GAO-09-1023R Alcohol and Tobacco Tax and Trade

United States Government Accountability Office

Washington, DC 20548 

September 28, 2009 

John J. Manfreda 

Administrator 

Alcohol and Tobacco Tax and Trade Bureau 

Department of the Treasury 

Subject: Alcohol and Tobacco Tax and Trade Bureau: Fiscal Year 2010 Proposed Licensing 

and Registration Fees Program 

Dear Mr. Manfreda: 

Over the last several weeks, we reviewed the President’s fiscal year 2010 budget request for 

the Alcohol and Tobacco Tax and Trade Bureau (TTB) to provide pertinent and timely 

information that the Congress could use during budget deliberations. Our objectives were to 

(1) examine any programs with significant increases from the prior year and any significant 

unexpended balances and (2) review any new programs in the budget request. To do our 

work, we compared prior and current year budget requests, reviewed key budget-related 

documents, and interviewed TTB officials. Given the objectives and scope of this work, we 

conducted this work in accordance with all sections of GAO’s Quality Assurance Framework 

that are relevant to our objectives. The framework requires that we plan and perform the 

engagement to obtain sufficient and appropriate evidence to meet our stated objectives and to 

discuss any limitations in our work. We believe that the information and data obtained, and 

the analysis conducted, provide a reasonable basis for any findings and conclusions. 

Based on our review, we are not recommending any reductions, realignments, or restrictions 

to TTB’s fiscal year 2010 budget. However, given our nation’s current fiscal challenges and 

the government’s need to make the most effective use of its limited resources, we provide the 

following comments on TTB’s legislative proposal for a licensing and registration fees 

program for alcohol businesses contained in the President’s fiscal year 2010 budget request, 

which may be useful to TTB and the Congress during fiscal year 2011 budget preparations 

and deliberations. We provided TTB an opportunity to provide its views on our work and 

have incorporated these views, where appropriate. 

Alternatives to an Annual Licensing and Registration Fee Program Exist 

The TTB legislative proposal would establish a permanent licensing and registration fee 

program to offset amounts appropriated from the general fund. The Department of the 

Treasury’s congressional budget justification explains the legislative proposal as requiring 

entities in the alcohol business, including retail dealers in liquors and beer, wholesale dealers 
in liquors and beer, alcohol producers, and brewers, to pay an annual licensing and 

registration fee. TTB would be responsible for implementing and administering this fee 

program. Generally, the legislative proposal recommended fixed-dollar annual fees for 

alcohol retailers at $300, wholesalers at $500, and producers at $1,000. 

According to TTB officials, TTB included this proposal in its budget request after 

consultation with the Office of Management and Budget (OMB). OMB maintained that 

TTB’s funding would, then, be in line with other regulatory agencies’ funding schemes. If 

the Congress enacted the language proposed by TTB in the President’s budget request, the 

collection of these fees was expected to raise an estimated $80 million, or about three-fourths 

of TTB’s budget request for fiscal year 2010, and reduce amounts derived from the general 

fund. In the next year, fiscal year 2011, collections from the alcohol industries were 

estimated to cover TTB’s entire costs, including the portion relating to the tobacco, firearms, 

and ammunition industries. 

OMB issued a July 15, 2009, statement of administration policy in which the administration 

urged the Congress to authorize TTB to collect licensing and registration fees from 

producers, wholesalers, and retailers of beverage alcohol. Per the statement, funding TTB 

through fees would properly assign the cost of keeping consumers safe to those who profit 

from the sale of alcoholic beverages. However, our analysis of this fee proposal left us with 

questions about the overall design. 

Alternative designs for TTB’s fee proposal exist. A user-fee program can be designed to 

fund the portions of activities that provide benefits to identifiable users. However, to achieve 

such a goal, user fees must be well designed. TTB could use OMB and our report’s guidance 

to refine its proposal and develop user fees that (1) tie to TTB’s direct and indirect program 

costs of regulating alcohol, or (2) are set as percentages of some appropriate base, rather than 

fixed-dollar amounts, or that do both.1

 (The GAO user-fee guide can be obtained through the 

hyperlink in footnote 1.) Further, the guidance documents suggest that alternative fee 

designs could include one or more of the following: 

o setting the user fees to fund the proportions of TTB’s costs attributable to each 

industry type (i.e., alcohol, tobacco, and firearms); 

o making the fee a percentage of a base that measures a business’s size, such as sales; 

and 

o varying the fees proportionately if the costs vary by type of business.2

 

When developing the fees, changes in consumer use may also need to be considered. For 

example, if fees are set based on an anticipated level of sales of alcohol and there is a 

decrease or an increase in sales, the revenues available to fund TTB would change. 

Accordingly, fees should be reviewed biennially to assure that existing charges are adjusted 

to reflect unanticipated changes, and reserve funds should be established. 

 

1

GAO, Federal User Fees: A Design Guide, GAO-08-386SP (Washington, D.C.: May 29, 2008) 

(http://www.gao.gov/new.items/d08386sp.pdf downloaded on Sept. 3, 2009) and OMB Circular No. A-25 

Revised, Memorandum for Heads of Executive Departments and Establishments; Subject: User 

Charges (http://www.whitehouse.gov/omb/circulars/a025/a025.html downloaded on Sept. 3, 2009). 2

TTB management would need to determine if the costs involved in designing an alternative fee, as we 

note, would outweigh any benefits gained. 

Page 2 GAO-09-1023R Alcohol and Tobacco Tax and Trade 
These are not intended to be an exhaustive list nor are the alternatives necessarily mutually 

exclusive—some could be combined, but they illustrate some alternatives that are consistent 

with OMB guidance and our work.3

 Ultimately, decisions about how to fund an agency’s 

operations are a policy judgment for the Congress. Consequently, this report does not make 

recommendations. 

In commenting on a draft of this report, TTB commented that the agency’s current licensing 

and registration fee program proposal already has many of the features consistent with those 

of a user fee program. Among other things, TTB also expressed concern that too many of the 

agency’s activities do not lend themselves to a user fee program. We agree that many of 

TTB's activities are not straightforward for a simple user fee and that developing a well 

designed user fee program can be difficult. We do not take a position on the decision to 

establish a user fee program or on what portion of TTB’s operations should be funded by the 

same. However, should some type of a fee be imposed, our design guide can assist with 

many of the challenges TTB identified, such as questions about fee design and collection. 

The full text of TTB’s comments is reprinted in enclosure I. 

__________ 

We are sending copies of this report to appropriate congressional committees, the Secretary 

of the Treasury, the Director of OMB, and other interested parties. In addition, the report 

will be available at no charge on the GAO Web site at http://www.gao.gov. 

If you or your staffs have any questions concerning the information discussed in this report, 

please contact me at (202) 512-9110 or whitej@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page of this report. 

GAO staff who made key contributions to this report are listed in enclosure II. 

 

Sincerely yours, 

James R. White 

Director, Tax Issues 

Strategic Issues Team 

Enclosures – 2 

 

3

See also GAO, Federal User Fees: Additional Analyses and Timely Reviews Could Improve 

Immigration and Naturalization User Fee Design and USCIS Operations, GAO-09-180 (Washington, 

D.C.: Jan. 23, 2009) for additional information on designing user fees. 

Page 3 GAO-09-1023R Alcohol and Tobacco Tax and Trade 
Enclosure I 

Comments from the Alcohol and Tobacco Tax and Trade Bureau

Page 4 GAO-09-1023R Alcohol and Tobacco Tax and Trade 
Page 5 GAO-09-1023R Alcohol and Tobacco Tax and Trade 
Page 6 GAO-09-1023R Alcohol and Tobacco Tax and Trade 

Enclosure II 

GAO Contact and Staff Acknowledgments 

GAO Contact James R. White, (202) 512-9110 or whitej@gao.gov

Staff Acknowledgments In addition to the contact named above, Libby Mixon, 

Assistant Director; Amy Bowser; Bertha Dong; Carol Henn; 

Jacqueline M. Nowicki; Shellee Soliday; and Diana Zinkl 

made significant contributions to this report. 

(450729) 
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