Tennessee Distillers Narrowly Escape 85 Year Old Whiskey Barrel Taxation Law

There’s a lot happening with whiskey in Tennessee these days. Just last year, the Tennessee Distillers Guild kicked off the state’s first Tennessee Whiskey Trail that runs across the state and includes 25 distilleries. You have the official recognition that Nearest Green was one of the country’s first African American Master Distillers way back in the mid 1800s. And, just last month folk and rock legend Bob Dylan announced he would be Knockin’ on Heaven’s Door with the launch of his own whiskey brand and a new distillery now under construction in downtown Nashville. The last 12 months have been a doozy for Tennessee whiskey.

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All this attention also got the attention of Moore County’s tax assessor when reviewing some of the biggest tax payers in the county. In case you didn’t know, Moore County is the home of Lynchburg and one of the nation’s largest whiskey makers Jack Daniels. What the auditor discovered was that distilleries in the county should have been paying property tax on their aging wooden barrels since, ah, well, let’s see, Prohibition? Yes, that’s right, apparently, there was a bit of an oversight that allowed distilleries to not pay a property tax on their aging whiskey since the end of Prohibition some 85 years ago.

To put this in perspective, Jack Daniel’s Master Distiller Jeff Arnett reported that the company would have to pay around $2.8 million in additional taxes in 2018 alone. A letter from the TN General Assembly Fiscal Review Committee confirmed that, “Moore County will forgo an estimated $2,782,500 in property tax revenue in FY 17-18 that is currently due but has not yet been collected.”

In February, the National Alcohol Beverage Control Association reported that, “Jeff Arnett told a panel of lawmakers that the company isn’t looking to save money; it’s looking to avoid what amounts to a new tax on a growing, competitive and highly taxed industry in Tennessee.” They also said that Kris Tatum, General Manager of Old Forge Distillery and President of the Tennessee Distillers Guild, “Polled the group’s members and none have ever been assessed the tax, contradicting a legislative fiscal analysis of the bill that says five counties are assessing it.”

3.5 Months Later, TN Governor Signs Bill to Exempt Property Taxation on Whiskey Barrels

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Tennessee Governor Bill Haslam.

SB 2076 and HB 2038 were introduced to the states legislature in late January 2018. After some wrangling along the way the bill to exclude the barrels for the tax was passed on April 23 by the House with 79 Ayes, 12 Noes and 4 Present and not voting. The Senate bill passed on April 19 with 30 Ayes and 0 Noes. A month later on May 17 Tennessee Governor Bill Haslam signed the bill and it took effect immediately.

Another modern day whiskey tax narrowly averted!

The Details are in the Details

If you like the nitty, gritty details here’s the specific language from the state auditors office that came up with the $2.8 million in owed in taxes.

Passage of this legislation would require Moore County to forgo an estimated $2,782,500 in revenue due in FY17-18 (2,000,000 barrels x $175 per barrel x 30% appraisal x 2.65% tax rate).

And here’s the final language of what the Governor and legislature signed into law that exempts distilleries from paying the tax.

Be it enacted by the General Assembly of the state of Tennessee:

SECTION 1. Tennessee Code Annotated, Section 67-5-216, is amended by adding the following as a new subsection (c):

(c) Consistent with the Constitution of Tennessee, Article II, §§ 28 and 30, all barrels manufactured from the timber of this state, or any other state of the union, that are used to age or store intoxicating liquor, as defined in § 57-2-101, shall be exempt from ad valorem taxation under this chapter during the time in which the barrels are held by a person that produces or manufactures intoxicating liquor.

SECTION 2. Any action or proceeding to correct an assessment or request a refund or other relief on the basis of this act shall be subject to the applicable statutes of limitations, which are in no way altered or amended by this act.

SECTION 3. This act shall take effect upon becoming a law, the public welfare requiring it, and shall apply retroactively to all periods prior to such date.

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