SUMMARY: The Vermont Department of Liquor Control (DLC) requests comments from all interested parties on whether legislative changes to the regulations governing flavored malt beverages are required. Sec. 3 (a) of 7 V.S.A. § 421 as enacted by the General Assembly of the State of Vermont, signed into law on May 24, 2008 states, "The department of liquor control shall study and identify best practices for the marketing, sale, and taxation of malt-based beverages containing other ingredients such as flavored distilled spirits, and 'alcohol energy drinks,' which are malt beverages containing other ingredients such as caffeine." Currently, malt-based beverages containing flavored distilled spirits and caffeine are classified as "malt beverages" and are marketed, sold, and taxed as such.
The rapid growth of this product sector has brought it to the attention of both federal and state regulators. Careful study conducted by the Alcohol and Tobacco Tax and Trade Bureau (TTB) "determined that a large number of these products derive nearly all of their alcohol from flavorings containing distilled spirits rather than fermentation during brewing..." (Department of the Treasury, 2003).
Under applicable federal and state statutes, beer and malt beverages are taxed and regulated differently than distilled spirits. The principle distinction is whether the alcohol in the product is derived from brewing or distilling. Flavored malt beverages differ from traditional malt beverages and beer in that many of them derive their taste and alcohol content primarily from added flavorings, which typically contain distilled spirits. While the total alcohol content is similar to beer (4 to 6 percent alcohol by volume), as much as 99% of the alcohol in many of these products is derived from the distilled spirits found in the added flavoring, and not from the brewing process.
The definitions of "beer" and "malt beverage" in the relevant statutes do not properly allow beverages taxed at the beer rate and regulated as malt beverages to contain unlimited amounts of added distilled spirits. Consequently, it is appropriate and necessary to propose clear standards for these products.
The regulations on alcohol content of flavored malt beverages adapted by the TTB in 2005 require that, "in order to continue to be taxed and treated as beer or brewed beverages, the majority (51 percent or more) of alcohol in flavored malt beverages be the product of brewing. No more than 49 percent of the alcohol may come from other flavorings added to the product" (Department of the Treasury, 2004).
The TTB ruling regarding the permissible distilled spirit content of flavored malt beverages applies only to federal law. Under the 21st Amendment to the Constitution, states have independent authority to classify alcohol products. Most states have their own classifications for malt beverages or beer, wine, and distilled spirits that are distinct from federal definitions. The TTB has acknowledged that its ruling conflicts with state laws and that the states may determine independently whether to adopt the federal standard.
Therefore, the Vermont Department of Liquor Control is requesting comments from all interested parties on the classification of flavored malt beverages and best practices for their distribution, sales, marketing, and taxation.
DATES: Written comments must be received by October 31, 2008 and may be submitted by mail (see address below), by fax to 802-828-2803, or by e-mail to Marcia.Lawrence@state.vt.us. Please reference this notice in any communications.
Any person who desires an opportunity to comment orally at a public hearing should submit his or her request to Commissioner Michael J. Hogan in writing within the comment period designated above. The Commissioner, however, reserves the right to determine, based on the circumstances, whether a public hearing will be held.
ADDRESSES: Send written comments to: Marcia Lawrence, Executive Assistant, Vermont Department of Liquor Control, 13 Green Mountain Drive, Montpelier, VT 05620-4501.
Copies of this document and the written comments received will be made available for public inspection upon request. Copies of this document and of the comments received will also be posted at the DLC website at http://liquorcontrol.vermont.gov/.
FOR FURTHER INFORMATION CONTACT: Marcia Lawrence, Executive Assistant, Vermont Department of Liquor Control, 13 Green Mountain Drive, Montpelier, VT 05620-4501; telephone 802-828-4932 or toll-free in-state 800-642-3134.