federal register/vol. 74, no. 118/monday, june 22, 2009 ... · federal register/vol. 74, no....

Federal Register/Vol. 74, No. 118/Monday, June 22, 2009/Rules and Regulations

(b) Approved maps. The six UnitedStates Geological Survey topographicmaps used to determine the boundary ofthe Upper Mississippi River Valleyviticultural area are titled:

(1) State of Minnesota, scale1:500,000; compiled in 1963; edition of1985;

(2) State of Wisconsin, scale1:500,000; compiled in 1966; edition of1984;

(3) State of Illinois, scale 1:500,000;compiled in 1970; edition of 1987;

(4) State of Iowa, scale 1:500,000;compiled in 1965; edition of 1984;

(5) Anamosa, Iowa, 1:100,000 scale;edited 1984; and

(6) Marshalltown, Iowa, 1:100,000scale; edited 1984.

(c) Boundary. The Upper MississippiRiver Valley viticultural area is locatedin portions of southeast Minnesota,southwest Wisconsin, northwestIllinois, and northeast Iowa. Theboundary of the Upper MississippiRiver Valley viticultural area is asdescribed below:

(1) The beginning point is on the Stateof Minnesota map at the intersection ofInterstate Highways 94 and 494(beltway), east of St. Paul at Oakbury inWashington County. From the beginningpoint, proceed east on Interstate 94,crossing over Lake St. Croix and ontothe State of Wisconsin map at St. CroixCounty, and then continuing throughDunn County to Eau Claire County, tothe intersection of Interstate Highway 94with Wisconsin State Highway 85,southwest of the City of Eau Claire; then

(2) Proceed northeast on WisconsinState Highway 85 toward the City of EauClaire to U.S. Highway 12; then

(3) Proceed southeast on U.S.Highway 12 into Jackson County andpassing through Clark County, toInterstate Highway 94 at Black RiverFalls; then

(4) Proceed southeast on InterstateHighway 94 into Monroe County toInterstate Highway 90, east of the FortMcCoy Military Reservation; then

(5) Proceed southeast on InterstateHighway 90 through Juneau, Sauk,Columbia, Dane, and Rock Counties,crossing onto the State of Illinois mapat Winnebago County to U.S. Highway20 at Cherry Valley; then

(6) Proceed west on U.S. Highway 20to Illinois State Highway 2, west of theRock River; then

(7) Proceed southwest on Illinois StateHighway 2, passing through OgleCounty and into Lee County, to IllinoisState Highway 26 at Dixon; then

(8) Proceed south on Illinois StateHighway 26 to Illinois State Highway 5(which has been redesignated as

Interstate Highway 88 on contemporarymaps of Illinois); then

(9) Proceed southwest on Illinois StateHighway 5 (Interstate Highway 88),passing through Whiteside County andinto Rock Island County, to InterstateHighway 80 at Barstow; then

(10) Proceed generally northwest onInterstate Highway 80, crossing theMississippi River, onto the State of Iowamap at Scott County, and continuingwest-northwest through Cedar Countyand into Johnson County to theintersection of Interstate Highways 80and 380 at Tiffin; then

(11) Proceed north-northwest onInterstate Highway 380 into LinnCounty and Cedar Rapids on the Stateof Iowa map. Then using the Anamosamap, followed by the Marshalltownmap, follow Interstate Highway 380,labeled "Under Construction" on theAnamosa map, northwest throughBenton and Buchanan Counties to BlackHawk County, to U.S. Highway 20,southeast of Waterloo and Raymond;then

(12) Using the State of Iowa map,proceed west-northwest on U. S.Highway 20 to Waterloo and U.S.Highway 63; then

(13) Proceed north on U.S. Highway63 through Bremer, Chicksaw, andHoward Counties, skirting the UpperIowa River at Chester, and crossing ontothe State of Minnesota map at FillmoreCounty, to Minnesota State Highway 56;then

(14) Proceed northwest and northerlyon Minnesota State Highway 56 throughMower, Dodge, and Goodhue Countiesto Dakota County, where it joins withState Highway 52 on commercial maps,to Interstate Highway 494 (beltway),south of St. Paul; then

(15) Follow Interstate Highway 494(beltway) northeast into WashingtonCounty, returning to the beginningpoint.

Signed: April 6, 2009.John J. Manfreda,Administrator.

Approved: May 3, 2009.Timothy E. Skud,DeputyAssistant Secretary (Tax, Trade, andTariff Policy).[FR Doc. E9-14574 Filed 6-19-09; 8:45 am]BILLING CODE 4810-31-P

DEPARTMENT OF THE TREASURY

Alcohol and Tobacco Tax and TradeBureau

27 CFR Parts 40, 41, 44, and 45

[Docket No. TTB-2009-0002; T.D. TTB-78;Re: Notice No. 95]

RIN 1513-AB72

Implementation of StatutoryAmendments Requiring theQualification of Manufacturers andImporters of Processed Tobacco andOther Amendments Related to PermitRequirements, and the ExpandedDefinition of Roll-Your-Own Tobacco

AGENCY: Alcohol and Tobacco Tax andTrade Bureau, Treasury.ACTION: Temporary rule; Treasurydecision.

SUMMARY: This temporary rule amendsthe Alcohol and Tobacco Tax and TradeBureau regulations to implement certainchanges made to the Internal RevenueCode of 1986 by the Children's HealthInsurance Program Reauthorization Actof 2009. The principal changes involvepermit and related requirements formanufacturers and importers ofprocessed tobacco and an expansion ofthe definition of roll-your-own tobacco.We also are soliciting comments fromall interested parties on theseamendments through a notice ofproposed rulemaking publishedelsewhere in this issue of the FederalRegister.DATES: Effective Dates: This temporaryrule is effective June 22, 2009, throughJune 22, 2012.FOR FURTHER INFORMATION CONTACT:Amy R. Greenberg, Regulations andRulings Division, Alcohol and TobaccoTax and Trade Bureau (202-927-8210).SUPPLEMENTARY INFORMATION:

TTB Authority

Chapter 52 of the Internal RevenueCode of 1986 (IRC) sets forth the Federalexcise tax and related provisions thatapply to manufacturers and importers oftobacco products and cigarette papersand tubes and to export warehouseproprietors who hold such products,upon which tax has not been paid,pending export. Section 5702(c) of theIRC (26 U.S.C. 5702(c)) defines tobaccoproducts as cigars, cigarettes, smokelesstobacco, pipe tobacco, and roll-your-own tobacco. Each of these terms is alsoseparately defined in section 5702.

Sections 5712 and 5713 of the IRC (26U.S.C. 5712 and 5713) requiremanufacturers and importers of tobaccoproducts and export warehouse

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proprietors to obtain a permit to engagein such businesses. Section 5712 alsoallows for the promulgation ofregulations to prescribe minimummanufacturing and activityrequirements for such permittees.Sections 5721, 5722, and 5741 of theIRC (26 U.S.C. 5721, 5722, and 5741)authorize the promulgation ofregulations to require inventories,reports, and recordkeeping,respectively.

Regulations implementing theprovisions of chapter 52 of the IRC arecontained in 27 CFR parts 40(manufacture of tobacco products andcigarette papers and tubes), 41(importation of tobacco products andcigarette papers and tubes), 44(exportation of tobacco products andcigarette papers and tubes, withoutpayment of tax, or with drawback oftax), and 45 (removal of tobaccoproducts and cigarette papers and tubes,without payment of tax, for use of theUnited States). These regulations areadministered by the Alcohol andTobacco Tax and Trade Bureau (TTB).

Children's Health Insurance ProgramReauthorization Act of 2009

On February 4, 2009, PresidentObama signed into law the Children'sHealth Insurance ProgramReauthorization Act of 2009, Pub. L.111-3, 123 Stat. 8 ("the Act").

Section 701 of the Act amended theIRC to increase the Federal excise taxrates on tobacco products and cigarettepapers and tubes. Section 701 alsoimposed a floor stocks tax on sucharticles held for sale on the effectivedate of the tax rate increases (April 1,2009). On March 31, 2009, TTBpublished in the Federal Register (74FR 14479) a temporary rule to amendthe TTB regulations to reflect thesection 701 changes.

Section 702 of the Act includedamendments to the IRC to extendpermit, inventory, reporting, andrecordkeeping requirements tomanufacturers and importers ofprocessed tobacco even though suchprocessed tobacco is not subject toexcise tax under the IRC. Section 702 ofthe Act also amended the definition of"roll-your-own tobacco" generally toinclude cigar wrapper and filler. Thisdocument amends the TTB regulationsto reflect these changes made by section702 of the Act.

Regulation of Manufacturers andImporters of Processed Tobacco

The Act amended sections 5712 and5713 of the IRC by adding references to"processed tobacco" after the words"tobacco products," thereby requiring

manufacturers and importers ofprocessed tobacco, like manufacturersand importers of tobacco products, toapply for and obtain a permit beforecommencing such business. In addition,the Act amended section 5702 of theIRC by adding a new subsection (p) todefine "manufacturer of processedtobacco." Under this new definition, amanufacturer of processed tobacco isany person who processes any tobaccoother than tobacco products; however,under the statutory definition theprocessing of tobacco does not includethe farming or growing of tobacco or thehandling of tobacco solely for sale,shipment, or delivery to a manufacturerof tobacco products or processedtobacco.

Section 702 of the Act also includeda transitional rule under whichmanufacturers and importers ofprocessed tobacco who are engaged insuch a business on April 1, 2009, andwho file an application with TTB beforeJune 30, 2009, may continue in businesspending final action from TTB on thatapplication. Finally, section 702 of theAct amended the IRC by extending tomanufacturers and importers ofprocessed tobacco provisions related toinventories (section 5721), reports(section 5722), records (section 5741),and packages, marks, labels, and notices(section 5723).

General Approach to This TemporaryRule

Congress mandated regulation ofprocessed tobacco to strengthen theenforcement authority for the Federalexcise tax on tobacco products, whichsignificantly increased under the Act(See Joint Committee on Taxation,Description of the Revenue Provisions ofthe Children's Health InsuranceProgram Reauthorization Act of 2009,(JCX-1-09), January 13, 2009). The Actprovides enforcement mechanisms toassist in preventing the diversion oftobacco materials to illegalmanufacturers. In promulgating theseregulations, TTB has carefullyconsidered how to effectively preventdiversion without creating undueadministrative burdens by building onTTB regulations already applicable tomanufacturers and importers of tobaccoproducts and to proprietors of exportwarehouses (as that term is defined in26 U.S.C. 5702(h)). The discussionbelow focuses on the manufacturer andimporter provisions of parts 40 and 41of the TTB regulations. A discussion ofother changes to parts 44 and 45 isincluded later in the "Part by PartDiscussion of Regulatory Amendments"section of this preamble.

Definition of Processed Tobacco

This temporary rule amends §§ 40.11and 41.11 by adding a definition of"processed tobacco." In addition tospecifying what the processing oftobacco does not include, the newdefinition in each case specifies thoseactivities that we consider to be"processing" activities. In this regard,we consider the processing of tobacco toinclude stemming (the removal of thestem from the tobacco leaf), fermenting,threshing, cutting, and flavoring thetobacco, as well as combining thestemmed tobacco with other non-tobacco ingredients. We do not believethat curing and baling are processingactivities within the intent of the Act.

In addition, in §§ 40.11 and 41.11 wehave revised the definition of "package"and added a new definition of"packaging" in order to make clear that"processing" does not includeconsumer packaging of processedtobacco. The term "package" is revisedto mean the immediate container inwhich tobacco products, processedtobacco, or cigarette papers or tubes areput up by the manufacturer and offeredfor sale or delivery to the ultimateconsumer. The definition furtherprovides that a container of processedtobacco, the contents of which weigh 10pounds or less (including any addednon-tobacco ingredients or constituents)will be deemed to be in a packageoffered for sale or delivery to theultimate consumer. This change isintended to reduce the potential fordiversion of processed tobacco frompermitted manufacturers. Thus, underthese definitions, the placing ofprocessed tobacco in a consumerpackage may not occur on the premisesof a person who is qualified only as amanufacturer of processed tobacco,because such packaging creates atobacco product, a taxable commoditythat may be produced only on thebonded premises of a tobacco productmanufacturer.

Permits and Authorizations

Under the regulations adopted in thistemporary rule, any person who engagesin the business of manufacturing orimporting processed tobacco mustobtain TTB approval as follows:

* A person who processes tobaccoand who does not also manufacturetobacco products must obtain a permitas a manufacturer of processed tobacco.

* A person who holds a TTB permitas a manufacturer of tobacco products,who processes tobacco solely for use inthe manufacture of tobacco productsunder that permit, and who does notremove the processed tobacco from the

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premises except for destruction, is notrequired to obtain authorization fromTTB to engage in the manufacture ofprocessed tobacco.

0 A person who holds a TTB permitas a manufacturer of tobacco products isrequired to obtain TTB authorization toremove processed tobacco for purposesother than destruction. Such activity isconsidered an "other business" and isgoverned by the provisions of 27 CFR40.47.

* A person who imports processedtobacco, and who does not also importtobacco products under a TTB permit,must obtain a permit to importprocessed tobacco.

* A person who imports processedtobacco, and who also imports tobaccoproducts under a TTB permit as animporter of tobacco products, isrequired to amend the existing importerpermit to authorize the importer toengage in the importation of processedtobacco under that permit.

* A person who is qualified as amanufacturer of cigarette papers andtubes in accordance with 27 CFR40.391, and who also processes tobacco,must obtain a TTB permit as amanufacturer of processed tobacco.

* A person who produces processedtobacco solely for his or her ownpersonal use and consumption is notconsidered to be a manufacturer ofprocessed tobacco for purposes of thenew requirements.

A transitional rule applies both toapplicants for permits as manufacturersor importers of processed tobacco and topersons who are only required to obtainauthorization under an existing permit.Persons to whom the transitional ruleapplies (that is, persons who areengaged in business on April 1, 2009,and who apply for a permit orauthorization before June 30, 2009), willreceive a written acknowledgment fromTTB upon receipt of the application.The acknowledgment will provide anidentifying number that can be used bythe applicant, similar to a permitnumber, for purposes of showing thatthe holder is authorized to engage insuch business pending action on theapplication. Anyone required to obtaina permit or authorization, and to whomthe transitional rule does not apply,must obtain a permit beforecommencing operations.

The Act did not impose an excise taxon the manufacture or importation ofprocessed tobacco and therefore did notprovide for the making of a bond tocover such activities. Accordingly, theregulations contained in this temporaryrule do not require a bond ofmanufacturers or importers of processedtobacco or additional bond coverage of

existing tobacco product manufacturerswho process tobacco.

Issuance and Duration of a Permit

Under the regulations adopted in thistemporary rule, a permit to manufactureprocessed tobacco will be issuedwithout an expiration date; retention ofthe permit is conditioned uponcontinued compliance with theprovisions of chapter 52 of the IRC andthe regulations promulgated thereunderincluding the minimum manufacturingand activity requirement as discussedlater in this preamble. A permit toimport processed tobacco will be validfor a period of three years from the dateshown on the permit, with thepossibility of renewal of the permit ifthe importer applies to TTB for renewalwithin 30 days of the permit'sexpiration date. These new permitprovisions for manufacturers andimporters of processed tobacco mirrorthe existing provisions formanufacturers and importers of tobaccoproducts. The three-year permit periodfor importers of tobacco products wasincluded in the regulations whenCongress, in the Balanced Budget Act of1997, extended permit requirements toimporters. The three-year duration wasdetermined by the Bureau of Alcohol,Tobacco and Firearms (ATF), TTB'spredecessor agency, to be a reasonablemethod to avoid the proliferation ofnumerous unused permits, whichwould pose administrative difficultiesand thus potential jeopardy to therevenue through unnecessarily divertedagency resources. (See preamble for T.D.ATF-422, 64 FR 71947, published in theFederal Register on December 22, 1999.)TTB believes that this rationale stillapplies and therefore should applyequally to permits for importers ofprocessed tobacco.

As noted above, an importer oftobacco products may apply to amendthe existing permit to obtainauthorization to import processedtobacco under that permit. Suchauthorization expires when the permitexpires. TTB continues to believe that alimited-duration permit is not necessaryfor manufacturers of tobacco products orprocessed tobacco. We note in thisregard that the business of amanufacturer requires significant capitalcommitments for premises andequipment (and, in the case of themanufacturer of tobacco products, bondcoverage) in order to obtain a permit.Therefore, because a manufacturer oftobacco products or processed tobaccois much less likely to choose to obtain(or be able to obtain) a permit withoutmaking such commitments, it is alsoless likely that a manufacturer would

seek to qualify for a permit that wouldsubsequently go unused.

Minimum Manufacturing and ActivityRequirements

Section 5712 of the IRC, whichapplies to manufacturers and importersof processed tobacco as a result of thechanges made by the Act, provides,among other things, that an applicationfor such a permit may be denied if theactivity proposed to be carried out doesnot meet such minimum capacity oractivity requirements as the Secretary ofthe Treasury may by regulationprescribe. Congress enacted thisprovision to ensure that those whoapply for a permit and operate underthat permit are actually engaged in thebona fide business of manufacturing orimporting and in a way that willadequately protect the revenue andcomply with applicable law andregulations.

As noted above, a permit as animporter of processed tobacco will beissued for a three-year period. However,notwithstanding the reasons for thethree-year duration of a permit asexplained above, TTB believes thatthere could be a significant number ofspeculative processed tobacco importerpermits applications that lead to theissuance of permits under which noactivity takes place. TTB does notbelieve that it is appropriate to devoteagency resources to permit renewals insuch cases. Accordingly, the regulationsin this temporary rule provide that anapplication for the renewal of a permitas an importer of processed tobacco maybe rejected and the permit denied if noactivity has taken place or been reportedunder such permit for a period of oneyear immediately prior to theapplication for renewal.

The regulations in this temporary rulealso provide that a permit as amanufacturer of processed tobacco maybe suspended or revoked for non-use ifno activity has taken place or beenreported under such permit for a periodof one year. This provision clarifies theTTB position that any minimum activityrequirement promulgated pursuant tosection 5712 is a continuing conditionof a manufacturer's permit.

Records, Reports, and Inventories

As noted above, the Act extendsinventory, reporting, and recordkeepingrequirements to manufacturers andimporters of processed tobacco.Accordingly, the regulations in thistemporary rule generally requiremanufacturers and importers ofprocessed tobacco to take inventory,report, and keep records in a mannersimilar to that required for

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manufacturers and importers of tobaccoproducts, and in a manner that isconsistent with good business practice.The new regulations in this temporaryrule also recognize that there may becircumstances involved in amanufacturer's or importer's businessthat require enhanced recordkeepingand reporting. Such circumstancesinclude, for example, the transfer ofprocessed tobacco to a person who doesnot hold a TTB permit as a tobaccoproduct manufacturer and therefore isnot subject to the statutory andregulatory provisions administered byTTB.

As noted above, the Act extended theprovisions of the IRC to processedtobacco in order to strengthenenforcement authority over tobaccoproducts and thus prevent the diversionof materials used for making tobaccoproducts to unauthorized manufacturerswho would not be accountable to TTB.However, the IRC as amended by theAct places no limitations on the personsto whom manufacturers or importers ofprocessed tobacco may transfer or sellprocessed tobacco. TTB believes thatunregulated transfers or sales ofprocessed tobacco to persons who donot hold TTB permits could lead toprocessed tobacco falling into the handsof persons who would be unknown andunaccountable to TTB, including illegalmanufacturers. In order to betterregulate processed tobacco and tominimize its transfer to unauthorizedmanufacturers, the new regulations inthis temporary rule require moredetailed records of those who transfer orsell processed tobacco to persons whodo not have TTB permits as amanufacturer or importer of tobaccoproducts or of processed tobacco, or asan export warehouse proprietor. Thenew regulations also include arequirement to file a report with TTBcovering all such transfers or sales.These reports must include detailedinformation regarding the persons andcircumstances involved in the transferor sale of processed tobacco, and thereports must be filed by the close of thebusiness day following such action.

Roll-Your-Own Tobacco

Expansion of the Definition

Prior to the changes made by the Act,the IRC at 26 U.S.C. 5702(o) defined theterm "roll-your-own tobacco" to mean"any tobacco which, because of itsappearance, type, packaging, or labeling,is suitable for use and likely to beoffered to, or purchased by, consumersas tobacco for making cigarettes."Section 702(d) of the Act amended thedefinition by adding at the end "or

cigars, or for use as wrappers thereof."The principal effect of this change is toextend the Federal excise tax, permit,and related statutory provisionsapplicable to manufacturers andimporters of roll-your-own tobacco tomanufacturers and importers of tobaccofor making cigars and for use aswrappers of cigarettes or cigars. Theamendment made by section 702(d)applies to articles removed (that is,removed from the factory or frominternal revenue bond under IRC section5704 under regulations prescribed bythe Secretary, or released from customscustody) after March 31, 2009. There isno transitional rule with regard to thepermit requirement for persons affectedby this statutory change; any personengaged in the business ofmanufacturing or importing any productthat falls within the new statutorydefinition of roll-your-own tobacco isrequired, as of April 1, 2009, to have aTTB permit.

Further, as a result of the Act, theproducts that were incorporated into thedefinition of roll-your-own (productscommonly referred to as "cigartobacco", "cigarette wrapper" or "cigarwrapper") must now comply with thepackage, mark, label, and noticerequirements set forth in parts 40, 41,and 44. Under 27 CFR 40.216b and41.72b, packages of roll-your-owntobacco must bear a notice that includesthe designation of the product for taxpurposes. Prior to the amendments ofthis temporary rule, the permissibledesignations were "roll-your-owntobacco," "cigarette tobacco," and "TaxClass J." We are amending this noticerequirement to add as permissibledesignations on packages of roll-your-own tobacco the following: "Cigartobacco," "cigarette wrapper," and"cigar wrapper," and are removing thewords "Tax Class J" as a permissibledesignation as discussed later in thispreamble. In addition, to allowsufficient time for affectedmanufacturers and importers to complywith the packaging requirements, we areamending 27 CFR 40.216c and 41.72c toprovide that packages of roll-your-owntobacco to which one of the newdesignations applies (that is, cigartobacco, cigarette wrapper, or cigarwrapper) may be removed, until August1, 2009, without being in compliancewith the notice requirements of§§ 40.216b and 41.72b. With thisamendment, we are also removing from§§ 40.216c and 41.72c existing text, nowobsolete, which provided a use-upperiod for roll-your-own tobaccopackages removed in the year 2000.

Distinguishing Between Roll-Your-OwnTobacco and Pipe Tobacco

The tax rate increases adopted insection 701 of the Act resulted in asignificant difference between the rateof tax imposed on roll-your-own tobacco($24.78 per pound) and the rate of taximposed on pipe tobacco ($2.8311 perpound); prior to the amendments madeby the Act, the two rates were the same.While the definition of roll-your-owntobacco was amended by the Act asnoted above, no change was made to thedefinition of pipe tobacco, which reads,"any tobacco which, because of itsappearance, type, packaging, or labeling,is suitable for use and likely to beoffered to, or purchased by, consumersas tobacco to be smoked in a pipe."

Currently, the TTB regulationscontain no standards to differentiatebetween roll-your-own tobacco and pipetobacco beyond a repeat of the statutorydefinitions; when the tax rates on thetwo products were the same, TTB andits predecessor agencies considered it tobe sufficient to require manufacturersand importers to meet certain noticerequirements, as discussed below.

However, because of the revenueimplications resulting from the tax ratechanges made by the Act, including thecreation of a new incentive for industrymembers to present a product as, andthus pay the tax at the lower rate for,pipe tobacco, TTB recognizes that thereis now a heightened need for moreregulatory detail to clarify the differencebetween the two products. We arecurrently evaluating analytical methodsand other standards to differentiatebetween roll-your-own tobacco and pipetobacco, and we may publishrulemaking proposals on this subject forpublic comment in the near future.

We note that the definitions of pipetobacco and roll-your-own tobacco bothrequire consideration of the packagingand labeling of the product in order todetermine its classification for taxpurposes. In this temporary rule we areamending the classification and noticeprovisions of the tobacco productmanufacturer and importer regulationsin parts 40 and 41 to more clearlydifferentiate, on the basis of packagingand labeling, between these two types oftaxable products. The nature of, andreasons for, these changes are discussedbelow.

Sections 40.25a and 41.30, which setforth the tax rates for pipe tobacco androll-your-own tobacco, are amended bydesignating the existing text asparagraph (a) with the heading "taxrates" and adding a new paragraph (b),with the heading "classification," that:(1) Provides that pipe tobacco and roll-

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your-own tobacco must be put up inpackages that conform to the applicablepackage and package noticerequirements; (2) provides that anytobacco that has been processed andthat is removed in a package that doesnot bear a notice prescribed under parts40 or 41 will be deemed to be roll-your-own tobacco; and (3) provides that, eventhough tobacco that has been processedis removed in a package that bears thenotice required for pipe tobacco, it willbe deemed to be roll-your-own tobaccoif either the package does not bear thewords "pipe tobacco" wherever thebrand name appears or the package oraccompanying materials bear anyrepresentation suggesting a use otherthan as pipe tobacco.

In addition, the notice requirementsfor pipe tobacco in §§ 40.216a and41.72a are amended by removing fromparagraph (a) the last sentence andthereby providing that only the words"pipe tobacco" will be permissible as adesignation on a package of pipetobacco and that the designation "TaxClass L" may no longer be used as analternative designation. Similarly, in thenotice requirements for roll-your-owntobacco in §§ 40.216b and 41.72b,paragraph (a) is amended by removingthe reference to "Tax Class J" and alsoby adding "cigar tobacco," "cigarettewrapper," and "cigar wrapper" aspermissible designations (as discussedabove). Thus, in the case of roll-your-own tobacco, the only permissiblepackage designations will be "roll-your-own tobacco," "cigarette tobacco,""cigar tobacco," "cigarette wrapper," or"cigar wrapper." Finally, §§ 40.216c and41.72c are revised to set forth a new use-up period, until August 1, 2009, forpackages that contain the "Tax Class L"or "Tax Class J" designations, which areno longer permissible under the noticerequirements adopted in this temporaryrule.

The changes to §§ 40.25a and 41.30described above are intended to addresstwo distinct but related tax rate issues.The first issue relates to the significantdifference between the rates applicableto pipe tobacco and to roll-your-owntobacco and the resulting incentive fora taxpayer to classify a product as pipetobacco rather than as roll-your-owntobacco. The amendments are tied to therevised notice requirements for pipetobacco and roll-your-own tobaccobecause the way those notices appear onthe package goes directly to the inquiryrequired under each statutorydefinition, that is, whether, because ofthe packaging or labeling of the product,the product is "likely to be offered to,or purchased by, consumers as" tobaccoto be smoked in a pipe or tobacco for

making cigarettes or cigars. Thecircumstances in which a product isdeemed to be roll-your-own tobaccorather than pipe tobacco in the amendedtexts are intended to ensure that the taxcollected on the product is consistentwith the way the product is presentedto the consumer.

The second issue regarding thechanges to §§ 40.25a and 41.30 relates tothe fact that "processed tobacco" is notsubject to tax. TTB believes that it isessential to recognize that there will bea point at which tobacco will have beenprocessed in such a way that it is nolonger the untaxed commodity butrather has become a taxable "tobaccoproduct." For example, activities suchas cutting and flavoring are processesthat would result in a "tobacco product"(such as roll-your-own tobacco) but forthe fact that it is not in a consumerpackage. Thus, under the regulatorytexts in this temporary rule, processedtobacco that is removed from a factoryor imported in a package with a contentof 10 pounds or less will be deemed tobe roll-your-own tobacco for permit andtax purposes unless the package fullycomplies with the notice requirementsfor pipe tobacco or for the other non-cigarette and non-cigar tobacco products(that is, smokeless tobacco, also referredto as snuff and chewing tobacco).

The removals of the "Tax Class L"and "Tax Class J" designations weredone in order to ensure that thepackaging and labeling of the twoproducts convey the type of tobaccocontained inside; as noted above, thenotice requirements speak directly tothe consideration of the effect thepackaging or labeling of a product hason how a product is likely to be offeredto or purchased by consumers. Becausespecific references to the contents arenow required, continued use of the taxclass designations would beinappropriate. The addition ofreferences to "pipe tobacco," "cigarettewrapper," and "cigar wrapper" issimply intended to conform the texts tothe addition of the words "or cigars, orfor use as wrappers thereof" at the endof the statutory definition of roll-your-own tobacco.

Effect on Manufacturers and Importersof Tobacco Products

Minimum Manufacturing and ActivityRequirement

As noted above, the regulationsadopted in this temporary rule providethat the permit of a manufacturer ofprocessed tobacco may be suspended orrevoked, and a processed tobaccoimporter's application for permitrenewal may be rejected, if there has

been no activity or if no activity hasbeen reported under that permit for oneyear prior to the application for renewal.TTB believes that the rationale for suchprovisions applies equally to importersand manufacturers of tobacco productsbecause, as noted above, the intention ofthe limited-duration permit was toensure that only those engaged in bonafide business were issued, and continueto hold, a TTB permit. TTB has foundthat unused permits are not uncommonand that they cause unnecessaryadministrative burden and divertresources from enforcement activitiesrelated to persons actually engaged inthe businesses that TTB regulates.Accordingly, we are also amending theregulations applicable to manufacturersand importers of tobacco products in§§ 40.61 and 41.202, respectively, tostate that such permits may be subjectto suspension or revocation, or in thecase of importers may not be renewedfor non-use. We are also adding in part40, for clarification and cross-referencepurposes, a new § 40.256 to provide thatthe minimum activity requirement setforth in § 40.61 is a continuingcondition for retention of amanufacturer's permit.

Recording of Processed Tobacco

Section 40.182 has requiredmanufacturers of tobacco products toaccount for all tobacco, other thantobacco products, that is received,shipped, lost, and destroyed. Thistemporary rule amends § 40.182 torequire manufacturers to account on adaily basis for processed tobacco andamends § 40.201 to require thatinventories include both tobaccoproducts and processed tobacco. Therecording of other tobacco is notrequired. Specifically, the revised§ 40.182 text provides that amanufacturer of tobacco products whoprocesses tobacco on the factorypremises solely for use in themanufacture of tobacco products underthat permit, and who does not removeprocessed tobacco from the factorypremises for any purpose other thandestruction, must maintain dailyrecords that show the total quantity inpounds of all processed tobacco onhand, received, used in the manufactureof tobacco products, lost, and destroyed.A manufacturer of tobacco productswho removes processed tobacco fromthe factory for any purpose other thanfor destruction must keep the samerecords and submit the same reports asthose required for manufacturers ofprocessed tobacco.

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Part by Part Discussion of RegulatoryAmendments

This temporary rule adds new subpartL to part 40 and new subpart M in part41 to set forth the qualification andother requirements applicable tomanufacturers and importers ofprocessed tobacco discussed above. Thistemporary rule also makes a number ofconforming changes to parts 40, 41, 44,and 45, including amendments to thedefinitions of "export warehouseproprietor", "package", "removal andremove", and "roll-your-own tobacco",and the addition of definitions of"processed tobacco" and "manufacturerof processed tobacco", and the additionof references to "processed tobacco",where appropriate. The followingadditional points are noted regardingthe regulatory amendments contained inthis document:

Part 40

In § 40.11, we are replacing thedefinition of "permit number" with amore general definition that would beequally applicable to permits issued tomanufacturers and importers ofprocessed tobacco and to permits issuedto manufacturers and importers oftobacco products. This change does notaffect existing permit holders.

Section 40.61 describes generalqualification requirements formanufacturers of tobacco products. Inaddition to including the amendmentregarding minimum activity discussedabove, we are revising the text for thefollowing reasons:

First, we believe that it is appropriateto specify that a proprietor of a customsbonded warehouse is not required toqualify for a permit as a manufacturerwith respect to the operations of suchwarehouse. This exemption appears inthe IRC at 26 U.S.C. 5702(d) and theamendment merely reflects the statutorylanguage.

Second, we are adding a provision toclarify that a retailer such as atobacconist may, without triggering aTTB permit requirement, take a taxpaidtobacco product out of the package andplace it into a different container forsale directly to a consumer; thisamendment reflects the language thatappears in 26 U.S.C. 5751(a)(3).

Finally, we have placed the existingminimum manufacturing and activityprovisions in new paragraph (c) andadded a new provision stating that theactivity of packaging processed tobaccoalone may be sufficient to qualify aperson as a manufacturer of tobaccoproducts. We believe this position isnecessary to implement theamendments made by the Act, under

which processing of tobacco may resultin a product that, except for the fact thatit is not in a package, would qualify asa taxable tobacco product. It is theposition of TTB that the placing ofprocessed tobacco in a container thatmeets the definition of a "package"under amended §§ 40.11 and 41.11indicates a clear intent to create ataxable commodity because, in fact, ataxable commodity is what results fromsuch a packaging operation.Accordingly, such packaging may onlyoccur on the premises of a bondedmanufacturer of tobacco products. Thus,because packaging of processed tobaccoresults in a consumer-ready, taxable,tobacco product, we believe that theactivity of packaging processed tobaccoalone may be sufficient to qualify aperson as a manufacturer of a taxabletobacco product. Without this provision,TTB would have an inadequateregulatory basis for controlling thediversion of processed tobacco thatneeds only to be packaged in order tobe consumer-ready. However, the samerationale does not apply to thepackaging of cigarettes and cigars,because the statutory definitions of thetwo products are met for tax purposesprior to the placing of the products inpackages.

In § 40.47, concerning otherbusinesses within a factory, we haveamended references to "factory" and to"manufacturer" to specify that theformer refers to the factory of amanufacturer of tobacco products andthe latter to a manufacturer of tobaccoproducts. These amendments clarifythat the provisions of § 40.47 apply tothe factory of a manufacturer of tobaccoproducts and not to the factory of amanufacturer who only processestobacco. We have also removed therequirement that the application forauthorization to engage in an "otherbusiness" be submitted in triplicate, asmultiple copies of the submission are nolonger necessary. Finally, we haveincluded text that applies thetransitional rule to manufacturers oftobacco products who also processtobacco and remove it for purposesother than destruction. Such amanufacturer who is engaged in thebusiness of processing tobacco on April1, 2009, and who submits an applicationfor authorization under § 40.47 beforeJune 30, 2009, may continue to engagein such business pending TTB action onthe application.

In § 40.61, we have also removed thestatement that repackaging andrelabeling alone do not qualify as amanufacturing activity. We believe thisstatement is unnecessary and could bemisleading. Repackaging (that is, the

removal of a tobacco product from thepackage in which it was removed fromthe factory or released from customscustody upon determination of tax, andthe placement of that tobacco productinto another package to be offered forsale to a consumer) may only occurunder TTB authorization in accordancewith § 40.217.

We are amending § 40.72, concerningthe use of factory premises tospecifically address the use by amanufacturer of tobacco products of thefactory premises for processing oftobacco. The amendment clarifies that amanufacturer of tobacco products whoprocesses tobacco solely for use in themanufacture of tobacco products underan existing permit, who does notremove the processed tobacco for anypurpose other than destruction, andwho maintains records with respect tothe disposition of the processed tobaccoare not required to apply for TTBauthorization under § 40.47. If any ofthese conditions are not met, thatmanufacturer must apply forauthorization under § 40.47.

In § 40.202, we are replacing theobsolete text of paragraph (b), whichconcerns the report of wholesale pricesof large cigars removed before January 1,1991, with new text setting forth arequirement to keep records and submitreports when processed tobacco isremoved from the factory premises otherthan for destruction.

In § 40.211, we are adding a statementto reflect the language that appears in 26U.S.C. 5751(a)(2) and (3), to the effectthat no person may purchase, receive,possess (except for personalconsumption), offer for sale, or sell orotherwise dispose of, after removal, anytobacco products that are not put up inpackages or that are put up in packagesnot bearing the marks, labels, andnotices, as required under 27 CFR part40. That statutory prohibition is notreflected elsewhere in the TTBregulations and, due to the newsignificance placed on the packaging ofproducts in the amendments made bythis temporary rule, we believe anexplicit statement in the regulationswould be helpful to industry members.

We are also adding a new § 40.25 7 toalert manufacturers of tobacco productsto the provisions related to processedtobacco. The new section acts merely asa readers guide.

Part 41

Section 41.71, concerning tobaccoproduct packages, is amended in thesame manner and for the same reason asthe amendment to § 40.211 describedabove. That is, a statement is added toreflect the language that appears in 26

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U.S.C. 5751(a)(2) and (3), to the effectthat no person may purchase, receive,possess (except for personalconsumption), offer for sale, or sell orotherwise dispose of, after removal, anytobacco products that are not put up inpackages or that are put up in packagesnot bearing the marks, labels, andnotices, as required under 27 CFR part41.

We have removed § 41.192, whichprovided a transitional rule for theimplementation of the permitrequirement for importers of tobaccoproducts prescribed in T.D. ATF-422(64 FR 71951, published in the FederalRegister on December 22, 1999) becauseit is no longer needed. For the samereason, in § 41.201, we are removing thereference to temporary permits issuedunder former § 41.192.

We have removed § 41.205 becausethat regulation was promulgatedpursuant to the Contraband CigaretteTrafficking Act (18 U.S.C. 2342). Theauthority to promulgate regulationsunder the Contraband CigaretteTrafficking Act now rests with theBureau of Alcohol, Tobacco, Firearms,and Explosives at the Department ofJustice, not with TTB.

We have revised §§ 41.206, 41.207,and 41.208, concerning reports andrecords, for organizational and editorialreasons and to remove obsolete text. In§ 41.206, we have removed therequirement that the first reportssubmitted by an importer cover allmonths beginning January 1, 2000, asthis requirement arose from a priortransitional rule. We have also removed§ 41.207 and included its provisions,with some editorial changes, in § 41.208in order to have a single sectioncovering the retention and maintenanceof records.

Part 44

We have removed § 44.90, concerningrestrictions relating to operations at anexport warehouse premises, and haveincluded its terms, with modifications,in new § 44.141a. The new section,under the heading "Use of premises",reflects the new definition of "exportwarehouse" by providing that an exportwarehouse premises may only be usedfor the storage of non-taxpaid tobaccoproducts and cigarette papers and tubes,and for the storage of processed tobacco,pending export.

Part 45

We have conformed §§ 45.45a, 45.45b,and 45.45c to the revised notice anduse-up provisions for pipe tobacco androll-your-own tobacco as discussedabove for parts 40 and 41.

Temporary Rule

Based on the April 1, 2009, effectivedate of the new permit provisionsapplicable to manufacturers andimporters of processed tobacco and theexpanded definition of roll-your-owntobacco, also effective April 1, 2009,TTB believes that proper administrationand enforcement of those requirementsnecessitates the immediate adoption ofimplementing regulations as atemporary rule. TTB believes that suchimplementing action ensures thataffected industry members will havetimely knowledge of the regulatoryrequirements.

Public Participation

For submitting comments, please referto the notice of proposed rulemaking onthis subject published in the "ProposedRules" section of this issue of theFederal Register.

Regulatory Flexibility Act

We certify that this temporary rulewill not have a significant economicimpact on a substantial number of smallentities. Accordingly, a regulatoryflexibility analysis is not required. Theregulatory obligations and relevantcollections of information derivedirectly from the Internal Revenue Codeof 1986, as amended, and theregulations in this rule concerning theseobligations and collections merelyimplement and provide necessarystandards for complying with thestatutory requirements. Likewise, anysecondary or incidental effects, and anyreporting, recordkeeping, or othercompliance burdens flow directly fromthe statute. Pursuant to 26 U.S.C.7805(f), this temporary regulation willbe submitted to the Chief Counsel forAdvocacy of the Small BusinessAdministration for comment on itsimpact on small businesses.

Paperwork Reduction Act

TTB has provided estimates of theburden that the collection ofinformation contained in theseregulations imposes, and the estimatedburden has been reviewed and approvedby the Office of Management andBudget (OMB) in accordance with thePaperwork Reduction Act of 1995 (44U.S.C. 3507) and assigned controlnumbers 1513-0024, 1513-0032, 1513-0033, 1513-0035, 1513-0068, 1513-0070, 1513-0078, 1513-0106, 1513-0107, and 1513-0130.

Under the Paperwork Reduction Actof 1995, an agency may not conduct orsponsor, and a person is not required torespond to, a collection of informationunless it displays a valid OMB controlnumber.

Comments concerning suggestions forreducing the burden of the collections ofinformation in this document should bedirected to Mary A. Wood, Alcohol andTobacco Tax and Trade Bureau, at anyof these addresses:

* P.O. Box 14412, Washington, DC20044-4412;

* 202-927-8525 (facsimile); or* [email protected] (e-mail).

Executive Order 12866

This is not a significant regulatoryaction as defined in E.O. 12866.Therefore, it requires no regulatoryassessment.

Inapplicability of Prior Notice andComment and Delayed Effective DateProcedures

Because this document implementsprovisions of a law that are effective onApril 1, 2009, and because immediateguidance is necessary to implementthese provisions, it is found to beimpracticable to issue this Treasurydecision with notice and publicprocedure under 5 U.S.C. 553(b).

Pursuant to the provisions of 5 U.S.C.553(d)(2), and (d)(3), we are issuingthese regulations without a delayedeffective date. TTB has determined thatthis regulation is an interpretative rulethat implements Public Law 111-3 asprovided for in section 553(d)(2). TTBalso has determined that good causeexists to provide industry members withimmediate guidance on procedures toapply for and obtain a permit foroperations as importers andmanufacturers of processed tobacco andto clarify the difference between certaintaxable commodities that are subject todifferent tax rates, in accordance withsection 553(d)(3).

Drafting Information

Amy R. Greenberg of the Regulationsand Rulings Division, Alcohol andTobacco Tax and Trade Bureau, draftedthis document. Other employees of theAlcohol and Tobacco Tax and TradeBureau also participated in itsdevelopment.

List of Subjects

27 CFR Part 40

Cigars and cigarettes, Claims,Electronic funds transfers, Excise taxes,Imports, Labeling, Packaging andcontainers, Reporting and recordkeepingrequirements, Surety bonds, Tobacco.

27 CFR Part 41

Cigars and cigarettes, Claims, Customsduties and inspection, Electronic fundstransfers, Excise taxes, Imports,Labeling, Packaging and containers,Puerto Rico, Reporting and

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recordkeeping requirements, Suretybonds, Tobacco, Virgin Islands,Warehouses.

27 CFR Part 44

Aircraft, Armed forces, Cigars andcigarettes, Claims, Customs duties andinspection, Excise taxes, Exports,Foreign trade zones, Labeling, Packagingand containers, Reporting andrecordkeeping requirements, Suretybonds, Tobacco, Vessels, Warehouses.

27 CFR Part 45

Administrative practice andprocedure, Authority delegations(Government agencies), Cigars andcigarettes, Excise taxes, Labeling,Packaging and containers, Reportingand recordkeeping requirements,Tobacco.

Amendments to the Regulations

* For the reasons set forth in thepreamble, title 27, chapter I, of the Codeof Federal Regulations is amended asfollows:

PART 40-MANUFACTURE OFTOBACCO PRODUCTS, CIGARETTEPAPERS AND TUBES, ANDPROCESSED TOBACCO

m 1. The authority citation for part 40 isrevised to read as follows:

Authority: 26 U.S.C. 5142, 5143, 5146,5701-5705, 5711-5713, 5721-5723, 5731,5741, 5751, 5753, 5761-5763, 6061, 6065,6109, 6151, 6301, 6302, 6311, 6313, 6402,6404, 6423, 6676, 6806, 7011, 7212, 7325,7342, 7502, 7503, 7606, 7805; 31 U.S.C. 9301,9303, 9304, 9306.

* 2. The heading to part 40 is revised toread as set forth above.

* 3. Section 40.1 is revised to read asfollows:

§40.1 Manufacture of tobacco products,cigarette papers and tubes, and processedtobacco.

This part contains regulations relatingto the manufacture of tobacco products,cigarette papers and tubes, andprocessed tobacco; the payment bymanufacturers of tobacco products andcigarette papers and tubes of internalrevenue taxes imposed by 26 U.S.C.chapter 52; and the qualification of andoperations by manufacturers of tobaccoproducts, cigarette papers and tubes,and processed tobacco.

* 4. In § 40.11:m a. The definition of "Exportwarehouse" is amended by removingthe words "tobacco products andcigarette papers and tubes" and adding,in their place, the words "tobaccoproducts or cigarette papers or tubes orany processed tobacco";

* b. The definition of "Factory" isamended by adding after the words"tobacco products" the words "orprocessed tobacco,";m c. New definitions of "Manufacturerof processed tobacco", "Packaging", and"Processed tobacco" are added inappropriate alphabetical order;* d. The definitions of "Package" and"Permit number" are revised;m e. The definition of "Removal orremove" is amended by adding after thewords "tobacco products or cigarettepapers or tubes" the words ", or anyprocessed tobacco"; and* f. The definition of "Roll-your-owntobacco" is amended by adding at theend before the period the words "orcigars, or for use as wrappers of cigarsor cigarettes".

The revisions and additions read asfollows:

§40.11 Meaning of terms.

Manufacturer of processed tobacco.Any person who processes any tobaccoother than tobacco products.

Package. The immediate container inwhich tobacco products, processedtobacco, or cigarette papers or tubes areput up by the manufacturer and offeredfor sale or delivery to the ultimateconsumer. For purposes of thisdefinition, a container of processedtobacco, the contents of which weigh 10pounds or less (including any addednon-tobacco ingredients orconstituents), that is removed within themeaning of this part, is deemed to be apackage offered for sale or delivery tothe ultimate consumer.

Packaging. The act of placingprocessed tobacco or a tobacco productin a package.

Permit number. The identifyingnumber and/or letters that are assignedto a TTB permit by the appropriate TTBofficer.

Processed tobacco. Processed tobaccois any tobacco that has undergoneprocessing, but does not include tobaccoproducts. For purposes of thisdefinition, the processing of tobaccodoes not include the farming or growingof tobacco or the handling of tobaccosolely for sale, shipment, or delivery toa manufacturer of tobacco products orprocessed tobacco, nor does theprocessing of tobacco include curing,baling, or packaging activities. Forpurposes of this definition, theprocessing of tobacco includes, but isnot limited to, stemming (that is,removing the stem from the tobaccoleaf), fermenting, threshing, cutting, or

flavoring the tobacco, or otherwisecombining the tobacco with non-tobaccoingredients.

u 5. Section 40.25a is amendedbyrevising the section heading,designating the existing text asparagraph (a), adding a heading tonewly designated paragraph (a), andadding a new paragraph (b). Therevision and additions read as follows:

§40.25a Pipe tobacco and roll-your-owntobacco tax rates and classification.

(a) Tax rates. * * *(b) Classification. (1) Pipe tobacco and

roll-your-own tobacco, before removalsubject to tax, must be put up inpackages that conform to therequirements of §§ 40.211 and 40.212,and of § 40.216a or § 40.216b asappropriate.

(2) Any tobacco that has beenprocessed and that is removed in apackage, as that term is defined in§ 40.11, that does not bear the notice forsmokeless tobacco prescribed in§ 40.216 or the notice for pipe tobaccoprescribed in § 40.216a is deemed to beroll-your-own tobacco and subject to taxat the rate applicable to roll-your-owntobacco.

(3) Any tobacco that has beenprocessed and that is removed in apackage, as that term is defined in§ 40.11, is deemed to be roll-your-owntobacco and subject to tax at the rateapplicable to roll-your-own tobacco,even though the package bears thenotice required for pipe tobacco under§ 40.216a, if:

(i) The package does not bear thedeclaration "pipe tobacco" in directconjunction with, parallel to, and insubstantially the same conspicuousnessof type and background as the brandname each time the brand name appearson the package; or

(ii) The package or accompanyingmaterials bear any representation thatwould suggest a use other than as pipetobacco. (26 U.S.C. 5702 and 5723)* 6. Section 40.47 is revised to read asfollows:

§40.47 Other businesses within factory.(a) General. The appropriate TTB

officer may authorize such otherbusinesses within the factory of amanufacturer of tobacco products as hefinds will not jeopardize the revenue,will not hinder the effectiveadministration of this part, and will notbe contrary to law. A manufacturer oftobacco products who wishes to engagein another business within the factorymust submit a written application to doso to the appropriate TTB officer. Exceptas otherwise provided in paragraph (b)

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of this section, a manufacturer oftobacco products may not engage insuch other business until theapplication is approved by theappropriate TTB officer. Themanufacturer must retain as part of itsrecords any authorization providedunder this section.

(b) Processed tobacco. A manufacturerof tobacco products who removesprocessed tobacco for purposes otherthan destruction must apply for andobtain TTB authorization to engage inanother business within the factory, inaccordance with paragraph (a) of thissection. Such manufacturer who isengaged in the processing of tobacco onApril 1, 2009, and who applies forauthorization before June 30, 2009, maycontinue to engage in such activitypending TTB action on the application.

Subpart E-[Heading Amended]

* 7. The heading for subpart E isamended by adding at the end thewords "of Tobacco Products".E 8. Section § 40.61 is revised to read asfollows:

§40.61 Qualification.(a) General. Except as otherwise

provided in paragraph (b) of thissection, every person who manufacturestobacco products must qualify for, andobtain, a permit as a manufacturer oftobacco products in accordance with theprovisions of this part.

(b) Exceptions. The following personsare not considered to be engaged in thebusiness of manufacturing tobaccoproducts for purposes of this part:

(1) A person who produces tobaccoproducts solely for that person's ownconsumption or use;

(2) A proprietor of a customs bondedmanufacturing warehouse with respectto the operation of such warehouse;

(3) A retailer of tobacco products,such as a tobacconist, who takes taxpaidtobacco products out of the package, asthat term is defined in § 40.11, in frontof waiting customers and places thetobacco products into a differentcontainer for immediate delivery tothose customers; or

(4) A person whose operations arelimited to, and who holds a permit as,a manufacturer of processed tobacco.

(c) Minimum manufacturing andactivity requirements. A permit tomanufacture tobacco products will onlybe granted to those persons whoseprincipal business activity under suchpermit will be the manufacture oftobacco products. A permit will not begranted to any person whose principalbusiness activity under such permit willbe to receive or transfer tobacco

products in bond. As a minimumactivity requirement, in order to qualifyfor a permit, the quantity of tobaccoproducts manufactured under thepermit must be equivalent to, or exceed,the quantity to be transferred orreceived in bond under the permit. Forthe purposes of this section, the activityof packaging processed tobacco may besufficient to qualify as a manufacturingactivity.

* 9. Section 40.72 is revised to read asfollows:

§40.72 Use of factory premises.

(a) General. Unless otherwiseauthorized by the appropriate TTBofficer as provided in § 40.47, thepremises used by a manufacturer oftobacco products for his factory shall beused exclusively for the purposes ofmanufacturing and storing tobaccoproducts; storing materials, equipment,and supplies related thereto or used oruseful in the conduct of the business;and carrying on activities in connectionwith business of the manufacturer oftobacco products.

(b) Manufacturers who processtobacco. (1) A manufacturer of tobaccoproducts who processes tobacco on thefactory premises solely for use in themanufacture of tobacco products underthat permit, who does not removeprocessed tobacco from the factorypremises for any purpose other thandestruction, and who maintainsadequate records with respect to thedisposition of the processed tobacco inaccordance with § 40.182, may engagein such operations under the authorityof its existing permit on the factorypremises and without application forsuch authorization from TTB. If any ofthese conditions is not met, themanufacturer must, in order to engagein the processing of tobacco under theexisting permit, obtain authorizationfrom TTB in accordance with § 40.47,and must keep records and submitreports as prescribed in §§ 40.521 and40.522.

(2) A manufacturer of tobaccoproducts who removes processedtobacco from the factory premises forany purpose other than destructionmust obtain authorization of thatactivity from TTB in accordance with§ 40.47 and must keep records andsubmit reports as prescribed in§§ 40.521 and 40.522.

Subpart F-[Heading Amended]

* 10. The heading for subpart F isamended by adding at the end thewords "of Tobacco Products".

Subpart H-[Heading Amended]

n 11. The heading for subpart H isamended by adding at the end thewords "of Tobacco Products".* 12. Section 40.182 is revised to readas follows:

§40.182 Record of processed tobacco.(a) A manufacturer of tobacco

products who processes tobacco on thefactory premises solely for use in themanufacture of tobacco products underthat permit, and who does not removeprocessed tobacco from the factorypremises for any purpose other thandestruction, must maintain a dailyrecord that shows the total quantity inpounds of all processed tobacco:

(1) On hand;(2) Received, together with the name

and address of the person from whomreceived;

(3) Used in the manufacture oftobacco products;

(4) Lost, together with thecircumstances of the loss; and

(5) Destroyed, together with thecircumstances of the destruction.

(b) In addition to the recordkeepingand reporting requirements set forthelsewhere in this part, a manufacturer oftobacco products who removesprocessed tobacco from the factorypremises for any purpose other than fordestruction must keep records andsubmit reports as prescribed in§§ 40.521 and 40.522.

(Approved by the Office of Management andBudget under control number 1513-0068)

§ 40.201 [Amended]* 13. The first sentence in § 40.201 isamended by adding after the words "alltobacco products and" the word"processed".

* 14. In § 40.202, paragraph (b) and theOffice of Management and Budgetcontrol number reference are revised toread as follows:

§ 40.202 Reports.

(b) Report of processed tobaccoremoved. In addition to therecordkeeping and reportingrequirements set forth elsewhere in thispart, a manufacturer of tobacco productswho removes processed tobacco fromthe factory premises for any purposeother than destruction must record andreport those removals in accordancewith § 40.522 of this part.

(Approved by the Office of Management andBudget under Control No. 1513-0033)

m 15. Section 40.211 is amended byadding a sentence at the end of the

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section and by revising the statutorycitations. The addition and revisionread as follows:§40.211 Package.

* * * No person may purchase,

receive, possess (except for personalconsumption), offer for sale, or sell orotherwise dispose of, after removal, anytobacco products that are not put up inpackages bearing the marks, labels, andnotices, as required under this part.

(26 U.S.C. 5723 and 5751)

§40.216a [Amended]

* 16. In § 40.216a, paragraph (a) isamended by removing the last sentence.* 17. In § 40.216b, paragraph (a) and theOffice of Management and Budgetcontrol number reference are revised toread as follows:

§40.216b Notice for roll-your-owntobacco.

(a) Product designation. Everypackage of roll-your-own tobacco, beforeremoval subject to tax, must haveadequately imprinted on it, or on a labelsecurely affixed to it, the applicabledesignation "roll-your-own tobacco","cigarette tobacco", "cigar tobacco","cigarette wrapper", or "cigar wrapper".


* 18. Section 40.216c is revised to readas follows:

§40.216c Package use-up rule.(a) A manufacturer of pipe tobacco or

roll-your-own tobacco may removepackages of such products bearing thedesignation "Tax Class L" (to designatepipe tobacco) or "Tax Class J" (todesignate roll-your-own tobacco) only ifsuch packages were in use prior to April1, 2009, and such manufacturer maycontinue to remove packages bearingthose designations until August 1, 2009.

(b) A manufacturer may, until August1, 2009, remove roll-your-own tobaccofor which the applicable designation is"cigar tobacco," "cigarette wrapper," or"cigar wrapper" even if the packages ofsuch products do not meet therequirements of § 40.216(b).* 19. The undesignated center headingbefore § 40.251 is amended by removingthe words "Tobacco Products" andadding, in their place, the word"Operations".* 20. A new § 40.256 is added at the endof subpart H to read as follows:

§40.256 Minimum manufacturing andactivity requirements.

The minimum manufacturing andactivity requirement prescribed in

§ 40.61(b) of this part is a continuingcondition of a manufacturer's permit,that is, a permit to manufacture tobaccoproducts is conditioned upon a person'sprincipal business activity being themanufacture of tobacco products. Apermit may be suspended, andsubsequently revoked, if the person'sprincipal business activity under suchpermit is to receive or transfer tobaccoproducts in bond, or if the person hasno activity under such permit for aperiod of one year. As a minimumactivity requirement, the quantity oftobacco products manufactured underthe permit must exceed the quantitytransferred or received in bond underthe permit.

* 21. A new § 40.257 is added at the endof subpart H to read as follows:

§ 40.257 Processed tobacco.A manufacturer of tobacco products

may be required to obtain authorizationfrom the appropriate TTB officer withregard to the activities involvingprocessed tobacco. See § 40.72. Suchmanufacturers also must maintainrecords and may be required to submitreports regarding such activities. See§§40.182 and 40.202.

* 22. A new subpart L, consisting of§§ 40.491 through 40.534, is added toread as follows:

Subpart L-Manufacture of ProcessedTobaccoSec.

Qualification Requirements forManufacturers of Processed Tobacco40.491 Persons required to qualify.40.492 Application for permit.40.493 Transitional rule.40.494 Corporate documents.40.495 Articles of partnership or

association.40.496 Trade name certificate.40.497 Additional information.40.498 Investigation of applicant.40.499 Notice of contemplated disapproval.40.500 Issuance of permit.40.501 Retention of permit and supporting

documents.

Changes After Qualification40.511 Change in name.40.512 Change in ownership or control.40.513 Change in location or address of

factory.

Operations by Manufacturers of ProcessedTobacco40.521 Record of processed tobacco.40.522 Reports.40.523 Inventories.40.524 Retention of documents.40.525 Discontinuance of operations.40.526 Minimum manufacturing and

activity requirements.40.527 Authorization to package processed

tobacco.

40.528 Suspension and revocation ofpermit.

Other Provisions Related to Manufacturersof Processed Tobacco40.531 Alternate methods or procedures.40.532 Emergency variations from

requirements.40.533 Penalties and forfeitures.40.534 Power of attorney.

Subpart L-Manufacture of ProcessedTobacco

Qualification Requirements forManufacturers of Processed Tobacco

§40.491 Persons required to qualify.(a) General. Except as otherwise

provided in paragraph (b) of thissection, every person who engages inthe processing of tobacco must firstqualify for and receive a permit as amanufacturer of processed tobacco inaccordance with the provisions of thissubpart.

(b) Exceptions. (1) A person whoengages in the processing of tobaccosolely for his own personal use orconsumption and not for sale or transferto another person is not engaged in themanufacture of processed tobacco forpurposes of this part and, accordingly,is not required to qualify as amanufacturer of processed tobacco.

(2) Any person who holds a TTBpermit for the manufacture of tobaccoproducts is thereby authorized toprocess tobacco solely for use in themanufacture of tobacco products underthat permit, so long as the processedtobacco is not removed from the factoryfor any purpose other than destruction.Such a manufacturer is not required toqualify under this subpart as amanufacturer of processed tobacco.

(3) Any person who holds a TTBpermit for the manufacture of tobaccoproducts who removes processedtobacco from the factory for any purposeother than destruction must apply forauthorization from TTB to engage inthat activity, in accordance with § 40.47,under the manufacturer's existingpermit.

§40.492 Application for permit.The application for a permit as a

manufacturer of processed tobacco mustbe made on TTB F 5200.3, according tothe instructions on the form. Alldocuments required under this subpartto be furnished with the applicationmust be included with the application.

§40.493 Transitional rule.(a) Any person who:(1) On April 1, 2009, is engaged in

business as a manufacturer of processedtobacco; and

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(2) Before June 30, 2009, submits anapplication for a permit or authorizationas provided in this part to engage insuch business, may continue to engagein that business pending final action onthe application.

(b) Pending final action on anapplication or request for authorizationsubmitted under paragraph (a) of thissection, all provisions of chapter 52 ofthe Internal Revenue Code of 1986 shallapply to the applicant in the samemanner and to the same extent as if theapplicant were a holder of a permit tomanufacture processed tobacco underchapter 52.

(c) Upon receipt of an application, theappropriate TTB officer will provide theapplicant with a writtenacknowledgement that may be used fora limited period as confirmation of TTBauthorization to engage in the businessof a manufacturer of processed tobacco.

§40.494 Corporate documents.Every corporation that files an

application for a permit as amanufacturer of processed tobacco mustfurnish with its application for thepermit required by § 40.492 a true copyof the corporate charter or a certificateof corporate existence or incorporationexecuted by the appropriate officer ofthe State in which incorporated. Thecorporation must likewise furnish dulyauthenticated extracts of thestockholders' meetings, bylaws, ordirectors' meetings, listing the officesthe incumbents of which are authorizedto sign documents or otherwise act inbehalf of the corporation in mattersrelating to 26 U.S.C. chapter 52, andregulations issued thereunder. Thecorporation must also furnish evidence,in duplicate, of the identity of theofficers and directors and each personwho holds more than ten percent of thestock of such corporation. Where any ofthe information required by this sectionhas previously been filed with theappropriate TTB officer and suchinformation is currently complete andaccurate, a written statement to thateffect, in duplicate, will be sufficient forthe purpose of this section.

§40.495 Articles of partnership orassociation.

Every partnership or association thatfiles an application for a permit as amanufacturer of processed tobacco mustfurnish with its application for thepermit required by § 40.492 a true copyof the articles of partnership orassociation, if any, or certificate ofpartnership or association whererequired to be filed by any State, county,or municipality. Where a partnership orassociation has previously filed such

documents with the appropriate TTBofficer and such documents arecurrently complete and accurate, awritten statement, in duplicate, to thateffect by the partnership or associationwill be sufficient for the purpose of thissection.

§40.496 Trade name certificate.Every person that files an application

for a permit as a manufacturer ofprocessed tobacco must furnish with theapplication for the permit required by§ 40.492 a true copy of the certificate orother document, if any, issued by aState, county, or municipal authority inconnection with the transaction ofbusiness under such trade name. If nosuch certificate or other document is sorequired, a written statement, induplicate, to that effect by such personwill be sufficient for the purpose of thissection.

§40.497 Additional information.

The appropriate TTB officer mayrequire such additional information asdeemed necessary to determine whetherthe applicant is entitled to a permitunder this subpart. The applicant shall,when required by the appropriate TTBofficer, furnish as a part of theapplication for the permit suchadditional information as may benecessary for the appropriate TTBofficer to determine whether theapplicant is entitled to a permit.

§40.498 Investigation of applicant.Appropriate TTB officers may inquire

or investigate to verify the informationin connection with an application for apermit. The investigation will ascertainwhether the applicant is eligible for apermit. A permit may be denied if theapplicant (including, in the case of acorporation, any officer, director, orprincipal stockholder and, in the case ofa partnership, a partner)-

(a) Is, by reason of his businessexperience, financial standing, or tradeconnections or by reason of previous orcurrent legal proceedings involving afelony violation of any other provisionof Federal criminal law relating totobacco products, processed tobacco,cigarette paper, or cigarette tubes, notlikely to maintain operations incompliance with this chapter;

(b) Has been convicted of a felonyviolation of any provision of Federal orState criminal law relating to tobaccoproducts, processed tobacco, cigarettepaper, or cigarette tubes; or

(c) Has failed to disclose any materialinformation required or made anymaterial false statement in theapplication therefor.

§ 40.499 Notice of contemplateddisapproval.

If the appropriate TTB officer hasreason to believe that the applicant isnot entitled to a permit, the appropriateTTB officer will promptly give to theapplicant notice of the contemplateddisapproval of the application andopportunity for hearing thereon inaccordance with part 71 of this chapter.If, after such notice and opportunity forhearing, the appropriate TTB officerfinds that the applicant is not entitledto a permit, an order will be preparedstating the findings on which the permitrequest is denied.

§ 40.500 Issuance of permit.If the application for permit, together

with the supporting documents,required under this part is approved, theappropriate TTB officer will issue apermit on TTB F 5200.28 to theapplicant as a manufacturer ofprocessed tobacco.

§40.501 Retention of permit andsupporting documents.

The manufacturer must retain thepermit, together with the copy of theapplication and supporting documentsreturned with the permit, at the sameplace where the records required by thissubpart are kept. The permit andsupporting documents must be madeavailable for inspection by anyappropriate TTB officer upon request.

Changes After Qualification

§40.511 Change in name.(a) Change in individual name. When

there is a change in the name of anindividual operating under a permit asa manufacturer of processed tobacco,the manufacturer must, within 30 daysof such change, make application onTTB F 5200.16 for an amended permit.

(b) Change in trade name. When thereis a change in a trade name used by amanufacturer of processed tobacco inconnection with operations authorizedby the permit, the manufacturer must,within 30 days of such change, makeapplication on TTB F 5200.16 for anamended permit to reflect such change.This requirement also applies to theaddition or discontinuance of a tradename. The manufacturer must alsofurnish a true copy of any new tradename certificate or document issued tothe manufacturer, or statement in lieuthereof, required by § 40.496.

(c) Change in corporate name. Whenthere is a change in the corporate nameof a manufacturer of processed tobacco,the manufacturer must, within 30 daysof such change, make application onTTB F 5200.16 for an amended permit.The manufacturer must also furnish

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such documents as may be necessary toestablish that the corporate name hasbeen changed.

§40.512 Change in ownership or control.(a) Fiduciary successor. If an

administrator, executor, receiver,trustee, assignee, or other fiduciary is totake over the business of a manufacturerof processed tobacco as a continuingoperation, such fiduciary shall, beforecommencing operations, makeapplication for a permit in accordancewith this subpart, furnish certifiedcopies, in duplicate, of the order of thecourt, or other pertinent documents,showing his appointment andqualification as such fiduciary, andmake a commencing inventory inaccordance with § 40.523. However,where a fiduciary intends only toliquidate the business, qualification as amanufacturer of processed tobacco willnot be required if such fiduciarypromptly files with the appropriate TTBofficer a written statement to that effect,in duplicate.

(b) Transfer of ownership. If a transferin ownership of the business of amanufacturer of processed tobacco(including a change of any member of apartnership or association) is to bemade, such manufacturer shall givenotice, in writing, to the appropriateTTB officer, naming the proposedsuccessor and the desired effective dateof the transfer. The proposed successorshall, before commencing operations,qualify as a manufacturer of processedtobacco in accordance with this subpart.The manufacturer shall give notice ofthe transfer, and the proposed successorshall make application for permit, inample time for examination andapproval thereof before the desired dateof such change. The predecessor shallmake a concluding inventory andconcluding report, in accordance with§§ 40.523 and 40.522, respectively, andsurrender the permit with suchinventory and report. The successorshall make a commencing inventory andfirst report, in accordance with§§ 40.523 and 40.522, respectively.

(c) Change in officers, directors, orstockholders of a corporation. Uponelection or appointment (excludingsuccessive reelection or reappointment)of any officer or director of acorporation operating the business of amanufacturer of processed tobacco, orupon any occurrence that results in aperson acquiring ownership or controlof more than ten percent in aggregate ofthe outstanding stock of suchcorporation, the manufacturer shall,within 30 days of such action, so notifythe appropriate TTB officer in writing,giving the identity of such person.

When there is any change in theauthority furnished under § 40.494 forofficers to act in behalf of thecorporation, the manufacturer shallimmediately so notify the appropriateTTB officer in writing.

(d) Change in control of corporation.When the issuance, sale, or transfer ofthe stock of a corporation operating asa manufacturer of processed tobaccoresults in a change in the identity of theprincipal stockholders exercising actualor legal control of the operations of thecorporation, the corporate manufacturershall, within 30 days after the changeoccurs, make application on TTB F5200.3 for a new permit. Otherwise, thepresent permit shall be automaticallyterminated at the expiration of such 30-day period, and the manufacturer shalldispose of all processed tobacco onhand, make a concluding inventory andconcluding report, in accordance withthe provisions of §§ 40.523 and 40.522,respectively, and surrender the permitwith such inventory and report. If theapplication for a new permit is timelymade, the present permit shall continuein effect pending final action withrespect to such application.

§ 40.513 Change in location or address offactory.

Whenever a manufacturer ofprocessed tobacco intends to relocate itsfactory, the manufacturer shall, beforecommencing operations at the newlocation, make application on TTB F5200.16 for an amended permit.Whenever any change occurs in theaddress, but not the location, of thefactory of a manufacturer of processedtobacco as a result of action of localauthorities, the manufacturer shall,within 30 days of such change, makeapplication on TTB F 5200.16 for anamended permit.

Operations by Manufacturers ofProcessed Tobacco

§ 40.521 Record of processed tobacco.(a) Every manufacturer of processed

tobacco and every manufacturer oftobacco products who removesprocessed tobacco from the factory forany purpose other than destructionmust keep records of daily operationsand transactions that show totalquantity of processed tobacco:

(1) On hand;(2) Used in the manufacture of

tobacco products;(3) Processed;(4) Received, together with the name

and address of the person from whichit was received;

(5) Removed from the factory forshipment to a person holding a TTBpermit as a manufacturer of processed

tobacco, a manufacturer of tobaccoproducts, or an export warehouseproprietor, together with the name andaddress of the person to whom shippedor delivered;

(6) Removed from the factory forshipment to a person not holding a TTBpermit as a manufacturer of processedtobacco, a manufacturer of tobaccoproducts, or an export warehouseproprietor;

(7) Removed from the factory forexport;

(8) Removed for any purpose otherthan described in paragraphs (a)(5), (6),and (7) of this section;

(9) Lost, together with thecircumstances of the loss; and

(10) Destroyed, together with thecircumstances of the destruction.

(b) The records of any manufacturer ofprocessed tobacco who removesprocessed tobacco from the factory forshipment to a person who does not holda TTB permit as a manufacturer ofprocessed tobacco, as a manufacturer oftobacco products, or as an exportwarehouse proprietor must includedated, commercial records that show thefollowing information about eachremoval under this paragraph:

(1) The full name and address(including city and State) of thepurchaser (or recipient, if there is nopurchaser);

(2) The full name, address (includingcity and State), and driver's licensenumber of the person picking up theprocessed tobacco for delivery;

(3) The license number of the vehiclein which the processed tobacco isremoved from the manufacturer'spremises;

(4) The street address of thedestination of the processed tobacco;

(5) The quantity of processed tobaccoin the shipment;

(6) A declaration by the purchaser (orrecipient, if no purchaser) of the specificpurpose of the purchase or receipt (forexample, delivery to another, resale);and

(7) A declaration by the purchaser (orrecipient, if no purchaser) of the nameand address of his or her principal whenacting as an agent.

(c) The entries in the records ofremovals required under this sectionmust be made for each day by the closeof the business day following the day onwhich the removal occurs. Although noparticular format for the records in thissection is prescribed, the requiredinformation must be readilyascertainable from the records kept.

(26 U.S.C. 5741)

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§ 40.522 Reports.(a) General. Every manufacturer of

processed tobacco must prepare amonthly report on TTB F 5250.1 inaccordance with the instructions for theform. The report must be prepared at thetimes specified in this section and mustbe prepared whether or not anyoperations or transactions occurredduring the period covered by the report.The manufacturer must retain a copy ofeach report in accordance with theprovisions of this subpart.

(b) First report(s). The first monthlyreport must be submitted by the 20thday of the month following the monthin which the permit or authorization isissued. If the manufacturer is operatingas a manufacturer of processed tobaccounder the transitional rule set forth in§ 40.493, the manufacturer must submitthe first report by the 20th day of themonth following the month in whichTTB provides written acknowledgementof the receipt of the application filedunder § 40.492. In the transitional case,the manufacturer must also submitreports for all previous months back toApril 2009. For example, amanufacturer who receives anacknowledgement, dated July 17, 2009,must submit by August 15, 2009, a totalof four reports, one each for April, May,June, and July 2009.

(c) Reports of no activity. Reports withthe notation "No Activity" must bemade for those months in which noactivity occurs.

(d) Reports of removals. Amanufacturer who removes processedtobacco for shipment to someone otherthan a person holding a TTB permit asa manufacturer of processed tobacco, amanufacturer of tobacco products, or anexport warehouse proprietor mustreport such removal on TTB F 5250.2 bythe close of the business day on the dayfollowing the removal, in accordancewith the instructions on the form. Amanufacturer operating under thetransitional rule set forth in § 40.493must also comply with the requirementsof this paragraph.

(e) Concluding report. A concludingreport, covering the period from the firstof the month to the date of theconcluding inventory, shall be madewith such inventory.

(26 U.S.C. 5722)

§ 40.523 Inventories.Every manufacturer of processed

tobacco must provide a true andaccurate inventory on TTB F 5210.9 inaccordance with instructions for theform. The manufacturer must make suchan inventory at the time of commencingbusiness, at the time of transferring

ownership, at the time of changinglocation of the factory, at the time ofconcluding business, and at such othertime as any appropriate TTB officer mayrequire. In the case of a manufactureroperating under the transitional rule setforth in § 40.493, that manufacturermust make an inventory within 10 daysof the date of TTB's writtenacknowledgement of the receipt of theapplication filed under § 40.492. Eachsuch inventory is subject to verificationby the appropriate TTB officer.

(26 U.S.C. 5721)

§40.524 Retention of documents.

Every manufacturer of processedtobacco must retain all records andreports required under this subpart,including copies of permits,authorizations, inventories, and reports,for three years following the close of thecalendar year in which filed or made, orin the case of an authorization, for threeyears following the close of the calendaryear in which the operation under suchauthorization is concluded. Suchrecords shall be made available forinspection by the appropriate TTBofficer upon request.

(26 U.S.C. 5741)

§ 40.525 Discontinuance of operations.

Every manufacturer of processedtobacco who desires to discontinueoperations and close a factory mustdispose of all processed tobacco onhand, make a concluding inventory andconcluding report, in accordance withthe provisions of §§ 40.523 and 40.522,respectively, and surrender the permitto the appropriate TTB officer.

(26 U.S.C. 5721, 5722)

§40.526 Minimum manufacturing andactivity requirements.

A permit to manufacture processedtobacco will only be granted to thosepersons engaged in the processing oftobacco. A permit may be suspended,and subsequently revoked, if the personhas no activity under such permit for aperiod of one year. A person whosepermit as a manufacturer of processedtobacco has been revoked for non-use,who wishes to engage in such business,must re-apply for such permit.

(26 U.S.C. 5712)

§40.527 Authorization to packageprocessed tobacco.

A permit to manufacture processedtobacco does not authorize packaging ofprocessed tobacco. Packaging ofprocessed tobacco may only occur onthe bonded premises of a manufacturerof tobacco products.

§40.528 Suspension and revocation ofpermit.

Where the appropriate TTB officer hasreason to believe that a manufacturer oftobacco products has not in good faithcomplied with the provisions of 26U.S.C. chapter 52, and regulationsthereunder, or with any other provisionof 26 U.S.C. with intent to defraud, orhas violated any condition of his permit,or has failed to disclose any materialinformation required or made anymaterial false statement in theapplication for the permit, or is, byreason of previous or current legalproceedings involving a felony violationof any other provision of Federalcriminal law relating to tobaccoproducts, processed tobacco, cigarettepaper, or cigarette tubes, not likely tomaintain operations in compliance with26 U.S.C. chapter 52, or has beenconvicted of a felony violation of anyprovision of Federal or State criminallaw relating to tobacco products,processed tobacco, cigarette paper, orcigarette tubes, the appropriate TTBofficer shall issue an order, stating thefacts charged, citing such person toshow cause why his permit should notbe suspended or revoked. Such citationshall be issued and opportunity forhearing afforded in accordance withpart 71 of this chapter, which part isapplicable to such proceedings. If, afterhearing, the hearing examiner, or onappeal, the Administrator, finds thatsuch person has not shown cause whyhis permit should not be suspended orrevoked, such permit shall besuspended for such period as theappropriate TTB officer deems proper orshall be revoked.

Other Provisions Relating toManufacturers of Processed Tobacco

§40.531 Alternate methods or procedures.(a) General. A manufacturer of

processed tobacco, on specific approvalby the appropriate TTB officer asprovided in this section, may use analternate method or procedure in lieu ofa method or procedure specificallyprescribed in this subpart. Theappropriate TTB officer may approve analternate method or procedure, subjectto stated conditions, when theappropriate TTB officer finds that-

(1) Good cause has been shown for theuse of the alternate method orprocedure;

(2) The alternate method or procedureis within the purpose of, and consistentwith the effect intended by, thespecifically prescribed method orprocedure, and

(3) The alternate method or procedurewill not be contrary to any provision of

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law, and will not result in an increasein cost to the Government or hinder theeffective administration of this subpart.

(b) Application. A manufacturer ofprocessed tobacco who desires toemploy an alternate method orprocedure must submit a writtenapplication to the appropriate TTBofficer. The application shallspecifically describe the proposedalternate method or procedure, andshall set forth the reasons therefor. Analternate method or procedure shall notbe employed until the application hasbeen approved by the appropriate TTBofficer. The manufacturer shall, duringthe period of authorization of analternate method or procedure, complywith the terms of the approvedapplication. Authorization for anyalternate method or procedure may bewithdrawn whenever, in the judgmentof the appropriate TTB officer, theeffective administration of this part ishindered. Any authorization of theappropriate TTB officer under thissection shall be retained as part of themanufacturer's records in accordancewith this subpart.

§40.532 Emergency variations fromrequirements.

The appropriate TTB officer mayapprove methods of operation otherthan as specified in this subpart, whereit is determined that an emergencyexists and the proposed variations fromthe specified requirements arenecessary, and provided that theproposed variations will not hinder theeffective administration of this subpartand will not be contrary to anyprovision of law. Variations fromrequirements granted under this sectionare conditioned on compliance with theprocedures, conditions, and limitationsset forth in the approval of theapplication. Failure to comply in goodfaith with such procedures, conditions,and limitations will automaticallyterminate the authority for suchvariations, and the manufacturer ofprocessed tobacco thereupon must fullycomply with the prescribedrequirements of the regulations fromwhich the variations were authorized.Authority for any variation may bewithdrawn whenever in the judgment ofthe appropriate TTB officer the effectiveadministration of this subpart ishindered by the continuation of suchvariation. Where a manufacturer desiresto employ such variation, themanufacturer must submit a writtenapplication to do so to the appropriateTTB officer. The application mustdescribe the proposed variations and setforth the reasons therefor. Variationsmay not be employed until the

application has been approved. Anyauthorization of the appropriate TTBofficer under this section shall beretained as part of the manufacturer'srecords, in accordance with thissubpart.

§40.533 Penalties and forfeitures.Anyone who fails to comply with the

provisions of this subpart may be liableto the civil and criminal penalties, andforfeitures, provided by law.

§ 40.534 Power of attorney.If the application for permit or any

report or other document required to beexecuted under this subpart is to besigned by an individual (including oneof the partners for a partnership or oneof the members of an association) as anattorney in fact for any person, or if anindividual is to otherwise officiallyrepresent such person, power ofattorney on TTB F 5000.8 shall befurnished to the appropriate TTBofficer. Such power of attorney is notrequired for persons whose authority isfurnished with the corporate documentsas required by § 40.494. TTB F 5000.8does not have to be filed again with theappropriate TTB officer where suchform has previously been submitted tothat appropriate TTB officer and is stillin effect.

PART 41-IMPORTATION OFTOBACCO PRODUCTS, CIGARETTEPAPERS AND TUBES, ANDPROCESSED TOBACCO

* 23. The authority citation for part 41is revised to read as follows:

Authority: 26 U.S.C. 5701-5705, 5708,5712, 5713, 5721-5723, 5741, 5754, 5761-5763, 6301, 6302, 6313, 6402, 6404, 7101,7212, 7342, 7606, 7651, 7652, 7805; 31 U.S.C.9301, 9303, 9304, 9306.

* 24. The heading for part 41 is revisedto read as set forth above.

§41.1 [Amended]* 25. Section 41.1 is amended byremoving the words "and cigarettepapers and tubes" in the sectionheading and where they first appear inthe text and adding, in their place ineach case, the words ", cigarette papersand tubes, and processed tobacco".* 26. In § 41.11:m a. The definition of "Exportwarehouse" is amended by adding thewords "or for the storage of processedtobacco," after "paid,";* b. The definition of "Factory" isamended by removing the words"tobacco products or cigarette papers ortubes" and adding, in their place, thewords "tobacco products, cigarettepapers or tubes, or processed tobacco";

m c. The definition of "Importer" isamended by adding, after the words"tobacco products or cigarette papers ortubes", each time they appear, thewords ", or any processed tobacco,"* d. The definition of "Removal orremove" is amended by adding after thewords "tobacco products or cigarettepapers or tubes" the words ", or anyprocessed tobacco";m e. The definition of "Roll-your-owntobacco" is amended by adding at theend before the period the words "orcigars, or for use as wrappers thereof."* I. New definitions of "Manufacturer ofprocessed tobacco", "Processedtobacco" and "Packaging" are added inappropriate alphabetical order;* g. The definition of "Package" isrevised; and* h. The definition of "Sale price" isamended by adding, after the words"importer or", the word "UnitedStates".

The additions and revision read asfollows:


Manufacturer of processed tobacco.Any person who processes any tobaccoother than tobacco products.

Package. The immediate container inwhich tobacco products, processedtobacco, or cigarette papers or tubes areput up by the manufacturer or theimporter (prior to release from customscustody) and offered for sale or deliveryto the ultimate consumer. For purposesof this definition, a container ofprocessed tobacco, the contents ofwhich weigh 10 pounds or less(including any added non-tobaccoingredients or constituents), that isremoved within the meaning of this partis deemed to be a package offered forsale or delivery to the ultimateconsumer.

Packaging. The act of placingprocessed tobacco or a tobacco productin a package.

Processed tobacco. Processed tobaccois any tobacco that has undergoneprocessing, but does not include tobaccoproducts. For purposes of thisdefinition, the processing of tobaccodoes not include the farming or growingof tobacco or the handling of tobaccosolely for sale, shipment, or delivery toa manufacturer of tobacco products orprocessed tobacco, nor does theprocessing of tobacco include curing,baling, or packaging activities. Forpurposes of this definition, theprocessing of tobacco includes, but isnot limited to, stemming (that is,

29414


removing the stem from the tobaccoleaf), fermenting, threshing, cutting, orflavoring the tobacco, or otherwisecombining the tobacco with non-tobaccoingredients.

* 27. Section 41.30 is amended bydesignating the existing text asparagraph (a), and by adding a headingto newly designated paragraph (a) andadding a new paragraph (b), to read asfollows:§41.30 Pipe tobacco and roll-your-own

tobacco.

(a) Tax rates. * * *

(b) Classification. (1) Pipe tobacco androll-your-own tobacco, before removalsubject to tax, must be put up inpackages that conform to therequirements of § 41.71 and of § 41.72aor § 41.72b as appropriate.

(2) Any tobacco that has beenprocessed and that is removed in apackage, as that term is defined in§ 41.11, that does not bear the notice forsmokeless tobacco prescribed in § 41.72or the notice for pipe tobacco prescribedin § 41.72a is deemed to be roll-your-own tobacco and subject to tax at therate applicable to roll-your-own tobacco.

(3) Any tobacco that has beenprocessed and that is removed in apackage, as that term is defined in§ 41.11, is deemed to be roll-your-owntobacco and subject to tax at the rateapplicable to roll-your-own tobacco,even though the package bears thenotice required for pipe tobacco under§ 41.72a, if:

(i) The package does not bear thedeclaration "pipe tobacco" in directconjunction with, parallel to, and insubstantially the same conspicuousnessof type and background as the brandname each time the brand name appearson the package; or

(ii) The package or accompanyingmaterials bear any representation thatwould suggest a use other than as pipetobacco.

(26 U.S.C. 5702 and 5723)

* 28. Section 41.71 is amended byadding a sentence at the end and byrevising the statutory citations. Theaddition and revision read as follows:

§41.71 Package.* * * No person may purchase,

receive, possess (except for personalconsumption), offer for sale, or sell orotherwise dispose of, after removal, anytobacco products that are not put up inpackages bearing the marks, labels, andnotices, as required under this part.

(26 U.S.C. 5723 and 5751)

§41.72a [Amended]* 29. In § 41.72a, paragraph (a), isamended by removing the last sentence.* 30. In § 41.72b, paragraph (a) and theOffice of Management and Budgetcontrol number reference are revised toread as follows:

§41.72b Notice for roll-your-own tobacco.(a) Product designation. Every

package of roll-your-own tobacco, beforeremoval subject to tax, must haveadequately imprinted on it, or on a labelsecurely affixed to it, the applicabledesignation "roll-your-own tobacco","cigarette tobacco", "cigarettewrapper", "cigar tobacco" or "cigarwrapper".


* 31. Section 41.72c is revised to readas follows:

§41.72c Package use-up rule.(a) An importer of pipe tobacco or

roll-your-own tobacco may removepackages of such products bearing thedesignation "Tax Class L" (to designatepipe tobacco) or "Tax Class J" (todesignate roll-your-own tobacco) only ifsimilar packages had been removed bythat importer prior to April 1, 2009, andsuch importer may continue to removepackages bearing such designationsuntil August 1, 2009.

(b) An importer may, until August 1,2009, remove roll-your-own tobacco forwhich the applicable designation is"cigar tobacco," "cigarette wrapper," or"cigar wrapper" even if the packages ofsuch products do not meet therequirements of § 41.72(b).

§41.192 [Removed and Reserved]

* 32. Section 41.192 is removed andreserved.* 33. Section 41.201 is revised to readas follows:

§ 41.201 Duration of permit.Permits issued under this section will

be valid for a period of three years fromthe effective date shown on the permit.The expiring permit will continue ineffect until final action is taken by TTBon the application for renewal, provideda timely application for renewal is filed.* 34. Section 41.202 is revised to readas follows:

§41.202 Renewal of permit.(a) General. Importers wishing to

continue operations beyond theexpiration of their current permit mustrenew their permit by makingapplication within 30 days of suchexpiration.

(b) Minim um activity requirement. Apermit to import tobacco products willonly be renewed for those persons whohave engaged in the importing oftobacco products under the currentpermit in the one year period prior tothe application to renew.

§ 41.205 [Removed and Reserved]* 35. Section 41.205 is removed andreserved.* 36. Section 41.206 is revised to readas follows:

§41.206 Reports.(a) General. Importers must file a

monthly report on TTB F 5220.6 inaccordance with the instructions for theform.

(b) First report. The first monthlyreport must be submitted by the 15thday of the month following the monthin which the permit is issued.


(d) Concluding report. When atransfer of ownership of the business ofan importer of tobacco productsdescribed in § 41.224, or when a changein control of a corporation described in§ 41.226 occurs, a concluding reportwith the notation "Concluding Report"must be made for the month or partialmonth during which the transfer ofownership or change in control becomeseffective. A concluding report must alsobe made for the month or partial monthduring which an importer concludesoperations under the permit.

§ 41.207 [Removed and Reserved]

* 37. Section 41.207 is removed andreserved.* 38. Section 41.208 is revised to readas follows:

§41.208 Maintenance and retention ofrecords and reports.

(a) Maintenance. All records, reports,and other documents required underthis part must be maintained separately,chronologically by transaction orreporting date, at the importer'sprincipal place of business. Theappropriate TTB officer may, pursuantto an application by the importer for anapproved alternate method or procedureunder § 41.26, authorize suchdocuments to be maintained at anotherbusiness location under the control ofthe importer, if the conditions of § 41.26are met and provided that the use of thealternate location does not cause undueinconvenience to TTB when attemptingto examine the files and does not delaythe timely transmittal of any documentrequired to be submitted to TTB.

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(b) Retention. All records and reportsand documents or copies of documentssupporting these records or reportsrequired by this part to be submitted toTTB or retained by the importer must beretained for not less than three yearsfollowing the close of the calendar yearin which filed or made. Such records,reports, and other documents must beavailable for inspection by theappropriate TTB officer upon request.Furthermore, the appropriate TTBofficer may require these records,reports, and other documents to be keptfor an additional period of not morethan three years in any case where it isnecessary to protect the revenue.* 39. A new subpart M, consisting of§§ 41.231 through 41.273, is added toread as follows:

Subpart M-Importation of ProcessedTobaccoSec.

Qualification Requirements for Importers ofProcessed Tobacco41.231 Persons required to qualify.41.232 Application for permit or

amendment of existing permit.41.233 Transitional rule.41.234 Corporate documents.41.235 Articles of partnership or

association.41.236 Trade name certificate.41.237 Additional information.41.238 Investigation of applicant.41.239 Notice of contemplated disapproval.41.240 Issuance of permit.41.241 Duration of permit.41.242 Renewal of permit.41.243 Retention of permit and supporting

documents.

Changes After Original Qualification41.251 Change in name.41.252 Change in ownership or control.41.253 Change in location or address.

Operations of Importers of ProcessedTobacco41.261 Records.41.262 Reports.41.263 Maintenance of records and reports.

Other Provisions Applicable to Importers ofProcessed Tobacco41.271 Power of attorney.41.272 Cross reference.41.273 Suspension and revocation of

permit.

Subpart M-Importation of ProcessedTobacco

Qualification Requirements forImporters of Processed Tobacco

§41.231 Persons required to qualify.Except as otherwise provided in

§ 41.233, every person, beforecommencing business as an importer ofprocessed tobacco, must apply for, andobtain, either a permit as an importer of

processed tobacco or, if the personholds a TTB permit as an importer oftobacco products, an amendment to theexisting permit authorizing theimportation of processed tobacco undersuch permit, in accordance with theprovisions of this subpart.

§41.232 Application for permit oramendment of existing permit.

(a) Application for permit. Any personwho intends to engage in the businessof importing processed tobacco, andwho is not engaged in the business ofimporting tobacco products, must applyfor a permit by completing andsubmitting TTB F 5230.4 in accordancewith the instructions on that form. Alldocuments required under this subpartto be furnished with the applicationmust be included with the applicationwhen it is submitted. If the appropriateTTB officer determines that theapplication is incomplete and, for thatreason, does not include sufficientinformation for TTB to make a decisionon the application, and if the applicanthas not provided the missinginformation within one year of a writtenrequest for it or within any shorter timeperiod specified in the written request,the application will be deemedabandoned and the applicant will benotified in writing that no permit willbe issued in response to the incompleteapplication. In the case of anapplication filed in accordance with§ 41.233, such notification willconstitute the final action on theapplication and such party will nolonger be able to continue as animporter of processed tobacco.

(b) Application for amendment ofexisting permit. Any person who holdsa TTB permit as an importer of tobaccoproducts may also qualify to engage inbusiness as an importer of processedtobacco under the same permit bymaking application on TTB F 5230.5 foran amended permit.

§41.233 Transitional rule.(a) Any person who:(1) On April 1, 2009, had already been

engaged in business as an importer ofprocessed tobacco; and

(2) Before June 30, 2009, submits anapplication for a permit or anamendment of an existing permit, asprovided in § 41.232, to engage in suchbusiness, may continue to engage in thatbusiness pending final action on theapplication.

(b) Pending final action on theapplication, all provisions of chapter 52of the Internal Revenue Code of 1986shall apply to the applicant in the samemanner and to the same extent as if theapplicant were a holder of a permit as

an importer of processed tobacco or anamended permit authorizing theimportation of processed tobacco underchapter 52 and this subpart. Uponreceipt of an application, theappropriate TTB officer will provide theapplicant with a writtenacknowledgement that may be used fora limited period as confirmation of TTBauthorization to engage in such businessof an importer of processed tobacco.

§41.234 Corporate documents.Every corporation that files an

application for a permit as an importerof processed tobacco must furnish withits application for the permit requiredby § 41.231 a true copy of the corporatecharter or a certificate of corporateexistence or incorporation executed bythe appropriate officer of the State inwhich incorporated. The corporationmust likewise furnish dulyauthenticated extracts of thestockholders' meetings, bylaws, ordirectors' meetings, listing the officesthe incumbents of which are authorizedto sign documents or otherwise act inbehalf of the corporation in mattersrelating to 26 U.S.C. chapter 52, andregulations issued thereunder. Thecorporation must also furnish evidence,in duplicate, of the identity of theofficers and directors and each personwho holds more than ten percent of thestock of such corporation. Where any ofthe information required by this sectionhas previously been filed with theappropriate TTB officer and suchinformation is currently complete andaccurate, a written statement to thateffect will be sufficient for the purposeof this section.

§41.235 Articles of partnership orassociation.

Every partnership or association thatfiles an application for a permit as animporter of processed tobacco mustfurnish with its application for thepermit required by § 41.231 a true copyof the articles of partnership orassociation, if any, or certificate ofpartnership or association whererequired to be filed by any State, county,or municipality. Where a partnership orassociation has previously filed suchdocuments with the appropriate TTBofficer and such documents arecurrently complete and accurate, awritten statement, in duplicate, to thateffect by the partnership or associationwill be sufficient for the purpose of thissection.

§41.236 Trade name certificate.Every person that files an application

for a permit as an importer of processedtobacco operating under a trade name

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must furnish with the application forthe permit required by § 41.231 a truecopy of the certificate or otherdocument, if any, issued by a State,county, or municipal authority inconnection with the transaction ofbusiness under such trade name. If nosuch certificate or other document is sorequired, a written statement, induplicate, to that effect by such personwill be sufficient for the purpose of thissection.

§41.237 Additional information.The appropriate TTB officer may

require such additional information asdeemed necessary to determine whetherthe applicant is entitled to obtain eithera permit as an importer of tobaccoproducts or, if holding a permit as animporter of processed tobacco, anamended permit authorizing theimportation of processed tobacco, underthis subpart. The applicant must, whenrequired by the appropriate TTB officer,furnish as a part of the application forthe permit or authorization suchadditional information as may benecessary for the appropriate TTBofficer to determine whether theapplicant is entitled to a permit or anamended permit.

§41.238 Investigation of applicant.Appropriate TTB officers may inquire

or investigate to verify the informationin connection with an application for apermit. The investigation will ascertainwhether the applicant is eligible for apermit. A permit may be denied if theapplicant (including, in the case of acorporation, any officer, director, orprincipal stockholder and, in the case ofa partnership, a partner)-

(a) Is, by reason of his businessexperience, financial standing, or tradeconnections or by reason of previous orcurrent legal proceedings involving afelony violation of any other provisionof Federal criminal law relating totobacco products, processed tobacco,cigarette paper, or cigarette tubes, notlikely to maintain operations incompliance with this chapter;

(b) Has been convicted of a felonyviolation of any provision of Federal orState criminal law relating to tobaccoproducts, processed tobacco, cigarettepaper, or cigarette tubes; or

(c) Has failed to disclose any materialinformation required or made anymaterial false statement in theapplication therefor.

§41.239 Notice of contemplateddisapproval.

If the appropriate TTB officer hasreason to believe that the applicant isnot entitled to a permit, the appropriate

TTB officer will promptly give to theapplicant notice of the contemplateddisapproval of the application andopportunity for hearing thereon inaccordance with part 71 of this chapter.If, after such notice and opportunity forhearing, the appropriate TTB officerfinds that the applicant is not entitledto a permit, an order will be preparedstating the findings on which theapplication is denied.

§ 41.240 Issuance of permit.

If the application for the permitrequired under this subpart is approved,the appropriate TTB officer will issue apermit on TTB F 5200.24 to theapplicant as an importer of processedtobacco.

§41.241 Duration of permit.

A permit issued under § 41.240 of thispart will be valid for a period of threeyears from the effective date shown onthe permit.

§41.242 Renewal of permit.(a) General. Importers of processed

tobacco wishing to continue operationsbeyond the expiration of their currentpermit must renew their permit bymaking application within 30 days ofthe expiration date on the permit, inaccordance with instructions for thepermit form. The expiring permit willcontinue in effect until final action istaken by TTB on the application forrenewal, provided a timely applicationfor renewal is filed.

(b) Minimum activity requirement. Apermit to import processed tobacco willonly be renewed for those persons whohave engaged in the importing ofprocessed tobacco under the currentpermit in the one year period prior tothe application to renew.§ 41.243 Retention of permit andsupporting documents.

The importer of processed tobaccomust retain the permit, together with thecopy of the application and supportingdocuments returned with the permit, atthe same place where the recordsrequired by this subpart are kept. Thepermit and supporting documents mustbe made available for inspection by anyappropriate TTB officer upon request.

Changes After Original Qualification

§41.251 Change in name.

(a) Change in individual name. Whenthere is a change in the name of anindividual operating under a permit asan importer of processed tobacco, theimporter must, within 30 days of suchchange, make application on TTB F5230.5 for an amended permit.

(b) Change in trade name. When thereis a change in a trade name used by animporter of processed tobacco inconnection with operations authorizedby the permit, the importer must, within30 days of such change, makeapplication on TTB F 5230.5 for anamended permit to reflect such change.This requirement also applies to theaddition or discontinuance of a tradename. The importer must also furnish atrue copy of any new trade namecertificate or document issued to theimporter, or statement in lieu thereof,required by § 41.236.

(c) Change in corporate name. Whenthere is a change in the corporate nameof an importer of processed tobacco, theimporter must, within 30 days of suchchange, make application on TTB F5230.5 for an amended permit. Theimporter must also furnish suchdocuments as may be necessary toestablish that the corporate name hasbeen changed.

§41.252 Change in ownership or control.

(a) Fiduciary successor. If anadministrator, executor, receiver,trustee, assignee, or other fiduciary is totake over the business of an importer ofprocessed tobacco as a continuingoperation, such fiduciary shall, beforecommencing operations, makeapplication for permit in accordancewith § 41.232, furnish certified copies,in duplicate, of the order of the court,or other pertinent documents, showinghis appointment and qualification assuch fiduciary. However, where afiduciary intends only to liquidate thebusiness, qualification as an importer ofprocessed tobacco will not be requiredif he promptly files with the appropriateTTB officer a written statement to thateffect.

(b) Transfer of ownership. If a transferin ownership of the business of animporter of processed tobacco(including a change of any member of apartnership or association) is to bemade, such importer shall give notice,in writing, to the appropriate TTBofficer, naming the proposed successorand the desired effective date of thetransfer. The proposed successor must,before commencing operations, qualifyas an importer of processed tobacco inaccordance with this subpart. Theimporter must give notice of thetransfer, and the proposed successormust make application for permit, inample time for examination andapproval thereof before the desired dateof such change. The predecessor mustmake a concluding report, in accordancewith § 41.262, and surrender the permitwith the report. The successor must

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make a first report, in accordance with§ 41.262.

(c) Change in officers, directors, orstockholders of a corporation. Uponelection or appointment (excludingsuccessive reelection or reappointment)of any officer or director of acorporation operating as an importer ofprocessed tobacco, or upon anyoccurrence that results in a personacquiring ownership or control of morethan ten percent in aggregate of theoutstanding stock of such corporation,the importer shall, within 30 days ofsuch action, so notify the appropriateTTB officer in writing, giving theidentity of such person. When there isany change in the authority furnishedunder § 41.271 for officers to act onbehalf of the corporation, the importermust immediately so notify theappropriate TTB officer in writing.

(d) Change in control of corporation.When the issuance, sale, or transfer ofthe stock of a corporation operating asan importer of processed tobacco resultsin a change in the identity of theprincipal stockholders exercising actualor legal control of the operations of thecorporation, the corporate manufacturermust, within 30 days after the changeoccurs, make application on TTB F5230.4 for a new permit. Otherwise, thepresent permit shall be automaticallyterminated at the expiration of such 30-day period, and the importer must makea concluding report, in accordance with§ 41.262, and surrender the permit withthe report. If the application for a newpermit is timely made, the presentpermit will continue in effect pendingfinal action with respect to suchapplication.

§41.253 Change in location or address.Whenever an importer of processed

tobacco intends to relocate the principalbusiness office, the importer must,before commencing operations at thenew location, make application on TTBF 5230.5, and obtain an amendedpermit. Whenever any change occurs inthe address, but not the location, of theprincipal business office of an importerof processed tobacco, as a result ofaction of local authorities, the importermust, within 30 days of such change,make application on TTB F 5230.5 foran amended permit.

Operations of Importers of ProcessedTobacco

§41.261 Records.(a) Any person who imports, or who

knowingly causes to be imported,processed tobacco must make and keeprecords of operations and transactions.A person purchasing processed tobaccofrom the importer in a domestic

transaction and who does notknowingly cause the processed tobaccoto be imported is not required to makeand keep records unless the terms andconditions of the importation arecontrolled by the person placing theorder with the importer (for example,the importer is not an independentcontractor but the agent of the personplacing the order). Records maintainedmust reflect the date and quantity ofprocessed tobacco:

(1) Imported;(2) Received otherwise than through

importation;(3) Returned to customs custody;(4) Transferred or sold to a person

who holds a TTB permit as an importeror manufacturer of tobacco products orof processed tobacco or as an exportwarehouse proprietor;

(5) Transferred or sold to a personwho does not hold a TTB permit as animporter or manufacturer of tobaccoproducts or of processed tobacco or asan export warehouse proprietor; and

(6) Lost or destroyed.(b) The records of any importer who

transfers or sells processed tobacco to aperson who does not hold a TTB permitas an importer or manufacturer oftobacco products or of processedtobacco or as an export warehouseproprietor must include dated,commercial records that show thefollowing information about eachremoval:

(1) The full name and address(including city and State) of thepurchaser (or recipient, if there is nopurchaser);

(2) The full name, address (includingcity and State), and driver's licensenumber of the person picking up theprocessed tobacco for delivery;

(3) The license number of the vehiclein which the processed tobacco ispicked up for delivery to purchaser ortransferee;

(4) The street address of thedestination of the processed tobacco;

(5) The quantity of processed tobaccoin the shipment;

(6) A declaration by the purchaser (orrecipient, if no purchaser) of the specificpurpose of the purchase or receipt (forexample, delivery to another, resale);and

(7) A declaration by the purchaser (orrecipient, if no purchaser) of the nameand address of his or her principal whenacting as an agent.

(c) The entries in the records requiredunder this section must be made foreach day by the close of the businessday following the day on which thetransfer or sale occurs. Although noparticular format for the records isprescribed, the required information

must be readily ascertainable from therecords kept.

(d) An importer operating under thetransitional rule, set forth in § 41.233,must also comply with the requirementsof this section.

(26 U.S.C. 5741)

§41.262 Reports.(a) General. Every importer of

processed tobacco must prepare amonthly report on TTB F 5220.6 inaccordance with the instructions for theform. The report must be prepared at thetimes specified in this section and mustbe prepared whether or not anyoperations or transactions occurredduring the period covered by the report.The importer must retain a copy of eachreport in accordance with the provisionsof this subpart.

(b) First report(s). The first monthlyreport must be submitted by the 15thday of the month following the monthin which the permit is issued. If theimporter is operating as an importer ofprocessed tobacco under the transitionalrule in accordance with § 41.233, theimporter must submit the first report bythe 15th day of the month following themonth in which TTB provides writtenacknowledgement of the receipt of theapplication filed under § 41.232.


(d) Reports of sales and transfers. Animporter who transfers or sellsprocessed tobacco to someone otherthan a person holding a TTB permit asan importer or manufacturer ofprocessed tobacco or tobacco productsor as an export warehouse proprietormust report such sale or transfer on TTBF 5250.2 by the close of the businessday on the day following the transfer orsale, in accordance with the instructionson the form. An importer operatingunder the transitional rule set forth in§ 41.233 must comply with therequirements of this paragraph.

(e) Concluding report. When a transferof ownership of the business of animporter of processed tobacco describedin § 41.252(b) occurs, or when a changein control of a corporation described in§ 41.252(d) occurs, a concluding reportwith the notation "Concluding Report"must be made for the month or partialmonth during which the transfer ofownership or change in control becomeseffective. A concluding report must alsobe made for the month or partial monthduring which an importer concludesoperations under the permit orauthorization.

(26 U.S.C. 5722)

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§41.263 Maintenance of records andreports.

All records and reports required bythis subpart must be maintainedseparately, chronologically bytransaction or reporting date, at theimporter's principal place of business.The appropriate TTB officer may,pursuant to a written request, authorizefiles, or an individual file, to bemaintained at another business locationunder the control of the importer,provided that the alternative locationdoes not cause undue inconvenience toTTB when attempting to examine thefiles and does not delay the timelytransmittal of any documents requiredto be submitted to TTB.

(26 U.S.C. 5741)

Other Provisions Applicable toImporters of Processed Tobacco

§41.271 Power of attorney.If the application for a permit or

authorization or any report or otherdocument required to be executed underthis subpart is to be signed by anindividual (including one of thepartners for a partnership or one of themembers of an association) as anattorney in fact for any person, or if anindividual is otherwise to officiallyrepresent such person, power ofattorney on TTB F 5000.8 shall befurnished to the appropriate TTBofficer. Such power of attorney is notrequired for persons whose authority isfurnished with the corporate documentsas required by § 41.234. Form 5000.8does not have to be filed again with anappropriate TTB officer where suchform has previously been submitted toTTB and is still in effect.

§41.272 Cross reference.For other applicable provisions

pertaining to forms prescribed, retentionof records, interference withadministration, alternate methods orprocedures, emergency variations fromrequirements, penalties and forfeitures,and delegations of the Administrator,see subpart C of this part.

§41.273 Suspension and revocation ofpermit.

Where the appropriate TTB officer hasreason to believe that an importer ofprocessed tobacco has not in good faithcomplied with the provisions of 26U.S.C. chapter 52, and regulationsthereunder, or with any other provisionof 26 U.S.C. with intent to defraud, orhas violated any condition of his permit,or has failed to disclose any materialinformation required or made anymaterial false statement in theapplication for the permit, or is, byreason of previous or current legal

proceedings involving a felony violationof any other provision of Federalcriminal law relating to tobaccoproducts, processed tobacco, cigarettepaper, or cigarette tubes, not likely tomaintain operations in compliance with26 U.S.C. chapter 52, or has beenconvicted of a felony violation of anyprovision of Federal or State criminallaw relating to tobacco products,processed tobacco, cigarette paper, orcigarette tubes, the appropriate TTBofficer shall issue an order, stating thefacts charged, citing such person toshow cause why his permit should notbe suspended or revoked. Such citationshall be issued and opportunity forhearing afforded in accordance withpart 71 of this chapter, which part isapplicable to such proceedings. If, afterhearing, the hearing examiner, or onappeal, the Administrator, finds thatsuch person has not shown cause whyhis permit should not be suspended orrevoked, such permit shall besuspended for such period as theappropriate TTB officer deems proper orshall be revoked.

PART 44-EXPORTATION OFTOBACCO PRODUCTS ANDCIGARETTE PAPERS AND TUBES,WITHOUT PAYMENT OF TAX, OR WITHDRAWBACK OF TAX


Authority: 26 U.S.C. 5701-5705, 5711-5713, 5721-5723, 5731, 5741, 5751, 5754,6061, 6065, 6151, 6402, 6404, 6806, 7011,7212, 7342, 7606, 7805; 31 U.S.C. 9301, 9303,9304, 9306.

* 41. In § 44.11:* a. The definition of "Exportwarehouse" is amended by removingthe words "tobacco products andcigarette papers and tubes" and adding,in their place, the words "tobaccoproducts or cigarette papers or tubes orany processed tobacco";* b. The definition of "package" isrevised;m c. A new definition of "Processedtobacco" is added in appropriatealphabetical order; and* d. The definition of "Roll-your-owntobacco" is amended by adding at theend before the period the words "orcigars, or for use as wrappers thereof."

The addition and revision read asfollows:


Package. The immediate container inwhich tobacco products, processedtobacco, or cigarette papers or tubes areput up by the manufacturer and offeredfor sale or delivery to the ultimate

consumer. For purposes of thisdefinition, a container of processedtobacco, the contents of which weigh 10pounds or less (including any addednon-tobacco ingredients orconstituents), that is removed within themeaning of this part, is deemed to be apackage offered for sale or delivery tothe ultimate consumer.

Processed tobacco. Processed tobaccois any tobacco that has undergoneprocessing, but does not include tobaccoproducts. For purposes of thisdefinition, the processing of tobaccodoes not include the farming or growingof tobacco or the handling of tobaccosolely for sale, shipment, or delivery toa manufacturer of tobacco products orprocessed tobacco, nor does theprocessing of tobacco include curing,baling, or packaging activities. Forpurposes of this definition, theprocessing of tobacco includes, but isnot limited to, stemming (that is,removing the stem from the tobaccoleaf), fermenting, threshing, cutting, orflavoring the tobacco, or otherwisecombining the tobacco with non-tobaccoingredients.

§44.90 [Removed and Reserved]

* 42. Section § 44.90 is removed andreserved.

* 43. Section § 44.141a is added to readas follows:

§44.141a Use of premises.

Export warehouse premises may onlybe used for the storage of tobaccoproducts and cigarette papers and tubes,upon which the Internal Revenue taxhas not been paid, for subsequentremoval under this part, and for thestorage of processed tobacco pendingexport.

§44.142 [Amended]

* 44. Section 44.142 is amended in thefirst sentence of paragraph (e) by addingthe words ", and any processedtobacco" after the words "cigarettepapers and tubes", and by revising theOffice of Management and Budgetcontrol number reference to read,"(Approved by the Office ofManagement and Budget under controlnumber 1513-0070)".

§44.147 [Amended]

* 45. In § 44.147 the first sentence isamended by removing the words"tobacco products, and cigarette papersand tubes" and adding, in their place,the words, "tobacco products, cigarettepapers and tubes, and any processedtobacco".

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PART 45-REMOVAL OF TOBACCOPRODUCTS AND CIGARETTE PAPERSAND TUBES, WITHOUT PAYMENT OFTAX, FOR USE OF THE UNITEDSTATES


Authority: 26 U.S.C. 5702-5705, 5723,5741, 5751, 5762, 5763, 6313, 7212, 7342,7606, 7805; 44 U.S.C. 3504(h).

* 47. In § 45.11,* a. The definition of "Roll-your-owntobacco" is amended by adding at theend before the period the words "orcigars, or for use as wrappers thereof";and* b. The definition of "Package" isrevised to read as follows:


Package. The immediate container inwhich tobacco products, processedtobacco, or cigarette papers or tubes areput up by the manufacturer and offeredfor sale or delivery to the ultimateconsumer. For purposes of thisdefinition, a container of processedtobacco, the contents of which weigh 10pounds or less (including any addednon-tobacco ingredients orconstituents), that is removed within themeaning of this part, is deemed to be apackage offered for sale or delivery tothe ultimate consumer.

§45.45a [Amended]* 48. In § 45.45a, paragraph (a) isamended by removing the last sentence.* 49. In § 45.45b, paragraph (a) and theOffice of Management and Budgetcontrol number reference at the end arerevised to read as follows:

§45.45b Notice for roll-your-own tobacco.(a) Product designation. Every

package of roll-your-own tobacco, beforeremoval subject to tax, must haveadequately imprinted on it, or on a labelsecurely affixed to it, the applicabledesignation "roll-your-own tobacco","cigarette tobacco", "cigar tobacco","cigarette wrapper", or "cigar wrapper".


0 50. Section 45.45c is revised to readas follows:

§45.45c Package use-up rule.(a) A manufacturer of pipe tobacco or

roll-your-own tobacco may removepackages of such products bearing thedesignation "Tax Class L" (to designatepipe tobacco) or "Tax Class J" (todesignate roll-your-own tobacco) only if

such packages were in use prior to April1, 2009, and such manufacturer maycontinue to remove packages bearingthose designations until July 1, 2009.

(b) A manufacturer may, until August1, 2009, remove roll-your-own tobaccofor which the applicable designation is"cigar tobacco," "cigarette wrapper," or"cigar wrapper" even if the packages ofsuch products do not meet therequirements of § 40.216(b).

Signed: April 15, 2009.John J. Manfreda,Administrator.

Approved: May 26, 2009.Timothy E. Skud,DeputyAssistant Secretary (Tax, Trade, andTariff Policy).[FR Doc. E9-14546 Filed 6-19-09; 8:45 am]BILLING CODE 4810-31-P

DEPARTMENT OF DEFENSE

Department of the Navy

32 CFR Part 706

Certifications and Exemptions Underthe International Regulations forPreventing Collisions at Sea, 1972

AGENCY: Department of the Navy, DoD.ACTION: Final rule.

SUMMARY: The Department of the Navyis amending its certifications andexemptions under the InternationalRegulations for Preventing Collisions atSea, 1972 (72 COLREGS), to reflect thatthe Deputy Assistant Judge AdvocateGeneral (Admiralty and Maritime Law)has determined that USSINDEPENDENCE (LCS 2) is a vessel ofthe Navy which, due to its specialconstruction and purpose, cannot fullycomply with certain provisions of the 72COLREGS without interfering with itsspecial function as a naval ship. Theintended effect of this rule is to warnmariners in waters where 72 COLREGSapply.DATES: This rule is effective June 22,2009 and is applicable beginning June11, 2009.FOR FURTHER INFORMATION CONTACT:Lieutenant Commander Ted Cook,JAGC, U.S. Navy, Admiralty Attorney,(Admiralty and Maritime Law), Office ofthe Judge Advocate General, Departmentof the Navy, 1322 Patterson Ave., SE.,Suite 3000, Washington Navy Yard, DC20374-5066, telephone number: 202-685-5040.SUPPLEMENTARY INFORMATION: Pursuantto the authority granted in 33 U.S.C.1605, the Department of the Navyamends 32 CFR part 706.

This amendment provides notice thatthe Deputy Assistant Judge AdvocateGeneral (Admiralty and Maritime Law),under authority delegated by theSecretary of the Navy, has certified thatUSS INDEPENDENCE (LCS 2) is a vesselof the Navy which, due to its specialconstruction and purpose, cannot fullycomply with the following specificprovisions of 72 COLREGS withoutinterfering with its special function as anaval ship: Annex I paragraph 2 (a)(i),pertaining to the location of the forwardmasthead light at a height not less than12 meters above the hull; Annex I,paragraph 3(a), pertaining to thelocation of the forward masthead lightin the forward quarter of the ship, andthe horizontal distance between theforward and after masthead lights;Annex I, paragraph 2(f)(i), pertaining tothe placement of the masthead light orlights above and clear of all other lightsand obstructions; Annex I, paragraph3(c), pertaining to the task light'shorizontal distance from the fore and aftcenterline of the vessel in theathwartship direction; and Rule 21(a),pertaining to the arc of visibility of theaft masthead light. The Deputy AssistantJudge Advocate General (Admiralty andMaritime Law) has also certified that thelights involved are located in closestpossible compliance with the applicable72 COLREGS requirements.

Moreover, it has been determined, inaccordance with 32 CFR parts 296 and701, that publication of this amendmentfor public comment prior to adoption isimpracticable, unnecessary, andcontrary to public interest since it isbased on technical findings that theplacement of lights on this vessel in amanner differently from that prescribedherein will adversely affect the vessel'sability to perform its military functions.

List of Subjects in 32 CFR Part 706

Marine safety, Navigation (water), andVessels.

* For the reasons set forth in thepreamble, the Navy amends part 706 oftitle 32 of the Code of FederalRegulations as follows:

PART 706-CERTIFICATIONS ANDEXEMPTIONS UNDER THEINTERNATIONAL REGULATIONS FORPREVENTING COLLISIONS AT SEA,1972

m 1. The authority citation for part 706continues to read as follows:

Authority: 33 U.S.C. 1605.

* 2. Section 706.2 is amended asfollows:

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