After a property assessor for Moore County, Tennessee determined that whiskey barrels are taxable, state lawmakers are stepping in to thwart that and other efforts by local governments to apply property taxes to whiskey barrels.
Jack Daniels, the renowned Tennessee-based distiller, argues that application of local property taxes to whiskey barrels tax would be unconstitutional because the barrels are considered inventory, not equipment. As to whether the barrels are characterized as inventory or property under law, Tennessee Attorney General Herbert Slatery issued an opinion on March 5 that opened the door to a new layer of taxation, stating that “an article being used to manufacture another product – such as a barrel being used by a whiskey maker to age whiskey – is not entitled to an exemption from taxation.”
Oak barrels, made from Tennessee timber, are used by distilleries to age spirits for a minimum of three years—it is the means of maturing the character and color of scotch whiskey. Kris Tatum, President of the Tennessee Distilleries Guild, echoed Jack Daniels’ opposition to effort to apply local property taxes to whiskey barrels:
“We strongly feel like this tax is anti-tourism, anti-business, anti-jobs tax. I think we’d lose significant numbers of our members in the state in our industry,” Tatum said. “This isn’t personal property, this is manufactured goods, being held in inventory, plain and simple.”
In response, Representative David Alexander has introduced HB 2038, legislation that would block local efforts to apply property taxes to barrels, protecting over 40 whiskey distillers in the state. Rep. Alexander argues that a barrel tax would go against a Section 30 of the Tennessee Constitution, which states that “No article manufactured of the produce of this state, shall be taxed otherwise than to pay inspection fees.”
Jack Daniels Master Distiller Chris Fletcher has come out in full support of the legislation, stating that local effort to slap whiskey barrels with local property taxes is “unconstitutional” and would be burdensome for small distilleries in Tennessee. According to the Associated Press, the tax would impose an additional $2.8 million on Jack Daniels in 2018. Given that 60% of the retail price for distilled spirits is already comprised of taxes, another layer of taxation for whiskey makers would result in higher costs for consumers.
“I urge Tennessee lawmakers to support House Bill 2038 and Senate Bill 2076, much-needed legislation that would protect against efforts to impose tax hikes at the local level,” Grover Norquist, president of Americans for Tax Reform, said. “After being hit with 20 Obamacare tax hikes, the last thing Tennessee taxpayers need is to be sacked with further tax increases imposed by local politicians. I commend Tennessee lawmakers for working to protect their constituents from harmful fiscal policies pushed by municipal officials.”