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Wine Labels Tax TTB

Bureau faces reduced funding, increased demand for services

by Jane Firstenfeld
Wendell Lee Wine Institute
Wendell Lee, general counsel at Wine Institute, said, "There’s always been an issue if TTB is getting adequate funding for what they do.”
Washington, D.C.—In the current federal fiscal year, which ends Oct. 1, the Alcohol and Tobacco Tax and Trade Bureau was funded at roughly $100 million; this coming year, the TTB’s funding may be reduced to the $96.8 million approved last week by the House of Representatives’ appropriation committee. This is $1 million less than President Barack Obama had requested for the bureau, and the amount potentially could be further reduced by the U.S. Senate.

Meanwhile, the TTB generates $22 billion-$24 billion in revenues annually. “The estimate for this year is in the $23.5 billion range,” according to TTB congressional liaison (and acting media rep) Tom Hogue. While tobacco generates the majority of these funds, about $7.6 billion comes from alcohol, Hogue told Wines & Vines during a follow-up interview to yesterday’s Headline. He rated chances of the House passing its budget version as “high,” and suggested that if the Senate does not pass a bill on time, the $96.8 million figure would likely stand.

While funding for the bureau continues trending down, demand for its services is soaring, as detailed here yesterday. “We have a real impact on the industry and the jobs it creates,” Hogue said.

To people in the wine industry, permits and label approvals (COLAs) are TTB’s most obvious functions. “If we don’t get labels out on time, they can’t go to market,” he acknowledged. But, he stressed, there’s been a rapid and steady increase in COLA applications: In 1999, the bureau fielded 69,000; last year, the figure was 132,595. “Approving labels gets people in business,” Hogue said. “If we don’t get them out, or make sure people get their permits and pay their lawful taxes, everyone is not on a level playing surface. That doesn’t help business. It’s not good for the industry—especially if you have smaller guys with no margin for error. In the wine industry, you see a lot of that.”

The TTB, Hogue said, employs only about 500 people nationwide, including auditors, investigators, licensing, tax processing, formulas, label approval and imported products staff. “Importers also must be permitted,” he pointed out. “They also require COLAs.” The bureau’s international trade division labors to ensure that American products enjoy a fair playing field.

“We are intimately involved in the financial well-being of this industry. Overall, alcohol represents about 4.5% of the U.S. gross domestic production,” Hogue said. “The alcohol industry impacts all 432 sectors of the U.S. economy.”

Hogue stressed the need for wineries to plan well in advance for COLA approvals. “We’re not getting more resources. People need to take this into account in planning, and make their business decisions accordingly. We understand it has an impact on them; they have to understand what’s available in terms of resources.”

Permits and COLA applications are processed strictly on a first-come, first-served basis. “If you put it in, we work on it,” Hogue said. “There is no preferential treatment.” Every application that goes into the system is worked in order, he said.

COLAs for free

“Over the years, there’s always been an issue if TTB is getting adequate funding for what they do,”  according to Wendell Lee, general counsel for California’s influential Wine Institute. “There have been several attempts to get revenue. At one point, there was talk of assessing user fees for label approvals.” To date, there has been no change, and COLAs remain free, although they represent “a huge part of the TTB’s work load,” Lee told Wines & Vines.

Wine Institute is looking at ways to streamline the label-approval process, Lee said. “We’ve had one discussion with TTB about label approval. We like label approval, we feel we gain benefits by having the labels looked at. We believe the cost of compliance for label enforcement would increase rather than decrease without COLA approval.”

The COLA process is an anomaly: “When you look at every other food industry, there is no such thing as pre-release label  approval,” Lee pointed out. On the other hand, without COLAs, the industry could face potential product recalls. Lawyers could get involved, the attorney warned. “There would be new kinds of expenses and business risks if the TTB got out of label approvals.”

Although he emphasized that Wine Institute doesn’t have a strong official opinion one way or another, Lee suggested that TTB might consider less detailed examination of submitted labels. “Maybe they could just look at the mandatory information,” and leave the fine print to the marketplace. On the other hand, “If you leave the interpretation to the winery, can you imagine the amount of violations that could result?” he asked.

“We appreciate having the TTB around,” Lee said.  “It provides balance.” Although it’s not the case in California, he noted, “A lot of states rely on TTB” to provide legitimacy before their own alcoholic beverage regulators become involved.

“Wine regulation is a dynamic environment, based not simply on state law but a federal layer of regulation. TTB provides a good service.  Every winery is a permittee. It can’t just go away,” Lee concluded.

What’s been lost

Unfortunately, budget restraints have already resulted in reduction of TTB outreach. In 2008 and 2009, the bureau hosted a high ly successful trade show in Kentucky, near its Cincinnati, Ohio, revenue center. It hasn’t been held since then, because “We can’t afford it,” Hogue said.

In spring 2010, the bureau took its show on the road, visiting wine- producing centers in California, Oregon, Washington and North Carolina, but none have yet been scheduled this year. Interested parties can download a copy of the handout from these compliance seminars by clicking here.

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