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entitled 'Alcohol and Tobacco Tax and Trade Bureau: Fiscal Year 2010 
Proposed Licensing and Registration Fees Program' which was released on 
September 29, 2009. 

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United States Government Accountability Office: 
Washington, DC 20548: 

September 28, 2009: 

John J. Manfreda: 


Alcohol and Tobacco Tax and Trade Bureau: 

Department of the Treasury: 

Subject: Alcohol and Tobacco Tax and Trade Bureau: Fiscal Year 2010 
Proposed Licensing and Registration Fees Program: 

Dear Mr. Manfreda: 

Over the last several weeks, we reviewed the President's fiscal year 
2010 budget request for the Alcohol and Tobacco Tax and Trade Bureau 
(TTB) to provide pertinent and timely information that the Congress 
could use during budget deliberations. Our objectives were to (1) 
examine any programs with significant increases from the prior year and 
any significant unexpended balances and (2) review any new programs in 
the budget request. To do our work, we compared prior and current year 
budget requests, reviewed key budget-related documents, and interviewed 
TTB officials. Given the objectives and scope of this work, we 
conducted this work in accordance with all sections of GAO's Quality 
Assurance Framework that are relevant to our objectives. The framework 
requires that we plan and perform the engagement to obtain sufficient 
and appropriate evidence to meet our stated objectives and to discuss 
any limitations in our work. We believe that the information and data 
obtained, and the analysis conducted, provide a reasonable basis for 
any findings and conclusions. 

Based on our review, we are not recommending any reductions, 
realignments, or restrictions to TTB's fiscal year 2010 budget. 
However, given our nation's current fiscal challenges and the 
government's need to make the most effective use of its limited 
resources, we provide the following comments on TTB's legislative 
proposal for a licensing and registration fees program for alcohol 
businesses contained in the President's fiscal year 2010 budget 
request, which may be useful to TTB and the Congress during fiscal year 
2011 budget preparations and deliberations. We provided TTB an 
opportunity to provide its views on our work and have incorporated 
these views, where appropriate. 

Alternatives to an Annual Licensing and Registration Fee Program Exist: 

The TTB legislative proposal would establish a permanent licensing and 
registration fee program to offset amounts appropriated from the 
general fund. The Department of the Treasury's congressional budget 
justification explains the legislative proposal as requiring entities 
in the alcohol business, including retail dealers in liquors and beer, 
wholesale dealers in liquors and beer, alcohol producers, and brewers, 
to pay an annual licensing and registration fee. TTB would be 
responsible for implementing and administering this fee program. 
Generally, the legislative proposal recommended fixed-dollar annual 
fees for alcohol retailers at $300, wholesalers at $500, and producers 
at $1,000. 

According to TTB officials, TTB included this proposal in its budget 
request after consultation with the Office of Management and Budget 
(OMB). OMB maintained that TTB's funding would, then, be in line with 
other regulatory agencies' funding schemes. If the Congress enacted the 
language proposed by TTB in the President's budget request, the 
collection of these fees was expected to raise an estimated $80 
million, or about three-fourths of TTB's budget request for fiscal year 
2010, and reduce amounts derived from the general fund. In the next 
year, fiscal year 2011, collections from the alcohol industries were 
estimated to cover TTB's entire costs, including the portion relating 
to the tobacco, firearms, and ammunition industries. 

OMB issued a July 15, 2009, statement of administration policy in which 
the administration urged the Congress to authorize TTB to collect 
licensing and registration fees from producers, wholesalers, and 
retailers of beverage alcohol. Per the statement, funding TTB through 
fees would properly assign the cost of keeping consumers safe to those 
who profit from the sale of alcoholic beverages. However, our analysis 
of this fee proposal left us with questions about the overall design. 

Alternative designs for TTB's fee proposal exist. A user-fee program 
can be designed to fund the portions of activities that provide 
benefits to identifiable users. However, to achieve such a goal, user 
fees must be well designed. TTB could use OMB and our report's guidance 
to refine its proposal and develop user fees that (1) tie to TTB's 
direct and indirect program costs of regulating alcohol, or (2) are set 
as percentages of some appropriate base, rather than fixed-dollar 
amounts, or that do both.[Footnote 1] (The GAO user-fee guide can be 
obtained through the hyperlink in footnote 1.) Further, the guidance 
documents suggest that alternative fee designs could include one or 
more of the following: 

* setting the user fees to fund the proportions of TTB's costs 
attributable to each industry type (i.e., alcohol, tobacco, and 

* making the fee a percentage of a base that measures a business's 
size, such as sales; and: 

* varying the fees proportionately if the costs vary by type of 
business.[Footnote 2] 

When developing the fees, changes in consumer use may also need to be 
considered. For example, if fees are set based on an anticipated level 
of sales of alcohol and there is a decrease or an increase in sales, 
the revenues available to fund TTB would change. Accordingly, fees 
should be reviewed biennially to assure that existing charges are 
adjusted to reflect unanticipated changes, and reserve funds should be 

These are not intended to be an exhaustive list nor are the 
alternatives necessarily mutually exclusive--some could be combined, 
but they illustrate some alternatives that are consistent with OMB 
guidance and our work.[Footnote 3] Ultimately, decisions about how to 
fund an agency's operations are a policy judgment for the Congress. 
Consequently, this report does not make recommendations. 

In commenting on a draft of this report, TTB commented that the 
agency's current licensing and registration fee program proposal 
already has many of the features consistent with those of a user fee 
program. Among other things, TTB also expressed concern that too many 
of the agency's activities do not lend themselves to a user fee 
program. We agree that many of TTB's activities are not straightforward 
for a simple user fee and that developing a well designed user fee 
program can be difficult. We do not take a position on the decision to 
establish a user fee program or on what portion of TTB's operations 
should be funded by the same. However, should some type of a fee be 
imposed, our design guide can assist with many of the challenges TTB 
identified, such as questions about fee design and collection. The full 
text of TTB's comments is reprinted in enclosure I. 

We are sending copies of this report to appropriate congressional 
committees, the Secretary of the Treasury, the Director of OMB, and 
other interested parties. In addition, the report will be available at 
no charge on the GAO Web site at [hyperlink,]. 

If you or your staffs have any questions concerning the information 
discussed in this report, please contact me at (202) 512-9110 or Contact points for our Offices of Congressional 
Relations and Public Affairs may be found on the last page of this 
report. GAO staff who made key contributions to this report are listed 
in enclosure II. 

Sincerely yours, 

Signed by: 

James R. White:
Director, Tax Issues: 

Strategic Issues Team: 

Enclosures - 2: 

[End of section] 

Enclosure I: 

Comments from the Alcohol and Tobacco Tax and Trade Bureau: 

Department Of The Treasury: 
Alcohol And Tobacco Tax And Trade Bureau: 
Washington, D.C. 20220
"A proud past...A focused future" 

James R. White: 
Director, Tax Issues: 
Strategic Issues Team: 
Government Accountability Office: 

Dear Mr. White: 

Thank you for the opportunity to review and comment on GAO's report, 
dated September X, 2009, regarding "Alcohol and Tobacco Tax and Trade 
Bureau: Fiscal Year 2010 Proposed Licensing and Registration Fees 
Program (GAO-09-1023R)." While in this report GAO is not recommending 
any reductions, realignments, or restrictions to TTB's FY 2010 budget, 
the report offers for consideration alternative solutions to improve 
the licensing and registration fee proposal put forward in the budget 
request. Ultimately, as stated in the report, the matter is for 
congressional consideration and any final decision about how to fund an 
agency's operation rests with Congress. 

The basic premise of the TTB licensing and registration fee program is 
to shift the burden of paying for TTB operations that support the 
alcohol, tobacco, and firearms industries from the American taxpayer to 
the producers, wholesalers, and retailers of those products, who 
benefit from TTB oversight and regulation. Many of the features of this 
fee proposal are consistent with those referenced in the GAO report, 
including varying the licensing and registration fees by the type and 
size of business. Further, our fee proposal responds to the Nation's 
fiscal crisis by fully funding the bureau through the collection of 
prescribed fees for conducting business within the regulated 

The theory behind user fees, as outlined in the GAO and OMB guidance, 
is that a nexus exists between the fee amount and the cost of the 
service, and that user fees can be used to recover the costs of a 
specific service to the benefited parties. We find merit in the 
principle of user fees, but too many of TTB's activities do not lend 
themselves to this sort of fee program, such as tax collection, audits, 
and regulatory enforcement. Other services, such as product safety 
inspections, trade talks, and compliance investigations, provide 
general benefit to the industry in the form of a safe and fair 
marketplace and increased access to trade opportunities, which again 
are not conducive to a direct fee-for-service structure. TTB, 
therefore, cannot recover the full cost of operations under a user fee 

Though no fee proposal is without its drawbacks, TTB contends that the 
licensing and fee proposal is sound in its straight-forward approach to 
recouping the bureau's expenses from all sectors of these industries 
who benefit from our regulation and enforcement of Federal standards 
for producing, packaging, storing, importing, and distributing alcohol 
and tobacco products. The licensing and registration fee program offers 
the industry stability and predictability in the amount of fee owed, 
and the bureau a reliable funding stream. Industry could plan and 
budget for this nominal annual fee and avoid the uncertainty associated 
with major fluctuations in operating costs from user fees. 

From a policy perspective, the main point of divergence between the 
user fee and licensing and registration fee programs concerns who bears 
the burden of the fee. Under a user fee program, an unbalanced 
proportion of the fees would be charged to producers, who receive 
permits, label approvals, and investigative oversight from TTB. As 
producers currently pay $21 billion in excise taxes, many in the 
industry construe a user fee for these services as tantamount to double 
taxation. On the other hand, the licensing and registration fee is an 
assessment that covers the entire three-tier distribution system: 
manufacturers, wholesalers, and retailers. These fees would be borne 
primarily by retailers, who do not owe federal excise tax and who can 
pass the costs on to the consumers of these products. Our proposal 
focuses on retailers and wholesalers, who undeniably profit from the 
sale and marketing of TTB-regulated products. 

As part of its user fee scheme, GAO suggests in the report to assess a 
proportional fee for services provided to firearms and ammunition 
industry members. TTB levies taxes and conducts audits of these 
taxpayers. While TTB challenges the wisdom and practicality of a user 
fee program like the one suggested by GAO, we will continue to review 
options for passing along to industry the cost of our services to 
regulated firearms and ammunition businesses. 

Congress has not embraced past proposals to impose fees on these 
regulated industries. Those in opposition have claimed that imposing a 
fee on applicants seeking a permit to operate in the alcohol or tobacco 
industry would be a barrier to entry for small businesses. Other 
objections have been that industry innovation would be threatened, as 
those operating as manufacturers would need to weigh the costs to 
introduce new products to the market (i.e., multiple label application 
fees, laboratory analysis fee, formula review fee, etc.). The most 
common argument is that a fee program amounts to double taxation. 

TTB has examined the cost of delivering its services, and has its own 
concerns with how a user fee program would impact mission performance. 
We expend considerable effort and resources on garnering voluntary 
compliance from industry members. Charging those in the industry for 
services associated with mandated requirements, such as the filing of 
an amendment to their permit due to operational changes, would 
predictably result in lower levels of compliance and work in opposition 
to our public protection goals. 

Further, as a practical matter, developing and administering a user fee 
program that accounts for more than a dozen industry types with 
businesses of varying sizes, and that takes into consideration the 
varying complexity and volume of applications and requests, would be a 
considerable administrative challenge. As many of TTB's activities are 
not direct services to industry members, a user fee system as 
recommended by GAO would require a host of formulas to derive the fees, 
and TTB would still not recover the full cost of its operations. As GAO 
notes in its report, the costs of designing a user fee program may 
outweigh its benefits. The collection of multiple fees would 
necessitate extensive billings and would require significant additional 
staff and costly system updates to implement. As proposed, a licensing 
and registration fee program could be designed and administered at a 
minimum cost, while fully recovering operating costs, and without 
detracting from TTB's core mission. 


Signed by: 

John J. Manfreda,
Administrator, Alcohol and Tobacco Tax and Trade Bureau: 

[End of enclosure] 

Enclosure II: 

GAO Contact and Staff Acknowledgments: 

GAO Contact; James R. White, (202) 512-9110 or 

Staff Acknowledgments; In addition to the contact named above, Libby 
Mixon, Assistant Director; Amy Bowser; Bertha Dong; Carol Henn; 
Jacqueline M. Nowicki; Shellee Soliday; and Diana Zinkl made 
significant contributions to this report. 

[End of enclosure] 


[1] GAO, Federal User Fees: A Design Guide, [hyperlink,] (Washington, D.C.: May 29, 
2008) [hyperlink,] downloaded 
on Sept. 3, 2009, and OMB Circular No. A-25 Revised, Memorandum for 
Heads of Executive Departments and Establishments; Subject: User 
Charges [hyperlink,] downloaded on 
Sept. 3, 2009. 

[2] TTB management would need to determine if the costs involved in 
designing an alternative fee, as we note, would outweigh any benefits 

[3] See also GAO, Federal User Fees: Additional Analyses and Timely 
Reviews Could Improve Immigration and Naturalization User Fee Design 
and USCIS Operations, [hyperlink,] (Washington, D.C.: Jan. 23, 
2009) for additional information on designing user fees. 

[End of section] 

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