 41.13 Cigar certification. 

(a) Submission. In the case of a 

tobacco product classified as a cigar 

under § 41.12(a)(1)(ii), the importer 

must have filed a tax classification 

certification with TTB before removal of 

the product subject to internal revenue 

tax. The importer must sign, date, and 

file the certification with the National 

Revenue Center, Alcohol and Tobacco 

Tax and Trade Bureau, 550 Main Street, 

Cincinnati, Ohio 45202. The 

certification must be in the following 

form: 

I, ________ (name of person executing 

certification) of __________ (name and 

address of importer) hereby certify 

under penalty of perjury that the 

product designated ___________ (brand 

and style of product) __ complies with 

__ does not comply with (check one) the 

rules for classification as a cigar set 

forth in 27 CFR 41.12. __________ 

(Signature and Date). 

(b) Change in product. If, after the 

filing of a certification for a product 

under paragraph (a) of this section, there 

is any change in the composition or 

presentation of that product, the 

importer must file a new certification 

that: 

(1) The product complies with the 

rules for classification as a cigar; or 

(2) The product does not comply with 

the rules for classification as a cigar. 

8. Section 41.73 is revised to read as 

follows: 

§ 41.73 Notice for cigars. 

(a) General. Before removal subject to 

internal revenue tax, every package of 

cigars, except as provided in § 41.75, 

shall have adequately imprinted on it, 

or on a label securely affixed to it: 

(1) The designation ‘‘cigars’’; 

(2) The quantity of cigars contained in 

the package; and 

(3) For small cigars, the classification 

of the product for tax purposes (i.e., 

either ‘‘small’’ or ‘‘little’’). 

(b) Additional notice for small cigars. 

In addition to the notice required under 

paragraph (a) of this section, the 

following notice requirements apply to 

small cigars put up in a package that is 

comparable to a traditional cigarettetype package: 

(1) The declaration ‘‘cigars’’ , ‘‘small 

cigars’’, or ‘‘little cigars’’ must appear in 

direct conjunction with, parallel to, and 

in substantially the same 

conspicuousness of type and 

background as the brand name each 

time the brand name appears; 

(2) A conspicuous ‘‘cigars’’, ‘‘small 

cigars’’, or ‘‘little cigars’’ declaration 

must appear on the front, back, and 

bottom panels of the package even if the 

brand name does not appear on one or 

more of these panels; and 

(3) A carton containing multiple 

packages must bear the declaration 

‘‘cigars’’, ‘‘small cigars’’, or ‘‘little 

cigars’’ in conjunction with the brand 

name and on each panel of the carton 

that is likely to be visible in a retail sale 

display. 

PART 44—EXPORTATION OF 

TOBACCO PRODUCTS AND 

CIGARETTE PAPERS AND TUBES, 

WITHOUT PAYMENT OF TAX, OR WITH 

DRAWBACK OF TAX 

9. The authority citation for part 44 is 

revised to read as follows: 

Authority: 26 U.S.C. 5142, 5143, 5146, 

5701, 5703–5706, 5711–5713, 5721–5723, 

5731, 5741, 5751, 5754, 6061, 6065, 6151, 

6402, 6404, 6806, 7011, 7212, 7342, 7606, 

7805; 31 U.S.C. 9301, 9303, 9304, 9306. 

10. In § 44.11, a new sentence is 

added at the end of the definition of 

‘‘Cigar,’’ a new sentence is added at the 

end of paragraph (b) in the definition of 

‘‘Cigarette,’’ and new definitions of 

‘‘Substance containing tobacco’’ and 

‘‘Substance not containing tobacco’’ are 

added in alphabetical order, to read as 

follows: 

§ 44.11 Meaning of terms. 

* * * * * 

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62522 Federal Register / Vol. 71, No. 206 / Wednesday, October 25, 2006 / Proposed Rules 

Cigar. * * * For classification rules 

applicable to cigars, see § 44.12. 

Cigarette. * * * 

(b) * * * For classification rules 

applicable to cigarettes, see § 44.12. 

* * * * * 

Substance containing tobacco. 

Reconstituted tobacco sheet or any other 

material, other than leaf tobacco, at least 

two-thirds by weight of which consists 

of tobacco leaf or other fibrous material 

from the plant Nicotiana tabacum or the 

plant Nicotiana rustica. 

Substance not containing tobacco. 

Paper or any other material of which 

less than two-thirds by weight consists 

of tobacco leaf or other fibrous material 

from the plant Nicotiana tabacum or the 

plant Nicotiana rustica. 

* * * * * 

11. New §§ 44.12 and 44.13 are added 

to read as follows: 

§ 44.12 Classification of cigars and 

cigarettes. 

The rules set forth in this section 

control in determining whether a 

tobacco product is classified as a cigar 

or as a cigarette for purposes of this part. 

(a) Classification of cigars. (1) 

General. A tobacco product is classified 

as a cigar if: 

(i) It consists of a roll of tobacco 

wrapped in leaf tobacco; or 

(ii) It consists of a roll of tobacco that 

contains no more than 3.0 percent by 

weight of total reducing sugars and that 

is wrapped in a substance containing 

tobacco, and it is not classifiable as a 

cigarette under paragraph (a)(2) of this 

section. 

(2) Cigarette classification 

precedence. A tobacco product 

consisting of a roll of tobacco wrapped 

in a substance containing tobacco is 

classified as a cigarette rather than as a 

cigar if it is described in paragraph 

(b)(2) or (b)(3) of this section. 

(b) Classification of cigarettes. A 

tobacco product is classified as a 

cigarette if: 

(1) It consists of a roll of tobacco 

wrapped in paper or in any substance 

not containing tobacco; 

(2) It consists of a roll of tobacco that 

contains more than 3.0 percent by 

weight of total reducing sugars and that 

is wrapped in a substance containing 

tobacco; or 

(3) It consists of a roll of tobacco 

wrapped in a substance containing 

tobacco, and—

(i) It has a typical cigarette size and 

shape, has a cellulose acetate or other 

cigarette-type integrated filter, or is put 

up in a traditional cigarette-type 

package that does not bear all of the 

notice requirements for cigars specified 

in § 44.186 or § 44.253; or 

(ii) It has a filler primarily consisting 

of flue-cured, burley, oriental, or 

unfermented tobaccos or has a filler 

material yielding the smoking 

characteristics of any of those tobaccos. 

§ 44.13 Cigar certification. 

(a) Submission. In the case of a 

tobacco product classified as a cigar 

under § 44.12(a)(1)(ii), the manufacturer 

must have filed a tax classification 

certification with TTB before removal. 

The manufacturer must sign, date, and 

file the certification with the National 

Revenue Center, Alcohol and Tobacco 

Tax and Trade Bureau, 550 Main Street, 

Cincinnati, Ohio 45202. The 

certification must be in the following 

form: 

I, ________ (name of person executing 

certification) of __________ (name and 

address of manufacturer) hereby certify 

under penalty of perjury that the 

product designated __________(brand 

and style of product) __complies with__ 

does not comply with (check one) the 

rules for classification as a cigar set 

forth in 27 CFR 44.12. 

__________(Signature and Date). 

(b) Change in product. If, after the 

filing of a certification for a product 

under paragraph (a) of this section, there 

is any change in the composition or 

presentation of that product, the 

manufacturer must file a new 

certification that: 

(1) The product complies with the 

rules for classification as a cigar; or 

(2) The product does not comply with 

the rules for classification as a cigar. 

12. Section 44.186 is revised to read 

as follows: 

§ 44.186 Tax classification for cigars. 

(a) General. Before removal from a 

factory under this subpart, every 

package of cigars shall have adequately 

imprinted on it, or on a label securely 

affixed to it: 

(1) The designation ‘‘cigars’’; 

(2) The quantity of cigars contained in 

the package; and 

(3) For small cigars, the classification 

of the product for tax purposes; (i.e., 

either ‘‘small’’ or ‘‘little’’). 

(b) Additional notice for small cigars. 

In addition to the notice required under 

paragraph (a) of this section, the 

following notice requirements apply to 

small cigars put up in a package that is 

comparable to a traditional cigarettetype package: 

(1) The declaration ‘‘cigars’’, ‘‘small 

cigars’’, or ‘‘little cigars’’ must appear in 

direct conjunction with, parallel to, and 

in substantially the same 

conspicuousness of type and 

background as the brand name each 

time the brand name appears; 

(2) A conspicuous ‘‘cigars’’, ‘‘small 

cigars’’, or ‘‘little cigars’’ declaration 

must appear on the front, back, and 

bottom panels of the package even if the 

brand name does not appear on one or 

more of these panels; and 

(3) A carton containing multiple 

packages must bear the declaration 

‘‘cigars’’, ‘‘small cigars’’, or ‘‘little 

cigars’’ in conjunction with the brand 

name and on each panel of the carton 

that is likely to be visible in a retail sale 

display. 

13. Section 44.253 is revised to read 

as follows: 

§ 44.253 Tax classification for cigars. 

(a) General. Before withdrawal of 

cigars from a customs warehouse under 

this subpart, every package of cigars 

shall have adequately imprinted on it, 

or on a label securely affixed to it: 

(1) The designation ‘‘cigars’’; 

(2) The quantity of cigars contained in 

the package; and 

(3) For small cigars, the classification 

of the product for tax purposes (i.e., 

either ‘‘small’’ or ‘‘little’’). 

(b) Additional notice for small cigars. 

In addition to the notice required under 

paragraph (a) of this section, the 

following notice requirements apply to 

small cigars put up in a package that is 

comparable to a traditional cigarettetype package: 

(1) The declaration ‘‘cigars’’, ‘‘small 

cigars’’, or ‘‘little cigars’’ must appear in 

direct conjunction with, parallel to, and 

in substantially the same 

conspicuousness of type and 

background as the brand name each 

time the brand name appears; 

(2) A conspicuous ‘‘cigars’’, ‘‘small 

cigars’’, or ‘‘little cigars’’ declaration 

must appear on the front, back, and 

bottom panels of the package even if the 

brand name does not appear on one or 

more of these panels; and 

(3) A carton containing multiple 

packages must bear the declaration 

‘‘cigars’’, ‘‘small cigars’’, or ‘‘little 

cigars’’ in conjunction with the brand 

name and on each panel of the carton 

that is likely to be visible in a retail sale 

display. 

PART 45—REMOVAL OF TOBACCO 

PRODUCTS AND CIGARETTE PAPERS 

AND TUBES, WITHOUT PAYMENT OF 

TAX, FOR USE OF THE UNITED 

STATES 

14. The authority citation for part 45 

continues to read as follows: 

Authority: 26 U.S.C. 5703, 5704, 5705, 

5723, 5741, 5751, 5762, 5763, 6313, 7212, 

7342, 7606, 7805, 44 U.S.C. 3504(h). 

15. In § 45.11, a new sentence is 

added at the end of the definition of 

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Federal Register / Vol. 71, No. 206 / Wednesday, October 25, 2006 / Proposed Rules 62523 

‘‘Cigar,’’ a new sentence is added at the 

end of paragraph (2) in the definition of 

‘‘Cigarette,’’ and new definitions of 

‘‘Substance containing tobacco’’ and 

‘‘Substance not containing tobacco’’ are 

added in alphabetical order, to read as 

follows: 

§ 45.11 Meaning of terms. 

* * * * * 

Cigar. * * * For classification rules 

applicable to cigars, see § 45.12. 

Cigarette. * * * 

(2) * * * For classification rules 

applicable to cigarettes, see § 45.12. 

* * * * * 

Substance containing tobacco. 

Reconstituted tobacco sheet or any other 

material, other than leaf tobacco, at least 

two-thirds by weight of which consists 

of tobacco leaf or other fibrous material 

from the plant Nicotiana tabacum or the 

plant Nicotiana rustica. 

Substance not containing tobacco. 

Paper or any other material of which 

less than two-thirds by weight consists 

of tobacco leaf or other fibrous material 

from the plant Nicotiana tabacum or the 

plant Nicotiana rustica. 

* * * * * 

16. New §§ 45.12 and 45.13 are added 

to read as follows: 

§ 45.12 Classification of cigars and 

cigarettes. 

The rules set forth in this section 

control in determining whether a 

tobacco product is classified as a cigar 

or as a cigarette for purposes of this part. 

(a) Classification of cigars. (1) 

General. A tobacco product is classified 

as a cigar if: 

(i) It consists of a roll of tobacco 

wrapped in leaf tobacco; or 

(ii) It consists of a roll of tobacco that 

contains no more than 3.0 percent by 

weight of total reducing sugars and that 

is wrapped in a substance containing 

tobacco, and it is not classifiable as a 

cigarette under paragraph (a)(2) of this 

section. 

(2) Cigarette classification 

precedence. A tobacco product 

consisting of a roll of tobacco wrapped 

in a substance containing tobacco is 

classified as a cigarette rather than as a 

cigar if it is described in paragraph 

(b)(2) or (b)(3) of this section. 

(b) Classification of cigarettes. A 

tobacco product is classified as a 

cigarette if: 

(1) It consists of a roll of tobacco 

wrapped in paper or in any substance 

not containing tobacco; 

(2) It consists of a roll of tobacco that 

contains more than 3.0 percent by 

weight of total reducing sugars and that 

is wrapped in a substance containing 

tobacco; or 

(3) It consists of a roll of tobacco 

wrapped in a substance containing 

tobacco, and—

(i) It is put up in a package that bears 

a product designation or tax 

classification specified in § 45.45; 

(ii) It has a typical cigarette size and 

shape, has a cellulose acetate or other 

cigarette-type integrated filter, or is put 

up in a traditional cigarette-type 

package that does not bear all of the 

notice requirements for cigars specified 

in § 45.44; or 

(iii) It has a filler primarily consisting 

of flue-cured, burley, oriental or 

unfermented tobaccos or has a filler 

material yielding the smoking 

characteristics of any of those tobaccos. 

§ 45.13 Cigar certification. 

(a) Submission. In the case of a 

tobacco product classified as a cigar 

under § 45.12(a)(1)(ii), the manufacturer 

must have filed a tax classification 

certification with TTB before removal of 

the product. The manufacturer must 

sign, date, and file the certification with 

the National Revenue Center, Alcohol 

and Tobacco Tax and Trade Bureau, 550 

Main Street, Cincinnati, Ohio 45202. 

The certification must be in the 

following form: 

I, llllllll (name of person 

executing certification) of 

llllllllll (name and 

address of manufacturer) hereby certify 

under penalty of perjury that the 

product designated llllllll 

(brand and style of product) ll 

complies with ll does not comply 

with (check one) the rules for 

classification as a cigar set forth in 27 

CFR 45.12. llllllllll 

(Signature and Date). 

(b) Change in product. If, after the 

filing of a certification for a product 

under paragraph (a) of this section, there 

is any change in the composition or 

presentation of that product, the 

manufacturer must file a new 

certification that: 

(1) The product complies with the 

rules for classification as a cigar; or 

(2) The product does not comply with 

the rules for classification as a cigar. 

17. Section 45.44 is revised to read as 

follows: 

§ 45.44 Notice for cigars. 

(a) General. Before removal under this 

part, every package of cigars shall have 

adequately imprinted on it, or on a label 

securely affixed to it: 

(1) The designation ‘‘cigars’’; 

(2) The quantity of cigars contained in 

the package; and 

(3) For small cigars, the classification 

of the product for tax purposes (i.e., 

either ‘‘small’’ or ‘‘little’’). 

(b) Additional notice for small cigars. 

In addition to the notice required under 

paragraph (a) of this section, the 

following notice requirements apply to 

small cigars put up in a package that is 

comparable to a traditional cigarettetype package: 

(1) The declaration ‘‘cigars’’, ‘‘small 

cigars’’, or ‘‘little cigars’’ must appear in 

direct conjunction with, parallel to, and 

in substantially the same 

conspicuousness of type and 

background as the brand name each 

time the brand name appears; 

(2) A conspicuous ‘‘cigars’’, ‘‘small 

cigars’’, or ‘‘little cigars’’ declaration 

must appear on the front, back, and 

bottom panels of the package even if the 

brand name does not appear on one or 

more of these panels; and 

(3) A carton containing multiple 

packages must bear the declaration 

‘‘cigars’’, ‘‘small cigars’’, or ‘‘little 

cigars’’ in conjunction with the brand 

name. 

Signed: August 3, 2006. 

John J. Manfreda, 

Administrator. 

Approved: September 28, 2006. 

Timothy E. Skud, 

Deputy Assistant Secretary (Tax, Trade, and 

Tariff Policy). 

[FR Doc. 06–8835 Filed 10–24–06; 8:45 am] 

BILLING CODE 4810–31–P 

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