01-25843. Elimination of Application To Remove Tobacco Products From Manufacturer's Premises For Experimental Purposes (2000R-353P)

AGENCY:

Bureau of Alcohol, Tobacco and Firearms (ATF), Treasury.

ACTION:

Notice of proposed rulemaking.

SUMMARY:

This proposed rule eliminates the requirements that manufacturers of tobacco products apply to ATF to remove tobacco products from their factories in bond for experimental purposes and maintain the approved applications for their records. In place of these requirements, manufacturers of tobacco products will prepare and maintain records of tobacco products removed from their factories in bond for experimental purposes. In addition, this proposed rule defines “experimental purposes” under section 5704(a) of Title 26 of the United States Code.

DATES:

Written comments must be received on or before December 17, 2001.

ADDRESSES:

Send written comments to: Chief, Regulations Division, Bureau of Alcohol, Tobacco and Firearms, Room 5003, 650 Massachusetts Avenue, NW., Washington, DC 20226, (Attention: Notice Number 931). See the Public Participation section of this notice for alternative means of commenting.

FOR FURTHER INFORMATION CONTACT:

Robert Ruhf, Regulations Division, 650 Massachusetts Avenue, NW., Washington, DC 20226; [phone]; or [e-mail].

SUPPLEMENTARY INFORMATION:

1. Background

Elimination of Application

We are proposing to eliminate the applications that manufacturers of tobacco products are required to submit for removing tobacco products in bond from their factories for experimental purposes. We believe that these applications are not necessary to protect the revenue. ATF will continue to conduct selected examinations and audits of manufacturers of tobacco products, including those who remove tobacco products in bond for experimental purposes.

In addition, manufacturers of tobacco products will continue to report the kind and amounts of tobacco products removed in bond for experimental purposes for use off factory premises. This reporting is done every month on ATF Form 5210.5 as a separate item and provides ATF an invaluable tool to monitor the operations of tobacco manufacturers in respect to such removals. Overall, this proposed rule allows greater flexibility and choice in managing our limited government resources.

The amount of taxes involved in such removals for experimental purposes is not significant. The total potential tax liability at the present tax rates for such shipments is estimated to be no more than $500,000. This potential tax liability is not significant when compared to the total excise tax collections for tobacco products. It is less than 0.001 percent of the total excise taxes collected from tobacco products. In addition, ATF has not had any significant tax losses associated with such removals. Also, ATF has rarely, if ever, denied an application submitted by a manufacturer for removing tobacco products in bond for experimental purposes.

This notice of proposed rulemaking eliminates the burdens imposed on the manufacturer to prepare and file applications and on ATF to take action on such applications. A manufacturer typically spends about 30 minutes to prepare, send and file each application. ATF typically spends a similar amount of time acting upon, sending and filing each application. ATF estimates that 100 of these applications are received each year.

Definition of Experimental Purposes

This notice of proposed rulemaking defines “experimental purposes” under section 5704(a) of Title 26 of the United States Code and provides additional examples of uses for such experimental purposes. However, the proposed rule retains the examples that are not considered experimental.

2. Public Participation

Who May Comment on This Notice?

ATF requests comments on the proposed regulations from all interested persons. Comments received on or before the closing date will be carefully considered. Comments received after that date will be given the same consideration if it is practicable to do so. However, assurance of consideration can only be given if comments are received on or before the closing date.

Will ATF Keep My Comments Confidential?

ATF cannot recognize any material in comments as confidential. Comments may be disclosed to the public. If you consider your material to be confidential or inappropriate for disclosure to the public, you should not include it in the comment. We may also disclose the name of any person who submits a comment.

Can I Review Comments Received?

Yes. You may view and copy written comments on this project during normal business hours in the ATF Public Reading Room, Room 6480, 650 Massachusetts Avenue, NW., Washington, DC 20226, telephone [phone]. For information on filing a Freedom of Information Act request for a copy of the comments, please call [phone], FAX [phone] or E-mail: [e-mail]. (ATF cannot accept FOIA requests via E-mail).

How Do I Send Facsimile Comments?

You may submit comments of not more than three pages of facsimile transmission to [phone]. Facsimile comments must:

• Be legible;
• Be 81/2″ × 11″ in size;
• Contain a legible written signature; and
• Be not more than three pages.

We will not acknowledge receipt of facsimile transmissions. We will treat facsimile transmissions as originals.

How Do I Send Comments by E-mail?

If you send an e-mail, you must follow these instructions. E-mail comments must:

• Contain your name, mailing address, and e-mail address;
• Contain the word “Notice” and its number in the subject or reference line of the e-mail;
• Contain your company or association affiliation, if pertinent to your comment;
• Contain your reason for commenting (manufacturer, importer, consumer, etc.);
• Be legible when printed in a 81/2″ x 11″ size (no special characters or symbols); and
• Be addressed to [e-mail].

We will not acknowledge receipt of e-mail. We will treat e-mail as originals.

Can I Request a Public Hearing?

If you desire the opportunity to comment orally at a public hearing on this proposed regulation, you must submit a request in writing to the Director within the 60-day comment period. The Director reserves the right, in light of all circumstances, to determine if a public hearing is necessary.

3. Regulatory Analyses and Notices

Is This a Significant Regulatory Action as Defined by Executive Order 12866?

It has been determined that this proposed rule is not a significant regulatory action as defined by Executive Order 12866. Therefore, a regulatory assessment is not required.

How Does the Regulatory Flexibility Act Apply to This Proposed Rule?

It is certified that these proposed regulations will not have a significant economic impact on a substantial number of small entities (see the following discussion concerning the Paperwork Reduction Act. Accordingly, a regulatory flexibility analysis is not required. Pursuant to 26 U.S.C. 7805(f), this proposed regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business. No comments were received.

Does the Paperwork Reduction Act Apply to This Proposed Rule?

Yes. The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collection(s) of information should be sent to the Office of Management and Budget, Attention: Desk Officer for the Department of the Treasury, Bureau of Alcohol, Tobacco and Firearms (ATF), Office of Information and Regulatory Affairs, Washington, D.C., 20503, with copies to the Chief, Document Services Branch, Room 3450, Bureau of Alcohol, Tobacco and Firearms, 650 Massachusetts Avenue, NW., Washington, DC 20226. Comments are specifically requested concerning:

• Whether the proposed collection of information is necessary for the proper performance of the functions of the Bureau of Alcohol, Tobacco and Firearms, including whether the information will have practical utility;
• The accuracy of the estimated burden associated with the proposed collection of information;
• How the quality, utility, and clarity of the information to be collected may be enhanced; and
• How the burden of complying with the proposed collection of information may be minimized, including through the application of automated collection techniques or other forms of information technology.

The collection of information in this proposed regulation is contained in 27 CFR 40.232(e). ATF uses this information to verify the kind and amount of tobacco products removed in bond from the premises of manufacturers for experimental purposes. In addition, ATF may use this information to determine that the persons to whom such removals are made are using the tobacco products for legitimate experimental purposes and that the tobacco products are properly destroyed or returned to the premises of a manufacturer following their experimental use. If such tobacco products are not destroyed or returned to the premises of a manufacturer, ATF will use this information to collect the taxes due.

The collection of information is mandatory. The likely respondents may include small businesses or organizations. The estimated annual burden per respondent will vary depending on the number of shipments that manufacturers of tobacco products remove from their premises in bond for experimental purposes. Estimated total annual recordkeeping burden under this proposed rule is 1 hour since the records to be maintained are customary and usual for private and business purposes. Estimated average annual burden per respondent and/or recordkeeper is less than 1 hour. The estimated number of recordkeepers is 165.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget.

“Plain Language” Changes

During the revision of the regulations in this document, we also tried to simplify and clarify the language of the affected section of the regulations. Any suggestions for improving the readability of these regulations may be submitted as comments to the cross-referenced notice of proposed rulemaking.

4. Drafting Information

The principal author of this document is Robert Ruhf, Regulations Division, Bureau of Alcohol, Tobacco and Firearms. However, other personnel of ATF and the Treasury Department participated in developing the document.

List of Subjects in 27 CFR Part 40

• Administrative practice and procedure
• Authority delegations
• Cigars and cigarettes
• Claims
• Electronic fund transfers
• Excise taxes
• Imports
• Labeling
• Packaging and containers
• Penalties
• Reporting and recordkeeping requirements
• Seizures and forfeitures
• Surety bonds
• Tobacco

Authority and Issuance

We propose to amend Title 27 of the Code of Federal Regulations as follows:

PART 40—MANUFACTURERS OF TOBACCO PRODUCTS AND CIGARETTE PAPERS AND TUBES

Paragraph 1. The authority citation for part 40 continues to read as follows:

Authority: 26 U.S.C. 5142, 5143, 5146, 5701, 5703-5705, 5711-5713, 5721-5723, 5731, 5741, 5751, 5753, 5761-5763, 6061, 6065, 6109, 6151, 6301, 6302, 6311, 6313, 6402, 6404, 6423, 6676, 6806, 7011, 7212, 7325, 7342, 7502, 7503, 7606, 7805, 31 U.S.C. 9301, 9303, 9304, 9306.

Par. 2. Section 40.232 is revised to read as follows:

§ 40.232

Experimental purposes.

A manufacturer of tobacco products may use tobacco products without determination and payment of tax as set forth in this section.

(a) What are experimental purposes? Experimental purposes are operations or tests carried out under controlled conditions to discover an unknown scientific principle or to gather facts about an existing scientific principle. Examples of experimental purposes are:

(1) Use by manufacturers to determine scientific facts relating to tobacco products, such as content of certain chemicals;

(2) Use by producers of machines designed to package such products for testing and experimenting in the operation of these machines; and

(3) Use in laboratories, hospitals, medical centers, institutes, colleges, and universities, for scientific, technical, or medical research.

(b) What purposes are not experimental? Tobacco products used for advertising or consumer testing outside the factory premises, or as salesmen's or customers' samples are not experimental purposes.

(c) Use in factory. A manufacturer of tobacco products may use tobacco products without determination and payment of tax for experimental purposes in a factory.

(d) Use outside factory. A manufacturer may remove tobacco products in bond for experimental purposes outside a factory. When tobacco products are shipped for experimental purposes outside the factory, the proprietor of the factory remains liable for the taxes imposed by 26 U.S.C. 5701 until the occurrence of one of the following events:

(1) The tobacco products are returned to the premises of the factory from which they were shipped; or

(2) The tobacco products are destroyed during or after the use of such products for experimental purposes.

(e) Record of use. In addition to the records prescribed by § 40.183, a manufacturer who removes tobacco products in bond for experimental purposes outside a factory must prepare and maintain a record containing the following information:

(1) Name and address of the consignee;

(2) Kind and quantity of tobacco products removed;

(3) Description of packaging, if any, of the tobacco products removed;

(4) Description of how and when the consignee will use the tobacco products; and

(5) Disposition of any remaining tobacco products after the consignee's use.

(Approved by the Office of Management and Budget under Control Number 1512-)

(72 Stat. 1418, as amended; 26 U.S.C. 5704)

Signed: August 28, 2001.

Bradley A. Buckles,

Director.

Approved: September 12, 2001.

Timothy E. Skud,

Acting Deputy Assistant Secretary (Regulatory, Tariff and Trade Enforcement).