On June 21, 2012, the Alcohol and Tobacco Tax and Trade Bureau (TTB) of the U.S. Treasury Department issued final regulations, effective immediately, governing permit and related requirements for manufacturers and importers of processed tobacco. TTB also issued new regulations relating to the definition of roll-your-own tobacco. However, TTB deferred issuing regulations on perhaps the most controversial issue — the distinction between pipe tobacco and roll-your-own cigarette tobacco for federal excise tax purposes.
After Congress raised the federal excise tax rates on tobacco products and cigarette papers and tubes in 2009, the use of pipe tobacco (because of its substantially lower tax rate) to produce cigarettes became more prevalent. Because the product’s packaging and labeling currently determines its tax classification, the tax changes caused a number of manufacturers to package tobacco suitable for use in producing cigarettes as “pipe” tobacco. Since the 2009 changes, a number of proposals have been made that would sharpen the distinction between pipe tobacco and roll-your-own tobacco, based on factors other than packaging and labeling, such as moisture content and tobacco cut width.
In issuing its most recent regulations, TTB noted that the “issues involved in distinguishing between pipe tobacco and roll-your-own tobacco merit separate treatment.” TTB stated that it is “currently reviewing the comments” pertaining to the pipe/RYO distinction and is “determining the appropriate rulemaking action in response.”
TTB did, however, issue one point of clarification regarding the pipe/RYO distinction. TTB’s final regulations note that “the inclusion of cigarette papers or tubes in a package bearing a ‘pipe tobacco’ declaration will suggest a use other than pipe tobacco.” TTB’s final regulations also noted that the use of point of sale materials or other communications by the manufacturer of pipe tobacco could result in a product being re-classified as the higher-taxed RYO tobacco. In other words, if a manufacturer of product labeled as “pipe” tobacco explicitly markets its use for producing cigarettes, either through point-of-sale ads or through the inclusion of cigarette tubes or papers, TTB is likely to re-classify the product as RYO tobacco.
For questions and/or comments, please contact Bryan Haynes, at 804.697.1420 or by email.