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What goes wrong

The color was declared as "artificial color"

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The shorthand is lawful for some colors, and the ones in this category are usually not among them.

How it happens

Somebody reads a competitor label, sees "Artificial Color", and copies it. The paragraph permitting that phrase applies only to color additives not subject to certification and not otherwise required to be named.

What should have been written

The name listed in part 74 or part 82, with the FD&C prefix and the "No." optional and the word "Lake" mandatory where applicable. So "Blue 1" or "Blue 1 Lake" rather than a generic phrase.

The lake half is the commonest omission

Lakes are widely used in dry and fat-based decor because they do not bleed the way dyes do. Dropping "Lake" from the declaration is easy, and it is the specific word the rule bothered to give an example for.

It is a reprint, not a sticker

The declaration lives in the statement of ingredients, so correcting it means new labels. That is the cost of copying rather than checking, and it is entirely avoidable at the specification stage.

Mixed products are the hard case

A sprinkle blend can contain several colors from different parts, which means some must be named and others may use the shorthand in the same list. That is correct and it looks inconsistent, which invites "tidying".

Naming is often better marketing anyway

Buyers of decor products increasingly read color declarations, and a named list reads as more open than a generic phrase. Where the rule permits either, naming costs a little space and buys trust.

Ask the supplier which part lists it

Part 73, 74 or 82 is the question, and the answer decides the wording. It is one line in a specification and it settles the declaration for every label that ingredient appears on.

References

21 CFR 101.22(k), on declaring coloring in the statement of ingredients. Paragraph (k)(1) requires a color additive subject to certification to be declared by the name listed in part 74 or part 82, with "Lake" included where it is a lake; (k)(2) allows "Artificial Color", "Artificial Color Added" or "Color Added" only for colors not subject to certification and not otherwise required to be named. law.cornell.edu
21 CFR parts 73, 74 and 82, the listings of color additives exempt from certification, subject to certification, and provisionally listed. A color additive is lawful for a use because it is listed for that use, which is the authority 101.22(k) points at. law.cornell.edu
Written from federal statute and regulation, not from a kitchen. Food labeling has more parts than three sections, and a state cottage food program may add or subtract requirements for a local sale. Nothing here is clearance for a specific label, and whether an ingredient is cleared for food use is a question about that ingredient.