[Federal Register Volume 74, Number 60 (Tuesday, March 31, 2009)]
[Rules and Regulations]
[Pages 14479-14491]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-7077]


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DEPARTMENT OF THE TREASURY

Alcohol and Tobacco Tax and Trade Bureau

27 CFR Parts 40, 41, 44, 46, and 71

[Docket No. TTB-2009-0001; T.D. TTB-75; Re: Notice No. 93]
RIN 1513-AB70


Increase in Tax Rates on Tobacco Products and Cigarette Papers 
and Tubes; Floor Stocks Tax on Certain Tobacco Products, Cigarette 
Papers, and Cigarette Tubes; and Changes to Basis for Denial, 
Suspension, or Revocation of Permits (2009R-118P)

AGENCY: Alcohol and Tobacco Tax and Trade Bureau, Treasury.

ACTION: Temporary Rule.

-----------------------------------------------------------------------

SUMMARY: The Alcohol and Tobacco Tax and Trade Bureau is amending its 
regulations to implement certain provisions of the Children's Health 
Insurance Program Reauthorization Act of 2009 (the Act). This final 
rule amends existing regulations to reflect increases in the Federal 
excise tax rates on tobacco products and cigarette papers and tubes, 
revises existing floor stocks tax regulations to reflect the scope of 
the floor stocks tax provisions of the Act, and revises existing 
regulations to include the new statutory criteria for denial, 
suspension, or revocation of tobacco permits. We also are soliciting 
comments from all interested parties on these amendments through a 
notice of proposed rulemaking published elsewhere in this issue of the 
Federal Register.

DATES: Effective date: March 31, 2009. Applicability dates: The 
amendments in 27 CFR 40.21, 40.23, 40.25, 40.25a, 40.351, 40.352, 41.30 
through 41.35, 46.75, and 46.191 through 46.274, are applicable April 
1, 2009. The amendments in 27 CFR 40.74, 40.332, 41.198, 44.92, 44.162, 
71.46, and 71.46b were applicable on February 4, 2009.

FOR FURTHER INFORMATION CONTACT: For questions concerning floor stocks 
tax, contact the National Revenue Center, Alcohol and Tobacco Tax and 
Trade Bureau (<a href="/cdn-cgi/l/email-protection#b2f4deddddc0e1c6ddd1d9c1e6d3caf2c6c6d09cd5ddc4"><span class="__cf_email__" data-cfemail="7f391310100d2c0b101c140c2b1e073f0b0b1d51181009">[email protected]</span></a>, 513-684-3334 or 1-877-TTB-FAQS 
(1-877-882-3277)); for other questions concerning this document, 
contact Amy Greenberg, Regulations and Rulings Division, Alcohol and 
Tobacco Tax and Trade Bureau (202-927-8210).

SUPPLEMENTARY INFORMATION: 

[[Page 14480]]

Impact of the Homeland Security Act on This Rulemaking

    Effective January 24, 2003, the Homeland Security Act of 2002 (Pub. 
L. 107-296, 116 Stat. 2135 (2002)) divided the Bureau of Alcohol, 
Tobacco and Firearms (ATF) into two new agencies, the Alcohol and 
Tobacco Tax and Trade Bureau (TTB) in the Department of the Treasury 
and the Bureau of Alcohol, Tobacco, Firearms and Explosives in the 
Department of Justice. The regulation and taxation of tobacco products 
and cigarette papers and tubes remains a function of the Department of 
the Treasury and is the responsibility of TTB. References to ATF in 
this document reflect the time period prior to January 24, 2003, while 
references to TTB are after that date.

TTB Authority

    Chapter 52 of the Internal Revenue Code of 1986 (IRC) contains 
permit, Federal excise tax payment, and related provisions regarding 
tobacco products and cigarette papers and tubes. TTB has authority to 
issue, deny, suspend, and revoke permits of manufacturers, importers, 
and export warehouse proprietors pursuant to regulations contained in 
parts 40, 41, 44, and 71 of title 27 of the Code of Federal Regulations 
(CFR). TTB also collects Federal excise taxes on tobacco products and 
cigarette papers and tubes from proprietors of domestic bonded 
manufacturing premises pursuant to regulations contained in 27 CFR part 
40; the Bureau of Customs and Border Protection (CBP) collects these 
taxes from importers of these products pursuant to regulations 
contained in title 19 of the CFR. TTB also has authority to regulate 
the importation and exportation of tobacco products and cigarette 
papers and tubes, and the removal of tobacco products and cigarette 
papers and tubes for use of the United States under 27 CFR parts 41, 44 
and 45, respectively. Under 27 CFR part 46, TTB has authority to 
administer floor stocks taxes and other miscellaneous matters involving 
these products.

Tax Increase

    The Children's Health Insurance Program Reauthorization Act of 2009 
(the Act), Public Law 111-3, was enacted on February 4, 2009. Section 
701 of the Act increases the rate of Federal excise tax on tobacco 
products and cigarette papers and tubes removed from the factory or 
from internal revenue bond or from Customs custody on or after April 1, 
2009.
    This document amends the tobacco regulations in parts 40, 41, 44, 
and 46 to reflect the new excise tax rates. These amendments include 
additional examples of computations that show the new tax rates.

Floor Stocks Tax

    Section 701 of the Act also imposes a floor stocks tax on taxpaid 
or tax determined tobacco products (other than large cigars described 
in 26 U.S.C. 5701(a)(2)), and on cigarette papers and tubes, held for 
sale on April 1, 2009. The floor stocks tax rate is equal to the 
difference between the new Federal excise tax rate and the immediately 
prior rate. Persons likely to be holding articles for sale that are 
subject to the floor stocks tax include manufacturers, importers, and 
wholesale and retail dealers of these articles. The floor stocks tax 
provisions of section 701 also permit a credit against the floor stocks 
tax of $500 or the amount of tax due, whichever is less, and also 
contain rules for handling articles in foreign trade zones and for 
controlled groups.
    The floor stocks tax regulations currently in 27 CFR part 46, 
subpart I, were promulgated by ATF to administer the 2000 and 2002 
cigarette floor stocks taxes imposed by section 9302(j) of Public Law 
105-33. There is no need to retain those regulations (any collection or 
other administrative action relating to those taxes would be conducted 
under the provisions of the law and regulations in effect at the time). 
Accordingly, in this document, TTB revises subpart I of part 46 to 
implement the new floor stocks tax imposed by the Act, relying on and 
replicating the prior provisions to the greatest extent possible. 
However, TTB notes that there are some differences between the law that 
imposed the earlier floor stocks tax and the 2009 floor stocks tax 
imposed by the Act, which are addressed in the new regulations adopted 
in this document as follows:
    <bullet> The 2009 floor stocks tax applies to more articles (that 
is, not only to cigarettes), so the instructions for taking inventories 
and computing appropriate tax are modified accordingly.
    <bullet> For purposes of the previous floor stocks tax regime, ATF 
included instructions for keeping separate inventories of cigarettes 
marked for export. Since holding products marked for export is 
prohibited by 26 U.S.C. 5751, inventory instructions for such products 
are not necessary.
    <bullet> The Act provides no exemption for products held in vending 
machines, so no such exemption is provided in this circumstance.
    <bullet> Under the previous floor stocks tax, ATF regulations 
provided that a person holding articles subject to floor stocks tax who 
owed no tax after taking the allowed credit, would not have to file a 
return. However, based on experience under that previous floor stocks 
tax, TTB believes that it is necessary to require the filing of a 
return even when no tax is due. If TTB were to provide an exemption 
from filing a return when no tax is due, TTB would not be able to 
determine if the failure to file a return is due to zero liability or 
willful noncompliance with the requirements of the statute, so no 
exemption is provided for in the regulatory texts adopted in this 
document. Therefore, those whose tax owed is zero must file a return.
    Section 702(d) of the Act expanded the definition of ``roll-your-
own'' tobacco to include tobacco for making cigars and tobacco for use 
as wrappers for cigars, effective April 1, 2009. The floor stocks tax, 
however, applies only to ``roll-your-own'' products covered by the old 
definition (that is, ``any tobacco which, because of its appearance, 
type, packaging, or labeling, is suitable for use and likely to be 
offered to, or purchased by, consumers as tobacco for making 
cigarettes''). Therefore, in order to avoid confusion in the 
implementation of the floor stocks tax, that definition change will be 
reflected in a separate rulemaking.

Denial, Suspension and Revocation of Permits

    Section 702(b) of the Act amended 26 U.S.C. 5712 and 5713 to expand 
the basis for denial, suspension and revocation of tobacco permits with 
effect from February 4, 2009. In this document, TTB includes the 
amended statutory language in the pertinent sections of the TTB 
regulations, that is, in Sec. Sec.  40.74, 40.332, 41.198, 44.92, 
44.162, 71.46, and 71.49b.

Temporary Rule

    Based on the February 4, 2009, enactment of the changes to the 
criteria for denial, suspension, and revocation of permits and the 
April 1, 2009, effective date of the tax increases and floor stocks 
tax, TTB believes that proper administration and enforcement of those 
requirements necessitates the immediate adoption of implementing 
regulations as a temporary rule. TTB believes that such implementing 
action ensures that affected industry members will have timely 
knowledge of the regulatory requirements.

[[Page 14481]]

Public Participation

    For submitting comments, please refer to the notice of proposed 
rulemaking on this subject published in the Proposed Rules section of 
this issue of the Federal Register.

Regulatory Flexibility Act

    We certify that this temporary rule will not have a significant 
economic impact on a substantial number of small entities. Accordingly, 
a regulatory flexibility analysis is not required. The regulatory 
obligations and relevant collections of information derive directly 
from the Internal Revenue Code of 1986, as amended, and the regulations 
in this rule concerning these obligations and collections merely 
implement and provide necessary standards for complying with the 
statutory requirements. Likewise, any secondary or incidental effects, 
and any reporting, recordkeeping, or other compliance burdens flow 
directly from the statute. Pursuant to 26 U.S.C. 7805(f), this 
temporary regulation will be submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on its impact 
on small businesses.

Paperwork Reduction Act

    TTB has provided estimates of the burden that the collection of 
information contained in these regulations imposes, and the estimated 
burden has been reviewed and approved by the Office of Management and 
Budget (OMB) in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507) and assigned control numbers 1513-0129 and 1513-0030.
    Under the Paperwork Reduction Act of 1995, an agency may not 
conduct or sponsor, and a person is not required to respond to, a 
collection of information unless it displays a valid OMB control 
number.
    Comments concerning suggestions for reducing the burden of the 
collections of information in this document should be directed to Mary 
A. Wood, Alcohol and Tobacco Tax and Trade Bureau, at any of these 
addresses:
    <bullet> P.O. Box 14412, Washington, DC 20044-4412;
    <bullet> 202-927-8525 (facsimile); or
    <bullet> <a href="/cdn-cgi/l/email-protection#e4828b9689878b8989818a9097a4909086ca838b92"><span class="__cf_email__" data-cfemail="99fff6ebf4faf6f4f4fcf7edead9ededfbb7fef6ef">[email protected]</span></a> (e-mail).

Executive Order 12866

    This is not a significant regulatory action as defined in E.O. 
12866. Therefore, it requires no regulatory assessment.

Inapplicability of Prior Notice and Comment and Delayed Effective Date 
Procedures

    Because this document implements provisions of a law which are 
effective on February 4 and on April 1, 2009, and because immediate 
guidance is necessary to implement these provisions, it is found to be 
impracticable to issue this Treasury decision with notice and public 
procedure under 5 U.S.C. 553(b).
    Pursuant to the provisions of 5 U.S.C. 553(d)(2), and (d)(3), we 
are issuing these regulations without a delayed effective date. TTB has 
determined that this regulation is an interpretative rule that 
implements Public Law 111-3 as provided for in section 553(d)(2). TTB 
also has determined that good cause exists to provide industry members 
with immediate guidance on procedures to conduct an inventory and pay 
the appropriate floor stocks tax in accordance with section 553(d)(3).

Drafting Information

    Marjorie D. Ruhf of the Regulations and Rulings Division drafted 
this document. Other employees of the Alcohol and Tobacco Tax and Trade 
Bureau participated in its development.

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.

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 46

    Administrative practice and procedure, Cigars and cigarettes, 
Claims, Excise taxes, Packaging and containers, Penalties, Reporting 
and recordkeeping requirements, Seizures and forfeitures, Surety bonds, 
Tobacco.

27 CFR Part 71

    Administrative practice and procedure, Alcohol and alcoholic 
beverages, Tobacco.

Amendments to the Regulations

0
For the reasons set forth in the preamble, chapter I of title 27 of the 
Code of Federal Regulations is amended as follows:

PART 40--MANUFACTURE OF TOBACCO PRODUCTS AND CIGARETTE PAPERS AND 
TUBES

0
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.


0
2. Paragraph (a) of Sec.  40.21 is revised to read as follows:


Sec.  40.21  Cigar tax rates.

    (a) Cigars are taxed at the following rates under 26 U.S.C. 
5701(a):

----------------------------------------------------------------------------------------------------------------
                                                Tax rate for removals during the following periods:
         Type and amount          ------------------------------------------------------------------------------
                                           2002 to March 31, 2009                 April 1, 2009 and after
----------------------------------------------------------------------------------------------------------------
Small cigars per thousand........  $1.828................................  $50.33
Large cigars*
    <bullet> percentage of sale    20.719%...............................  52.750%
     price.
    <bullet> but not to exceed--.  $48.75 per thousand...................  $0.4026 per cigar.
----------------------------------------------------------------------------------------------------------------
* For large cigars: Until March 31, 2009, the percentage tax rate applies when the sale price is $235.294 per
  thousand or less, and the flat tax rate applies when the sale price is more than $235.294 per thousand. On and
  after April 1, 2009, the percentage tax rate applies when the sale price is $763.222 or less per thousand
  cigars, and the flat tax rate applies when the sale price is more than $763.222 per thousand cigars.


[[Page 14482]]

* * * * *

0
3. Section 40.23 is revised to read as follows:


Sec.  40.23   Cigarette tax rates.

    Cigarettes are taxed at the following rates under 26 U.S.C. 
5701(b):

----------------------------------------------------------------------------------------------------------------
                                          Tax rate per thousand for removals during the following periods:
             Product              ------------------------------------------------------------------------------
                                           2002 to March 31, 2009                 April 1, 2009 and after
----------------------------------------------------------------------------------------------------------------
Small cigarettes.................  $19.50................................  $50.33
Large cigarettes up to 6\1/2\''    $40.95................................  $105.69
 long.
Large cigarettes over 6\1/2\''     Taxed at the rate for small cigarettes, counting each 2\3/4\<gr-thn-eq> or
 long.                              fraction thereof of the length of each as one cigarette.
----------------------------------------------------------------------------------------------------------------


0
4. Section 40.25 is revised to read as follows:


Sec.  40.25   Smokeless tobacco tax rates.

    Smokeless tobacco products are taxed at the following rates under 
26 U.S.C. 5701(e):

----------------------------------------------------------------------------------------------------------------
                                           Tax rate per pound* for removals during the following periods:
             Product              ------------------------------------------------------------------------------
                                           2002 to March 31, 2009                 April 1, 2009 and after
----------------------------------------------------------------------------------------------------------------
Snuff............................  $ 0.585...............................  $ 1.51
Chewing tobacco..................  $ 0.195...............................  $ 0.5033
----------------------------------------------------------------------------------------------------------------
* Prorate tax for fractions of a pound.


0
5. Section 40.25a is revised to read as follows:


Sec.  40.25a   Pipe tobacco and roll-your-own tobacco tax rates.

    Pipe tobacco and roll-your-own tobacco are taxed at the following 
rates under 26 U.S.C. 5701(f) and (g), respectively:

----------------------------------------------------------------------------------------------------------------
                                           Tax rate per pound* for removals during the following periods:
             Product              ------------------------------------------------------------------------------
                                           2002 to March 31, 2009                 April 1, 2009 and after
----------------------------------------------------------------------------------------------------------------
Pipe tobacco.....................  $ 1.0969..............................  $ 2.8311
Roll-your-own tobacco............  $ 1.0969..............................  $ 24.78
----------------------------------------------------------------------------------------------------------------
* Prorate tax for fractions of a pound.


0
6. Section 40.74 is revised to read as follows:


Sec.  40.74   Investigation of applicant.

    (a) Investigation. The appropriate TTB officer may cause inquiry or 
investigation to be made to verify the information furnished in 
connection with an application for permit and to ascertain whether the 
applicant is eligible for a permit. Any of the following conditions may 
be grounds for denial of a permit:
    (1) The premises on which it is proposed to conduct the business 
are not adequate to protect the revenue;
    (2) The activity proposed to be carried out at such premises does 
not meet the minimum manufacturing or activity requirements of Sec.  
40.61(b); or
    (3) The applicant (including, in the case of a corporation, any 
officer, director, or principal stockholder and, in the case of a 
partnership, a partner)--
    (i) Is, by reason of his business experience, financial standing, 
or trade connections or by reason of previous or current legal 
proceedings involving a felony violation of any other provision of 
Federal criminal law relating to tobacco products, processed tobacco, 
cigarette paper, or cigarette tubes, not likely to maintain operations 
in compliance with this chapter;
    (ii) Has been convicted of a felony violation of any provision of 
Federal or State criminal law relating to tobacco products, processed 
tobacco, cigarette paper, or cigarette tubes; or
    (iii) Has failed to disclose any material information required or 
made any material false statement in the application therefor.
    (b) TTB action. The appropriate TTB officer, if there is reason to 
believe that the applicant is not entitled to a permit, shall promptly 
give the applicant notice of the contemplated disapproval of the 
application and opportunity for hearing thereon in accordance with part 
71 of this chapter, which part (including the provisions relating to 
the recommended decision and to appeals) is applicable to such 
proceedings. If, after such notice and opportunity for hearing, the 
appropriate TTB officer finds that the applicant is not entitled to a 
permit, he shall, by order stating the findings on which his decision 
is based, deny the permit.

(26 U.S.C. 5712)


0
7. Section 40.183 is amended by revising paragraph (e) to read as 
follows:


Sec.  40.183   Record of tobacco products.

* * * * *
    (e) Removed subject to tax (itemize large cigars by sale price in 
accordance with Sec.  40.22, except that before April 1, 2009, cigars 
that cost more than $235.294 may optionally be shown as if the price 
were $236 per thousand, and on and after April 1, 2009, cigars that 
cost more than $763.222 may optionally be shown as if the price were 
$764 per thousand);
* * * * *

[[Page 14483]]


0
8. Section 40.184 is amended by revising paragraph (a)(4) to read as 
follows:


Sec.  40.184   Record of removals subject to tax.

    (a) * * *
    (4) For large cigars, show the sale price (if the sale price is 
more than $235.294 per thousand before April 1, 2009, or more than 
$763.222 per thousand on and after April 1, 2009, you may place a note 
to that effect in the record instead of the actual price).
* * * * *

0
9. Section 40.332 is revised to read as follows:


Sec.  40.332  Suspension and revocation of permit.

    Where the appropriate TTB officer has reason to believe that a 
manufacturer of tobacco products has not in good faith complied with 
the provisions of 26 U.S.C. chapter 52, and regulations thereunder, or 
with any other provision of 26 U.S.C. with intent to defraud, or has 
violated any condition of his permit, or has failed to disclose any 
material information required or made any material false statement in 
the application for the permit, or has failed to maintain his premises 
in such manner as to protect the revenue, or is, by reason of previous 
or current legal proceedings involving a felony violation of any other 
provision of Federal criminal law relating to tobacco products, 
processed tobacco, cigarette paper, or cigarette tubes, not likely to 
maintain operations in compliance with 26 U.S.C. chapter 52, or has 
been convicted of a felony violation of any provision of Federal or 
State criminal law relating to tobacco products, processed tobacco, 
cigarette paper, or cigarette tubes, the appropriate TTB officer shall 
issue an order, stating the facts charged, citing such person to show 
cause why his permit should not be suspended or revoked. Such citation 
shall be issued and opportunity for hearing afforded in accordance with 
part 71 of this chapter, which part is applicable to such proceedings. 
If, after hearing, the hearing examiner, or on appeal, the 
Administrator, finds that such person has not shown cause why his 
permit should not be suspended or revoked, such permit shall be 
suspended for such period as the appropriate TTB officer deems proper 
or shall be revoked.

(72 Stat 1421, as amended; 26 U.S.C. 5713)


0
10. Section 40.351 is revised to read as follows:


Sec.  40.351   Cigarette papers.

    Cigarette papers are taxed at the following rates under 26 U.S.C. 
5701(c):

----------------------------------------------------------------------------------------------------------------
                                      Tax rate for each 50 papers* for removals during the following periods:
             Product              ------------------------------------------------------------------------------
                                           2002 to March 31, 2009                 April 1, 2009 and after
----------------------------------------------------------------------------------------------------------------
Cigarette papers up to 6\1/2\<gr-  $ 0.0122..............................  $ 0.0315
 thn-eq> long.
Cigarette papers over 6\1/2\<gr-   Use rates above, but count each 2\3/4\ inches, or fraction thereof, of the
 thn-eq> long.                      length of each as one cigarette paper.
----------------------------------------------------------------------------------------------------------------
* Tax rate for less than 50 papers is the same. The tax is not prorated.

(72 Stat. 1414; 26 U.S.C. 5701)

0
11. Section 40.352 is revised to read as follows:


Sec.  40.352   Cigarette tubes.

    Cigarette tubes are taxed at the following rates under 26 U.S.C. 
5701(d):

----------------------------------------------------------------------------------------------------------------
                                             Tax rate for each 50 tubes* for removals during the years:
             Product              ------------------------------------------------------------------------------
                                           2002 to March 31, 2009                 April 1, 2009 and after
----------------------------------------------------------------------------------------------------------------
Cigarette tubes up to 6\1/2\''     $ 0.0244..............................  $ 0.0630
 long.
Cigarette tubes over 6\1/2\''      Use rates above, but count each 2\3/4\ inches, or fraction thereof, of the
 long.                              length of each as one cigarette tube.
----------------------------------------------------------------------------------------------------------------
* Tax rate for less than 50 tubes is the same. The tax is not prorated.

(72 Stat. 1414; 26 U.S.C. 5701)

PART 41--IMPORTATION OF TOBACCO PRODUCTS AND CIGARETTE PAPERS AND 
TUBES

0
12. 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.


0
13. Section 41.30 is revised to read as follows:


Sec.  41.30   Pipe tobacco and roll-your-own tobacco tax rates.

    Pipe tobacco and roll-your-own tobacco are taxed at the following 
rates under 26 U.S.C. 5701(f) and (g), respectively:

----------------------------------------------------------------------------------------------------------------
                                           Tax rate per pound* for removals during the following periods:
             Product              ------------------------------------------------------------------------------
                                           2002 to March 31, 2009                 April 1, 2009 and after
----------------------------------------------------------------------------------------------------------------
Pipe tobacco.....................  $ 1.0969..............................  $ 2.8311
Roll-your-own tobacco............  $ 1.0969..............................  $ 24.78
----------------------------------------------------------------------------------------------------------------
* Prorate tax for fractions of a pound.


[[Page 14484]]


0
14. Paragraph (a) of Sec.  41.31 is revised to read as follows:


Sec.  41.31  Cigar tax rates.

    (a) Cigars are taxed at the following rates under 26 U.S.C. 
5701(a):

----------------------------------------------------------------------------------------------------------------
                                                Tax rate for removals during the following periods:
         Type and amount          ------------------------------------------------------------------------------
                                           2002 to March 31, 2009                 April 1, 2009 and after
----------------------------------------------------------------------------------------------------------------
Small cigars per thousand........  $1.828................................  $50.33
Large cigars*
<bullet> percentage of sale price  20.719%...............................  52.750%
<bullet> but not to exceed--.....  $48.75 per thousand...................  $0.4026 per cigar.
----------------------------------------------------------------------------------------------------------------
* For large cigars: Until March 31, 2009, the percentage tax rate applies when the sale price is $235.294 per
  thousand or less, and the flat tax rate applies when the sale price is more than $235.294 per thousand. On and
  after April 1, 2009, the percentage tax rate applies when the sale price is $763.222 or less per thousand
  cigars, and the flat tax rate applies when the sale price is more than $763.222 per thousand cigars.

* * * * *

0
15. Section 41.32 is revised to read as follows:


Sec.  41.32  Cigarette tax rates.

    Cigarettes are taxed at the following rates under 26 U.S.C. 
5701(b):

----------------------------------------------------------------------------------------------------------------
                                          Tax rate per thousand for removals during the following periods:
             Product              ------------------------------------------------------------------------------
                                           2002 to March 31, 2009                 April 1, 2009 and after
----------------------------------------------------------------------------------------------------------------
Small cigarettes.................  $19.50................................  $50.33
Large cigarettes up to 6\1/2\''    $40.95................................  $105.69
 long.
Large cigarettes over 6\1/2\''     Taxed at the rate for small cigarettes, counting each 2\3/4\ or fraction
 long.                              thereof of the length of each as one cigarette.
----------------------------------------------------------------------------------------------------------------


0
16. Section 41.33 is revised to read as follows:


Sec.  41.33  Smokeless tobacco tax rates.

    Smokeless tobacco products are taxed at the following rates under 
26 U.S.C. 5701(e):

----------------------------------------------------------------------------------------------------------------
                                           Tax rate per pound* for removals during the following periods:
             Product              ------------------------------------------------------------------------------
                                           2002 to March 31, 2009                 April 1, 2009 and after
----------------------------------------------------------------------------------------------------------------
Snuff............................  $0.585................................  $1.51
Chewing tobacco..................  $0.195................................  $0.5033
----------------------------------------------------------------------------------------------------------------
* Prorate tax for fractions of a pound.


0
17. Section 41.34 is revised to read as follows:


Sec.  41.34  Cigarette papers.

    Cigarette papers are taxed at the following rates under 26 U.S.C. 
5701(c):

----------------------------------------------------------------------------------------------------------------
                                      Tax rate for each 50 papers* for removals during the following periods:
             Product              ------------------------------------------------------------------------------
                                           2002 to March 31, 2009                 April 1, 2009 and after
----------------------------------------------------------------------------------------------------------------
Cigarette papers up to 6\1/2\      $0.0122...............................  $0.0315
 long.
Cigarette papers over 6\1/2\''     Use rates above, but count each 2\3/4\'' or fraction thereof of the length of
 long.                              each as one cigarette paper.
----------------------------------------------------------------------------------------------------------------
* Tax rate for less than 50 papers is the same. The tax is not prorated.


0
18. Section 41.35 is revised to read as follows:


Sec.  41.35  Cigarette tubes.

    Cigarette tubes are taxed at the following rates under 26 U.S.C. 
5701(d):

----------------------------------------------------------------------------------------------------------------
                                       Tax rate for each 50 tubes* for removals during the following periods:
             Product              ------------------------------------------------------------------------------
                                           2002 to March 31, 2009                 April 1, 2009 and after
----------------------------------------------------------------------------------------------------------------
Cigarette papers up to 6\1/2\      $0.0244...............................  $ 0.0630
 long.

[[Page 14485]]

 
Cigarette papers over 6\1/2\ long  Use rates above, but count each 2\3/4\ or fraction thereof of the length of
                                    each as one cigarette tube.
----------------------------------------------------------------------------------------------------------------
* Tax rate for less than 50 tubes is the same. The tax is not prorated.

0
19. Section 41.81 is amended by revising paragraphs (c)(4)(ii) and 
(c)(4)(iii) to read as follows:


Sec.  41.81  Taxpayment.

* * * * *
    (c) * * *
    (4) * * *
    (ii) For large cigars with a sale price of not more than $235.294 
per thousand before April 1, 2009, or a sale price of not more than 
$763.222 per thousand on and after April 1, 2009, the number and total 
sale price of such cigars;
    (iii) For large cigars with a sale price of more than $235.294 per 
thousand before April 1, 2009, or a sale price equal to or more than 
$763.222 per thousand on and after April 1, 2009, the number of cigars;
* * * * *

0
20. Section 41.106 is amended by revising paragraphs (a)(5) and (a)(6) 
to read as follows:


Sec.  41.106  Record of shipment by taxpayer.

    (a) * * *
    (5) The number and total sale price of large cigars having a sale 
price of not more than $235.294 per thousand before April 1, 2009, or a 
sale price of not more than $763.222 per thousand on and after April 1, 
2009, to be shipped;
    (6) The number of large cigars having a sale price equal to or more 
than $235.294 per thousand before April 1, 2009, or a sale price equal 
to or more than $763.222 per thousand on and after April 1, 2009, to be 
shipped;
* * * * *

0
21. Section 41.110 is amended by revising paragraphs (e) and (f) to 
read as follows:


Sec.  41.110  Record of tax computation and shipment by bonded 
manufacturer under deferred taxpayment.

* * * * *
    (e) The number and total sale price of large cigars having a sale 
price of not more than $235.294 per thousand before April 1, 2009, or a 
sale price of not more than $763.222 per thousand on and after April 1, 
2009, to be shipped;
    (f) The number of large cigars having a sale price equal to or more 
than $235.294 per thousand before April 1, 2009, or a sale price equal 
to or more than $763.222 per thousand on and after April 1, 2009, to be 
shipped;
* * * * *

0
22. Section 41.198 is revised to read as follows:


Sec.  41.198  Investigation of applicant.

    Appropriate TTB officers may inquire or investigate to verify the 
information in connection with an application for a permit. The 
investigation will ascertain whether the applicant is eligible for a 
permit. A permit may be denied if the applicant (including, in the case 
of a corporation, any officer, director, or principal stockholder and, 
in the case of a partnership, a partner)--
    (a) Is, by reason of his business experience, financial standing, 
or trade connections or by reason of previous or current legal 
proceedings involving a felony violation of any other provision of 
Federal criminal law relating to tobacco products, processed tobacco, 
cigarette paper, or cigarette tubes, not likely to maintain operations 
in compliance with this chapter;
    (b) Has been convicted of a felony violation of any provision of 
Federal or State criminal law relating to tobacco products, processed 
tobacco, cigarette paper, or cigarette tubes; or
    (c) Has failed to disclose any material information required or 
made any material false statement in the application therefor.

PART 44--EXPORTATION OF TOBACCO PRODUCTS AND CIGARETTE PAPERS AND 
TUBES, WITHOUT PAYMENT OF TAX, OR WITH DRAWBACK OF TAX

0
23. The authority citation for part 44 continues to read as follows:

    Authority:  26 U.S.C. 5142, 5143, 5146, 5701, 5703, 5704, 5708, 
5711-13, 5721-5723, 5731, 5741, 5751, 5754, 6066, 6065, 6151, 6402, 
6404, 6806, 7011, 7212, 7342, 7606, 7805; 31 U.S.C. 9301, 9303, 
9304, 9306.


0
24. Section 44.92 is revised to read as follows:


Sec.  44.92  Investigation of applicant.

    (a) Investigation. The appropriate TTB officer shall promptly cause 
such inquiry or investigation to be made, as may be necessary, to 
verify the information furnished in connection with an application for 
permit and to ascertain whether the applicant is eligible for a permit. 
Any of the following conditions may be grounds for denial of a permit:
    (1) The premises on which it is proposed to conduct the business 
are not adequate to protect the revenue; or
    (2) The applicant (including, in the case of a corporation, any 
officer, director, or principal stockholder and, in the case of a 
partnership, a partner)--
    (A) Is, by reason of his business experience, financial standing, 
or trade connections or by reason of previous or current legal 
proceedings involving a felony violation of any other provision of 
Federal criminal law relating to tobacco products, processed tobacco, 
cigarette paper, or cigarette tubes, not likely to maintain operations 
in compliance with this chapter;
    (B) Has been convicted of a felony violation of any provision of 
Federal or State criminal law relating to tobacco products, processed 
tobacco, cigarette paper, or cigarette tubes; or
    (C) Has failed to disclose any material information required or 
made any material false statement in the application therefor.
    (b) TTB action. An appropriate TTB officer who has reason to 
believe that the applicant is not entitled to a permit shall promptly 
give the applicant notice of the contemplated disapproval of his 
application and opportunity for hearing thereon in accordance with part 
71 of this chapter, which part (including the provisions relating to 
the recommended decision and to appeals) is made applicable to such 
proceedings. If, after such notice and opportunity for hearing, the 
appropriate TTB officer finds that the applicant is not entitled to a 
permit, he shall, by order stating the findings on which his decision 
is based, deny the permit.

(72 Stat. 1421; 26 U.S.C. 5712)


0
25. Section 44.162 is revised to read as follows:


Sec.  44.162  Suspension and revocation of permit.

    Where the appropriate TTB officer has reason to believe that an 
export warehouse proprietor has not in good faith complied with the 
provisions of 26 U.S.C. chapter 52, and regulations

[[Page 14486]]

thereunder, or with any other provision of 26 U.S.C. with intent to 
defraud, or has violated any condition of his permit, or has failed to 
disclose any material information required or made any material false 
statement in the application for permit, or has failed to maintain his 
premises in such manner as to protect the revenue, or is, by reason of 
previous or current legal proceedings involving a felony violation of 
any other provision of Federal criminal law relating to tobacco 
products, processed tobacco, cigarette paper, or cigarette tubes, not 
likely to maintain operations in compliance with 26 U.S.C. chapter 52, 
or has been convicted of a felony violation of any provision of Federal 
or State criminal law relating to tobacco products, processed tobacco, 
cigarette paper, or cigarette tubes, the appropriate TTB officer shall 
issue an order, stating the facts charged, citing such export warehouse 
proprietor to show cause why the permit should not be suspended or 
revoked after hearing thereon in accordance with part 71 of this 
chapter, which part (including the provisions relating to appeals) is 
made applicable to such proceedings. If, after hearing, the hearing 
examiner, or on appeal, the Administrator, finds that such person has 
not shown cause why the permit should not be suspended or revoked, such 
permit shall be suspended for such period as the appropriate TTB 
officer deems proper or shall be revoked.

(72 Stat. 1421; 26 U.S.C. 5713)

PART 46--MISCELLANEOUS REGULATIONS RELATING TO TOBACCO PRODUCTS AND 
CIGARETTE PAPERS AND TUBES

0
26. The authority citation for Part 46 continues to read as follows:

    Authority:  18 U.S.C. 2341-2346, 26 U.S.C. 5704, 5708, 5751, 
5754, 5761-5763, 6001, 6601, 6621, 6622, 7212, 7342, 7602, 7606, 
7805; 44 U.S.C. 3504(h), 49 U.S.C. 782, unless otherwise noted.

0
27. Section 46.75 is amended by removing the tables titled ``Example 
using 1993-1999 Rates'' and ``Example using 2000-2001 Rates'' and by 
adding a new example at the end:


Sec.  46.75  Required information for claims.

* * * * *

                                 Example Using Rates for April 1, 2009 and After
----------------------------------------------------------------------------------------------------------------
                Quantity                            Article                   Rate of tax             Amount
----------------------------------------------------------------------------------------------------------------
20,000..................................  Small cigars..............  $50.33 per thousand.......       $1,006.60
1,000...................................  Large cigars--sale price    52.75% of sale price......           52.75
                                           $100/thousand.
500.....................................  Large cigars--sale price    $0.4026 per cigar.........          201.30
                                           $0.77 per cigar.
10,000..................................  Small cigarettes..........  $50.33 per thousand.......          503.30
5,000...................................  Large cigarettes..........  $105.69 per thousand......          528.45
199,975.................................  Cigarette papers..........  $0.0315 per 50 papers.....          126.00
1,000...................................  Cigarette tubes...........  $0.0630 per 50 tubes......            1.26
100 lbs.................................  Chewing tobacco...........  $0.5033 per pound.........           50.33
200 lbs.................................  Snuff.....................  $1.51 per pound...........          302.00
100 lbs.................................  Pipe tobacco..............  $2.8311 per pound.........          283.11
300 lbs.................................  Roll-your-own tobacco.....  $24.78 per pound..........        7,434.00
                                         -----------------------------------------------------------------------
    Total claimed.......................  ..........................  ..........................       10,489.10
----------------------------------------------------------------------------------------------------------------


0
28. Subpart I is revised to read as follows:
Subpart I--Floor Stocks Tax on Certain Tobacco Products, Cigarette 
Papers, and Cigarette Tubes Held for Sale on April 1, 2009

General

Sec.
46.191 Purpose of this subpart.
46.192 Definitions used in this subpart.
46.193 Persons liable for floor stocks tax.
46.194 Persons not liable for floor stocks tax.
46.195 Floor stocks requirements.

Inventories

46.201 General.
46.202 Physical inventory requirements.
46.203 Record (book) inventory requirements.
46.204 Articles in transit.
46.205 Guidelines to determine title to articles in transit.
46.206 Articles in a foreign trade zone.
46.207 Articles held in bond.
46.208 Unmerchantable articles.
46.209 Articles in vending machines.
46.210 Articles marked ``not for sale'' or ``complimentary.''

Tax Liability Calculation

46.221 Floor stocks tax rates.
46.222 Determination of amount of tax due.
46.223 Tax credit.

Filing Requirements

46.231 Floor stocks tax return.
46.232 Preparation of floor stocks tax return.
46.233 Payment of floor stocks tax.
46.234 Tax payment deadline.
46.235 Filing requirements for multiple locations.
46.236 Articles in a warehouse.
46.237 Controlled group member.

Records

46.241 Required records.
46.242 Period for maintaining records.
46.243 Articles at multiple locations.
46.244 Location of records.
46.245 Errors in records.

Claims

46.251 Payment of tax required.
46.252 Claim based on error on return.
46.253 Destruction of articles by a Presidentially-declared major 
disaster.
46.254 Additional reasons for filing a claim.

Alternate Methods or Procedures

46.261 Purpose of an alternate method or procedure.
46.262 Application.
46.263 Conditions for approval.
46.264 Withdrawal of an approval.

TTB Authorities

46.270 [Reserved]
46.271 Entry, examination and testimony.
46.272 Issuance of summons.
46.273 Refusing entry or examination.
46.274 Penalties for failure to comply.

Subpart I--Floor Stocks Tax on Certain Tobacco Products, Cigarette 
Papers, and Cigarette Tubes Held for Sale on April 1, 2009

    Authority: Section 701, Pub. L. 111-3, unless otherwise noted.

General


Sec.  46.191  Purpose of this subpart.

    The regulations in this subpart implement the floor stocks tax on 
certain tobacco products, cigarette papers, and cigarette tubes held 
for sale on April 1, 2009.


Sec.  46.192  Definitions used in this subpart.

    As used in this subpart, the following terms have the meanings 
indicated unless the context in which they are used requires a 
different meaning or a different definition is prescribed for a

[[Page 14487]]

particular section or portion of this subpart.
    (a) Appropriate TTB officer. An officer or employee of the Alcohol 
and Tobacco Tax and Trade Bureau (TTB) authorized to perform any 
functions relating to the administration or enforcement of this part by 
TTB Order 1135.46, Delegation of the Administrator's Authorities in 27 
CFR 46, Miscellaneous Regulations Relating to Tobacco Products and 
Cigarette Papers and Tubes.
    (b) Articles subject to floor stocks tax. All Federally taxpaid or 
tax determined tobacco products (other than large cigars described in 
26 U.S.C. 5701(a)(2)), cigarette papers, and cigarette tubes that are 
held for sale on April 1, 2009.
    (c) Cigarette paper. Paper, or any other material except tobacco, 
prepared for use as a cigarette wrapper.
    (d) Cigarette tube. Cigarette paper made into a hollow cylinder for 
use in making cigarettes.
    (e) Controlled group. A related group of dealers under common 
control. Controlled groups include:
    (1) Controlled group of corporations. The term ``controlled group 
of corporations'' has the meaning given to that term by 26 U.S.C. 
1563(a) and the implementing regulations in 26 CFR 1.1563-1 through 
1.1563-4, except that the phrase ``more than 50 percent'' shall be 
substituted for the phrase ``at least 80 percent'' each time it 
appears. Controlled groups of corporations include, but are not limited 
to:
    (i) Parent-subsidiary controlled groups as defined in 26 CFR 
1.1563-1T(a)(2).
    (ii) Brother-sister controlled groups as defined in 26 CFR 1.1563-
1T(a)(3).
    (iii) Combined groups as defined in 26 CFR 1.1563-1T(a)(4).
    (2) Nonincorporated dealers under common control. A group of 
dealers is considered to be a controlled group when the group would 
qualify as a controlled group of corporations, except for the fact that 
one or more of the dealers is not incorporated.
    (f) Dealer. A person or other entity holding articles subject to 
floor stocks tax for sale on April 1, 2009, including manufacturers, 
importers, wholesalers, and retailers.
    (g) Floor stocks tax. A tax imposed on all Federally taxpaid or tax 
determined tobacco products (other than large cigars described in 26 
U.S.C. 5701(a)(2)), cigarette papers, and cigarette tubes held for sale 
on April 1, 2009. The floor stocks tax is the difference between the 
previous excise tax rate and the new excise tax rate.
    (h) Foreign trade zone. A foreign trade zone established and 
operated pursuant to the Act of June 18, 1934, as amended, 19 U.S.C. 
81a.
    (i) Person. An individual, trust, estate, partnership, association, 
company, or corporation, any State, including the District of Columbia, 
or political subdivision thereof, or any agency or instrumentality of a 
State or political subdivision thereof.
    (j) Tobacco products. Cigars, cigarettes, snuff, chewing tobacco, 
pipe tobacco, and roll-your-own tobacco as described in 26 U.S.C. 
5702(a), (b), (m)(2), (m)(3), (n) and (o), respectively.


Sec.  46.193  Persons liable for floor stocks tax.

    A dealer who holds for sale any articles subject to floor stocks 
tax on April 1, 2009, is liable for floor stocks tax. See Sec. Sec.  
46.204 and 46.205 regarding articles subject to floor stocks tax that 
are in transit on April 1, 2009 and Sec.  46.206 regarding articles 
subject to floor stocks tax that are held in a foreign trade zone on 
April 1, 2009.


Sec.  46.194  Persons not liable for floor stocks tax.

    A person who does not meet the definition of a dealer is not liable 
for the floor stocks tax under this subpart.


Sec.  46.195  Floor stocks requirements.

    (a) Take inventory. The dealer must establish the quantity of 
articles subject to the floor stocks tax held for sale on April 1, 
2009. The dealer may take a physical inventory or may use a record 
(book) inventory, as specified in Sec.  46.202 or Sec.  46.203.
    (b) Compute tax. The dealer must compute the amount of tax for the 
articles held for sale on April 1, 2009. Refer to the table in Sec.  
46.222. The dealer may apply the tax credit as provided in Sec.  
46.223.
    (c) File tax return and pay tax. After computing the floor stocks 
tax, the dealer must file a return even if no tax is due. See Sec.  
46.233 for payment methods if tax is due.
    (d) Maintain records. The dealer must maintain all records used to 
determine the quantity of articles subject to floor stocks tax and the 
quantity of articles held for sale on April 1, 2009 that are not 
subject to floor stocks tax. The dealer must also maintain records of 
all computations used to determine the amount of tax owed. Refer to 
Sec.  46.241.

(Approved by the Office of Management and Budget under control 
number 1513-0129)

Inventories


Sec.  46.201  General.

    (a) Date. The dealer must take an inventory to establish the 
quantities of articles subject to the floor stocks tax held for sale on 
April 1, 2009. The dealer must take the physical inventory or record 
(book) inventory not earlier than March 26, 2009 and not later than 
April 10, 2009.
    (b) Reconciliation. If the dealer takes a physical inventory on any 
day other than April 1, 2009, the resulting records must be reconciled 
to reflect the actual quantity of articles held at 12:01 a.m. on April 
1, 2009. These records must include all supporting records of receipt 
and disposition.
    (c) Method. The dealer may take a physical inventory in accordance 
with Sec.  46.202 or a record (book) inventory in accordance with Sec.  
46.203. The following table lists the taxable articles and the method 
to use for each to determine quantities:

------------------------------------------------------------------------
              Article                         Inventory method
------------------------------------------------------------------------
Small cigarettes..................  Count the number of cigarettes.
Large cigarettes 6\1/2\'' or less   Count the number of large
 in length.                          cigarettes.
Large cigarettes more than 6\1/     Keep a separate count for each size
 2\'' in length.                     of large cigarette. Count each 2\3/
                                     4\'', or fraction thereof, as one
                                     small cigarette.
Small Cigars......................  Count the number of small cigars.
Snuff.............................  Count the number of packages at each
                                     weight, noting the weight in pounds
                                     and ounces. Convert the ounces to
                                     pounds.
Chewing tobacco...................  Count the number of packages at each
                                     weight, noting the weight in pounds
                                     and ounces. Convert the ounces to
                                     pounds.
Pipe tobacco......................  Count the number of packages at each
                                     weight, noting the weight in pounds
                                     and ounces. Convert the ounces to
                                     pounds.
Roll-your-own tobacco.............  Count the number of packages at each
                                     weight, noting the weight in pounds
                                     and ounces. Convert the ounces to
                                     pounds.
Cigarette papers 6\1/2\'' or less   Count the number of cigarette
 in length.                          papers, divide by 50, and round up
                                     if there is any remainder.

[[Page 14488]]

 
Cigarette papers more than 6\1/     Count the number for each size of
 2\'' in length.                     cigarette paper. Count each 2\3/
                                     4\'', or fraction thereof, as new
                                     cigarette paper. Divide adjusted
                                     total by 50 and round up if there
                                     is any remainder.
Cigarette tubes 6\1/2\'' or less    Count the number of cigarette tubes,
 in length.                          divide by 50, and round up if there
                                     is any remainder.
Cigarette tubes more than 6\1/2\''  Count the number for each size of
 in length.                          cigarette tube. Count each 2\3/
                                     4\'', or fraction thereof, as one
                                     cigarette tube. Divide adjusted
                                     total by 50 and round up if there
                                     is any remainder.
------------------------------------------------------------------------

Sec.  46.202  Physical inventory requirements.

    The dealer's physical inventory must result in a written record of:
    (a) The quantity and type of each article subject to floor stocks 
tax recorded in sufficient detail to determine the tax rate as stated 
in Sec.  46.222. See the table in Sec.  46.201(c) for the information 
required for each type of article;
    (b) The date and time the inventory was taken;
    (c) The name of the individual(s) conducting the inventory and the 
name of the dealer for whom the inventory was taken; and
    (d) The location where the inventory was taken (street address, 
city and State).

(Approved by the Office of Management and Budget under control 
number 1513-0129)


Sec.  46.203  Record (book) inventory requirements.

    (a) The dealer may use a record (book) inventory if the dealer has 
source records that show:
    (1) The quantities of receipts and dispositions of all articles 
subject to floor stocks tax;
    (2) The types and quantities of articles actually on hand as if a 
physical inventory had taken place on April 1, 2009. See the table in 
Sec.  46.201(c) for the information required for each type of article;
    (3) The name and address of the consignor and consignee. For over 
the counter sales by retail dealers, the consignee name and address is 
not required;
    (4) The date of receipt or disposition of the articles; and
    (5) The brand name of each product.
    (b) If the dealer does not take the inventory as of the close of 
business on the last business day before April 1, 2009, the records 
must be reconciled as provided in Sec.  46.201(b).

(Approved by the Office of Management and Budget under control 
number 1513-0129)


Sec.  46.204  Articles in transit.

    The dealer must include articles subject to floor stocks tax that 
are in transit in the inventory if the dealer holds title to those 
articles. If the dealer has transferred title to the article, the 
dealer must document the title transfer in writing. For example, the 
dealer may mark the bill of lading with a written statement that 
indicates the time and place of the title transfer.

(Approved by the Office of Management and Budget under control 
number 1513-0129)


Sec.  46.205  Guidelines to determine title to articles in transit.

    The dealer may use the following guidelines to establish who holds 
title to articles in transit.
    (a) If State law mandates the change in title, then no agreement or 
contract between seller and buyer can alter it.
    (b) In the absence of State law governing the change of title 
between seller and buyer, the Uniform Commercial Code allows the seller 
and buyer to agree when title passes.
    (c) If there is no State law or agreement between the seller and 
buyer, the Uniform Commercial Code states that title transfer depends 
on how the seller ships the articles.
    (1) If the shipment is free on board (F.O.B.) destination, the 
title transfer occurs when the seller completes the physical delivery 
of the articles.
    (2) If the shipment is free on board (F.O.B.) shipping point, the 
title transfer occurs at the time and place of shipment, which is 
generally by common carrier.


Sec.  46.206  Articles in a foreign trade zone.

    If articles subject to floor stocks tax are stored in a foreign 
trade zone established under the Foreign Trade Zone Act (the Act of 
June 18, 1934, 48 Stat. 998, 19 U.S.C. 81a et seq.), the dealer is 
liable for the tax and must take an inventory in accordance with Sec.  
46.207 or when either of the following conditions apply:
    (a) Internal revenue taxes have been determined or customs duties 
liquidated, with respect to the articles pursuant to the first proviso 
of section 3(a) of the Foreign Trade Zone Act; or
    (b) Articles are held by a customs officer pursuant to the second 
proviso of section 3(a) of the Foreign Trade Zone Act.


Sec.  46.207  Articles held in bond.

    If the dealer is a manufacturer or an export warehouse proprietor 
and holds articles in TTB bond on April 1, 2009, the floor stocks tax 
does not apply to those articles. Likewise, if the dealer holds 
articles in a customs bonded warehouse on which tax has not been paid 
or determined, the floor stocks tax does not apply on those articles. 
However, if the dealer on April 1, 2009, holds articles in a customs 
bonded warehouse or foreign trade zone on which tax has been paid or 
determined pursuant to 26 U.S.C. 5703(b)(2)(B), the floor stocks tax 
applies to those articles.


Sec.  46.208  Unmerchantable articles.

    Articles that the dealer holds for return to a supplier because of 
some defect are not subject to the floor stocks tax. However, the 
dealer must segregate any such unmerchantable articles and include them 
in a separate section of the inventory record. The dealer cannot 
include as unmerchantable any items that may be held because of poor 
market demand or to reduce the dealer's inventory. If, for any reason, 
the tobacco products or cigarette papers or tubes that were determined 
to be unmerchantable are not subsequently returned or destroyed, the 
dealer must file an additional floor stocks tax return and pay tax on 
such products plus any applicable penalties and interest.

(Approved by the Office of Management and Budget under control 
number 1513-0129)


Sec.  46.209  Articles in vending machines.

    There is no exemption for articles in vending machines. They are 
subject to the floor stocks tax and must be included in the dealer's 
inventory record.


Sec.  46.210  Articles marked ``not for sale'' or ``complimentary''.

    Articles marked ``not for sale'' or ``complimentary'' that are part 
of a sale (for example, buy two packs and get one pack free) are 
subject to the floor stocks tax and must be included in the physical or 
record (book) inventory as provided in Sec. Sec.  46.202 or Sec.  
46.203.

Tax Liability Calculation


Sec.  46.221  Floor stocks tax rates.

[[Page 14489]]



----------------------------------------------------------------------------------------------------------------
                 Product                                           Floor stocks tax rate
----------------------------------------------------------------------------------------------------------------
Small cigars.............................  $48.502 per thousand.
Small cigarettes.........................  30.83 per thousand.
Large cigarettes 6[frac12] inch or less    64.74 per thousand.
 in length.
Large cigarettes more than 6[frac12] inch  30.83 per thousand units of length.
 in length.
Snuff....................................  0.925 per pound.
Chewing tobacco..........................  0.3083 per pound.
Pipe tobacco.............................  1.7342 per pound.
Roll-your-own............................  23.6831 per pound.
Cigarette papers.........................  0.0193 per 50 papers or fraction thereof
Cigarette tubes..........................  0.0386 per 50 tubes or fraction thereof.
----------------------------------------------------------------------------------------------------------------

Sec.  46.222  Determination of amount of tax due.

    After the dealer has taken the inventory, the dealer must convert 
the inventory quantities to taxable units using the table below. For 
tobacco products, round the quantities to two decimal places. The 
dealer must then apply the applicable tax rate for each type of taxable 
article using the table in Sec.  46.221 to determine the amount of tax 
due.

------------------------------------------------------------------------
                Product                            Computation
------------------------------------------------------------------------
Small cigars weighing not more than 3    Divide number of cigars by
 pounds thousand.                         1,000 and multiply by the
                                          small cigar tax rate.
Small cigarettes weighing not more than  Divide number of cigarettes by
 3 pounds thousand.                       1,000 and multiply by the
                                          small cigarette tax rate.
Large cigarettes weighing more than 3    Divide number of cigarettes by
 pounds thousand, measuring 6\1/2\<gr-    1,000 and multiply by the
 thn-eq> or less in length.               large cigarette tax rate.
Large cigarettes weighing more than 3    Mathematically adjust the
 pounds thousand, measuring more than     number of large cigarettes
 6\1/2\<gr-thn-eq> in length.             using the instructions below.*
                                          Divide the adjusted number of
                                          large cigarettes by 1,000 and
                                          multiply by the small
                                          cigarette tax rate.
Snuff..................................  Multiply the total in pounds by
                                          the snuff tax rate.
Chewing tobacco........................  Multiply the total in pounds by
                                          the chewing tobacco tax rate.
Pipe tobacco...........................  Multiply the total in pounds by
                                          the pipe tobacco tax rate.
Roll-your-own..........................  Multiply the total in pounds by
                                          the roll-your-own tax rate.
Cigarette papers 6\1/2\<gr-thn-eq> or    Divide the number of cigarette
 less in length.                          papers by 50, add 1 if there
                                          is a remainder, and multiply
                                          that number by the cigarette
                                          paper tax rate.
Cigarette papers more than 6\1/2\<gr-    Mathematically adjust the
 thn-eq> in length.                       number of cigarette papers
                                          using the instructions below.*
                                          Divide the adjusted number of
                                          cigarette papers by 50, add 1
                                          if there is a remainder, and
                                          multiply that number by the
                                          cigarette paper tax rate.
Cigarette tubes 6\1/2\<gr-thn-eq> or     Divide the number of cigarette
 less in length.                          tubes by 50, add 1 if there is
                                          a remainder, and multiply that
                                          number by the cigarette tube
                                          tax rate.
Cigarette tubes more than 6\1/2\<gr-thn- Mathematically adjust the
 eq> in length.                           number of cigarette tubes
                                          using the instructions below.*
                                          Divide the adjusted number of
                                          cigarette tubes by 50, add 1
                                          if there is a remainder, and
                                          multiply that number by the
                                          cigarette tube tax rate.
------------------------------------------------------------------------
*Large cigarettes, cigarette papers, and cigarette tubes more than 6\1/
  2\ inch in length are counted as multiple units. Each 2\3/4\ inch or
  fraction of the length is counted as a separate taxable unit. For each
  different length of product in this category, divide the length by 2\3/
  4\ inch and add 1 to the result if there is a remainder. Multiply the
  number of cigarettes, cigarette papers, or tubes of that length by the
  resulting number.

Sec.  46.223  Tax credit.

    The dealer is allowed a credit of up to $500 against the total 
floor stocks tax. However, controlled groups are eligible for only one 
credit for the entire group. The credit may be divided equally among 
the members or apportioned in any other manner agreeable to the 
members.

Filing Requirements


Sec.  46.231  Floor stocks tax return.

    Form 5000.28T09, 2009 Floor Stocks Tax Return--Tobacco Products and 
Cigarette Papers and Tubes, is available for printing through the TTB 
Web site (http://www.ttb.gov) or by mailing a request to the Alcohol 
and Tobacco Tax and Trade Bureau, National Revenue Center, 550 Main 
Street, Suite 8002, Cincinnati, OH 45202-5215.


Sec.  46.232  Preparation of floor stocks tax return.

    The dealer must complete and file the floor stocks tax return in 
accordance with the instructions for the form.?>


Sec.  46.233  Payment of floor stocks tax.

    (a) Electronic funds transfer. If the dealer pays any other excise 
taxes collected by TTB by electronic funds transfer, then the dealer 
must also send the payment for the floor stocks tax by an electronic 
funds transfer. Other dealers may voluntarily elect to pay the floor 
stocks tax by electronic funds transfer. Electronic funds transfers of 
floor stocks tax must be received on or before July 31, 2009.
    (b) Check or money order. Dealers not paying floor stocks tax by 
electronic fund transfer must pay by a check or money order sent with 
Form 5000.28T09.


Sec.  46.234  Tax payment deadline.

    Section 701 of Public Law 111-3 specifies a tax payment deadline of 
August 1, 2009. However, section 5703(b)(2)(E) of the Internal Revenue 
Code requires that when a due date falls on a Saturday, Sunday or a 
legal holiday, the preceding day that is not a Saturday, Sunday or 
legal holiday will be the due date. Therefore, the floor stocks tax is 
due on July 31, 2009, since August 1, 2009, falls on a Saturday.

[[Page 14490]]

Sec.  46.235  Filing requirements for multiple locations.

    The dealer may file a consolidated return if all locations or 
places of business have the same employer identification number. The 
dealer also has the option of filing a separate return for each place 
of business or location.


Sec.  46.236  Articles in a warehouse.

    (a) Articles warehoused at one or more locations must be reported 
on the tax return representing the location where the articles will be 
offered for sale.
    (b) Articles offered for sale at several locations must be reported 
on a tax return filed by one or more of the locations. The articles can 
be reported by a single location or apportioned among several 
locations.


Sec.  46.237  Controlled group member.

    If the dealer is a member of a controlled group, but has its own 
employer identification number, the dealer must file a separate floor 
stocks tax return. The dealer may take the tax credit referred to in 
Sec.  46.223 if it is apportioned to the dealer as a member of the 
controlled group.

Records


Sec.  46.241  Required records.

    The dealer must maintain:
    (a) Inventory records;
    (b) Tax computation records;
    (c) Names, addresses and employer identification numbers of all 
controlled group members, if applicable;
    (d) A copy of the tax return, if the dealer filed one;
    (e) A list of locations covered by the tax return; and
    (f) A copy of any alternate method or procedure approval issued 
under Sec.  46.263.

(Approved by the Office of Management and Budget under control 
number 1513-0129)


Sec.  46.242  Period for maintaining records.

    The dealer must maintain the required records for a period of three 
years from the due date of the tax return or the date the return was 
filed, whichever is later. However, the appropriate TTB officer may 
require, in writing, that the dealer keep these records for an 
additional period of not more than 3 years.

(Approved by the Office of Management and Budget under control 
number 1513-0129)


Sec.  46.243  Articles at multiple locations.

    The dealer must maintain a list of all places where the dealer 
holds articles subject to the floor stocks tax. This list must include:
    (a) Address;
    (b) Name of the proprietor (if different);
    (c) The employer identification number (if different); and
    (d) Types and quantities of articles held at each location.

(Approved by the Office of Management and Budget under control 
number 1513-0129)?>


Sec.  46.244  Location of records.

    The dealer must keep the inventory records at the principal place 
of business. All records must be made available to an appropriate TTB 
officer upon demand.

(Approved by the Office of Management and Budget under control 
number 1513-0129)


Sec.  46.245  Errors in records.

    If the inventory records or tax computation records contain an 
error that resulted in an overpayment of tax, the dealer may file a 
claim for refund. If the inventory or tax computation records contain 
an error that resulted in an underpayment of tax, the dealer must file 
an additional tax return on which the dealer shows and pays the 
additional tax, interest and any applicable penalties.

(Approved by the Office of Management and Budget under control 
number 1513-0129)

Claims


Sec.  46.251  Payment of tax required.

    Before the dealer can file a claim for refund, the dealer must have 
paid the floor stocks tax and subsequently determined that there was an 
overpayment of the tax.


Sec.  46.252  Claim based on error on return.

    If the dealer overpaid tax due to an error on the return, the 
dealer may file a claim for refund. The claim must be filed within 3 
years from the date the tax return was filed or 2 years from the time 
the tax was paid, whichever is later. The dealer's claim must be filed 
on TTB Form 2635 (5620.8). The claim must include detailed and 
sufficient evidence explaining why the dealer believes the tax was 
overpaid. The claim and supporting documentation must be mailed or 
delivered to the address shown on the form.

(Approved by the Office of Management and Budget under control 
number 1513-0030)


Sec.  46.253  Destruction of articles by a Presidentially-declared 
major disaster.

    After the dealer has paid the floor stocks tax, the dealer may file 
a claim for refund of tax on articles lost, rendered unmarketable, or 
condemned because of a Presidentially-declared major disaster. Subpart 
C of this part prescribes the time, evidence, and procedures for filing 
such a claim.


Sec.  46.254  Additional reasons for filing a claim.

    (a) Manufacturer. Subparts I and K of part 40 of this chapter 
prescribe the times, reasons and procedures for filing other claims for 
refunds.
    (b) Export warehouse proprietor. Subpart G of part 44 of this 
chapter prescribes the time, evidence, and procedures for filing other 
claims for refunds.
    (c) Exported taxpaid. If taxpaid articles are shipped from the 
United States, the dealer may file a claim for drawback of taxes under 
subpart K of part 44 of this chapter.
    (d) Importer. An importer may follow the procedures for filing a 
claim as set forth in subpart I of part 41 of this chapter.

Alternate Methods or Procedures


Sec.  46.261  Purpose of an alternate method or procedure.

    For purposes of this subpart, an alternate method or procedure is a 
different way of meeting a requirement imposed by this subpart. An 
alternate method or procedure must be approved in writing by TTB.


Sec.  46.262  Application.

    The dealer seeking approval of an alternate method or procedure 
under this subpart must apply in writing to the National Revenue 
Center, 550 Main Street, Room 8002, Cincinnati, Ohio 45202-5215. The 
dealer must describe the alternate method or procedure and reasons the 
dealer wishes to use it. The dealer cannot use the alternate method 
until the dealer receives written approval from the appropriate TTB 
officer.


Sec.  46.263  Conditions for approval.

    The alternate method or procedure may be approved if it meets all 
of the following conditions:
    (a) There is good cause for its use;
    (b) It is consistent with the purpose and effect intended by the 
prescribed method or procedure;
    (c) It affords equivalent security to the revenue;
    (d) It is not contrary to any provision of law;
    (e) It will not result in an increase in cost to the Government;
    (f) It will not hinder the effective administration of this subpart 
such as delaying timely payment of taxes; and
    (g) It is not a method or procedure that relates to the payment or 
collection of tax.

[[Page 14491]]

Sec.  46.264  Withdrawal of an approval.

    The approval will be withdrawn if revenue is jeopardized or 
administration of this subpart is hindered. The appropriate TTB officer 
will give the dealer a written notice of the withdrawal.

TTB Authorities


Sec.  46.270  [Reserved]


Sec.  46.271  Entry, examination and testimony.

    Appropriate TTB officers, in performing official duties, may enter 
any premises to examine articles subject to floor stocks tax. They may 
enter the premises during the day or may also enter at night if the 
premises are open. Appropriate TTB officers may audit and examine all 
articles, inventory records, books, papers, or other resource data for 
the purpose of ascertaining, determining, or collecting floor stocks 
tax. They may take testimony, under oath, of any person when inquiring 
as to proper payment of floor stocks taxes.


Sec.  46.272  Issuance of summons.

    Appropriate TTB officers can issue summonses when there is no 
referral to the Justice Department under the authority stated in Sec.  
70.22 of this chapter. The summons will state a place and time for such 
items or person to appear. TTB will issue a summons to require:
    (a) Any books of account or other data pertaining to liability for 
floor stocks tax;
    (b) Any person liable for the floor stocks tax or having possession 
of books of account or other data; and
    (c) Any other appropriate person in connection with the books or 
tax liability.


Sec.  46.273  Refusing entry or examination.

    If the dealer or another person in charge of the premises refuses 
to admit any appropriate TTB officer or prevents any appropriate TTB 
officer from examining the records or articles, the dealer may be 
liable for the penalties described in 26 U.S.C. 7342 or 7212.


Sec.  46.274  Penalties for failure to comply.

    If the dealer fails to follow the regulations set forth in this 
subpart, TTB may apply applicable civil and criminal penalties under 
the Internal Revenue Code of 1986. For example, failure to file and 
failure to pay penalties may be assessed against the dealer if the 
dealer does not timely file the tax return or timely pay the taxes due. 
In addition, interest under 26 U.S.C. 6621 accrues for any underpayment 
of tax and on all assessed penalties until paid.

PART 71--RULES OF PRACTICE IN PERMIT PROCEEDINGS

0
29. The authority citation for part 71 is revised to read as follows:

    Authority:  26 U.S.C. 5271, 5181, 5712, 5713, 7805, 27 U.S.C. 
204.

0
30. Section 71.46 is revised to read as follows:


Sec.  71.46  Suspension and revocation of tobacco permits.

    Whenever the appropriate TTB officer has reason to believe that any 
person has not in good faith complied with any of the provisions of 26 
U.S.C. chapter 52 or regulations issued thereunder, or has not complied 
with any provision of 26 U.S.C. which involves intent to defraud, or 
has violated any of the conditions of his permit, or has failed to 
disclose any material information required, or has made any materially 
false statement, in the application for his permit, or has failed to 
maintain his premises in such manner as to protect the revenue, or is, 
by reason of previous or current legal proceedings involving a felony 
violation of any other provision of Federal criminal law relating to 
tobacco products, processed tobacco, cigarette paper, or cigarette 
tubes, not likely to maintain operations in compliance with 26 U.S.C. 
chapter 52, or has been convicted of a felony violation of any 
provision of Federal or State criminal law relating to tobacco 
products, processed tobacco, cigarette paper, or cigarette tubes, the 
appropriate TTB officer shall issue a citation for the revocation or 
suspension of such permit.

(72 Stat 1421, as amended; 26 U.S.C. 5713)


0
31. Section 71.49b is revised to read as follows:


Sec.  71.49b  Denial of application for tobacco permit.

    The appropriate TTB officer may issue a citation for the 
contemplated disapproval of an application for a tobacco permit 
provided for in 26 U.S.C. 5713, if the appropriate TTB officer on 
examination of the application has reason to believe--
    (a) The premises on which it is proposed to conduct the business 
are not adequate to protect the revenue;
    (b) The applicant for a permit does not meet the minimum 
manufacturing and activity requirements in Sec.  40.61 of this chapter; 
or
    (c) The applicant (including, in the case of a corporation, any 
officer, administrator, or principal stockholder and, in the case of a 
partnership, a partner) is, by reason of his business experience, 
financial standing, or trade connections, or by reason of previous or 
current legal proceedings involving a felony violation of any other 
provision of Federal criminal law relating to tobacco products, 
processed tobacco, cigarette paper, or cigarette tubes, not likely to 
maintain operations in compliance with 26 U.S.C. chapter 52, or has 
been convicted of a felony violation of any provision of Federal or 
State criminal law relating to tobacco products, processed tobacco, 
cigarette paper, or cigarette tubes, or has failed to disclose any 
material information required or made any material false statement in 
the application.

(72 Stat. 1421, as amended; 26 U.S.C. 5712)

    Signed: March 10, 2009.
John J. Manfreda,
Administrator.
    Approved: March 12, 2009.
Timothy E. Skud,
Deputy Assistant Secretary (Tax, Trade, and Tariff Policy).
 [FR Doc. E9-7077 Filed 3-27-09; 11:15 am]
BILLING CODE 4810-31-P


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