E7-22703. Removal of Tobacco Products and Cigarette Papers and Tubes, Without Payment of Tax, for United States Use in Law Enforcement Activities (2003R-268P)

AGENCY:

Alcohol and Tobacco Tax and Trade Bureau, Treasury.

ACTION:

Final rule; Treasury decision.

SUMMARY:

This Treasury decision adopts as a final rule, without change, a temporary rule that allows manufacturers of tobacco products and cigarette papers and tubes to remove these articles without payment of tax for use by Federal agencies in law enforcement activities, and without inclusion of the otherwise required tax-exempt label.

DATES:

Effective Date: November 21, 2007.

FOR FURTHER INFORMATION CONTACT:

Amy Greenberg, Alcohol and Tobacco Tax and Trade Bureau, Regulations and Rulings Division, 1310 G Street, NW., Suite 200-E, Washington, DC 20220; telephone [phone]; or e-mail [e-mail].

SUPPLEMENTARY INFORMATION:

Statutory and Regulatory Provisions

Section 5704(b) of the Internal Revenue Code of 1986 (26 U.S.C. 5704(b)) provides that a manufacturer may, among other things, remove tobacco products and cigarette papers and tubes without payment of tax for use of the United States, in accordance with regulations prescribed by the Secretary of the Treasury. The regulations administered by the Alcohol and Tobacco Tax and Trade Bureau (TTB) include, in part 45 (27 CFR part 45), provisions that implement this aspect of section 5704(b). Section 45.31 of those regulations (27 CFR 45.31) previously set forth two circumstances in which manufacturers of tobacco products and cigarette papers and tubes were permitted to remove those articles without payment of Federal excise tax for gratuitous distribution under the supervision of a Federal agency. Neither of those circumstances included the removal of articles for use by Federal agencies in law enforcement activities.

In addition, Section 45.46 of the TTB regulations (27 CFR 45.46) provided that every package of tobacco products and cigarette papers and tubes removed under part 45 must have the words “Tax-Exempt. For Use of U.S. Not To Be Sold.” adequately imprinted on the package or on a label securely affixed to the package.

Publication of Temporary Rule

On April 15, 2005, TTB published in the Federal Register at 70 FR 19888, as T.D. TTB-26, a temporary rule that amended the TTB regulations to eliminate the need for manufacturers of tobacco products and cigarette papers and tubes to obtain a variance to remove their products without payment of tax for use by a Federal Agency in an investigation or other law enforcement activity. Under the temporary rule, the supplying of tobacco products and cigarette papers and tubes by manufacturers to Federal agencies continued to be voluntary. The changes to the regulations did not impose additional cost, compliance, or reporting burdens on manufacturers. The temporary rule revised § 45.31 by dividing that section into paragraphs (a) and (b) in order to include the substantive change and improve the readability of the section.

In addition, we amended § 45.46 by adding an exception to the tax exempt labeling requirements.

The Bureau received three comments on the temporary rule. One commenter specifically endorsed the temporary changes, recognizing that they would significantly help law enforcement efforts. The second commenter, a cigarette importer, supported the temporary rule for purposes of facilitating law enforcement. The third commenter supported the principle of tax-free removals for certain purposes.

Based on the reasons set forth above and on comments received, we believe it is appropriate to adopt the temporary rule as a final rule without change.

Inapplicability of Delayed Effective Date Requirement

Because these regulations recognize an exemption to tax payment, relieve manufacturers of the requirement to file a variance, and are identical to temporary regulations currently in effect, it has been determined pursuant to 5 U.S.C. 553(d)(1) and (3) that good cause exists to issue these regulations without a delayed effective date.

Regulatory Flexibility Act

We certify that this regulation will not have a significant impact on a substantial number of small entities. This regulation provides greater flexibility for manufacturers of tobacco products and cigarette papers and tubes to remove these products without being subject to tax and imposes no new reporting, recordkeeping, or other administrative requirement. Therefore, no regulatory flexibility analysis is required.

Executive Order 12866

We have determined that this notice of final rulemaking is not a significant regulatory action as defined by Executive Order 12866. Therefore, a regulatory assessment is not required.

Drafting Information

Maria Mahone of the Knowledge Management Staff drafted this final rule.

List of Subjects in 27 CFR Part 45

• Authority delegations (Government agencies)
• Cigars and cigarettes
• Excise taxes
• Labeling
• Packaging and containers
• Reporting and recordkeeping requirements
• Tobacco

The Regulatory Amendment

For the reasons discussed in the preamble, the temporary rule amending 27 CFR part 45 published in the Federal Register at 70 FR 19888 on April 15, 2005, is adopted as a final rule without change.

Signed: September 18, 2007.

John J. Manfreda,

Administrator.

Approved: November 5, 2007.

Timothy E. Skud,

Deputy Assistant Secretary (Tax, Trade, and Tariff Policy).