No New Jack Tax: Whiskey Barrel Tax Exemption OK'd

NASHVILLE, TN -- Tennessee distillers will be exempt from a tax they haven't paid since the end of Prohibition under a proposal passed by the General Assembly Monday.

Both the House and Senate overwhelmingly approved a bill which would essentially exempt barrels used for aging the state's famous spirit from property taxes. The bill now heads to Gov. Bill Haslam.

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The bill - HB2038/SB2076 - declares, certainly, that aged whiskey barrels are and always have been manufactured articles. That's important, because the state's constitution says "No article manufactured of the produce of this state" can be taxed.

A local audit in Moore County, home of Jack Daniel's Distillery, and an opinion by Tennessee Attorney General Herbert Slatery indicated that whiskey barrels don't qualify as manufactured articles, because, though they are made in Tennessee and from Tennessee timber, they are tools of manufacturing rather than manufactured goods themselves.

In fact, Slatery's opinion, which was requested by the state's comptroller, says that the exemption passed Monday wouldn't stand up in court.

"The legislative finding to the contrary notwithstanding, barrels used by a whiskey maker to age whiskey are not 'manufactured articles' as that term has long been construed by the Tennessee Supreme Court," Slatery wrote in conclusion, after a lengthy explanation referring to century-old court cases involving cotton bales and sawdust. Slatery did concede that once a barrel is sold to a carpenter for conversion in tables or other furniture, it would indeed become a manufactured good.

Legislative analysis said paying the property tax on the barrels would cost Jack Daniel's $2.8 million. The distiller sells roughly 150 million bottles annually; the tax would average out to 2 cents per bottle.

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