Metro Council rejects another attempt to revise barrel tax issue

They are built from scratch from American white oak then individually charred 20-25 seconds to give Jack Daniel’s Tennessee whiskey its distinct color and flavor. Ask any distiller and they’ll tell you, the barrel is a key ingredient in the Lynchburg whiskey-making process. And that barrel was once again the subject at a recent Metro Council meeting.

On Monday, council member Wayne Hawkins asked to be added to the agenda to seek approval for Moore County to initiate legal remedies against the State of Tennessee for the second time in less than six months. The issue? The language of what the local property assessor believe is 80 plus years of unpaid, whiskey barrel tax by Jack Daniel’s Distillery.

But first a little backstory

To understand the events of Monday night, you must first understand it’s genesis. All Metro offices are audited annually through the State Comptroller’s office at no cost to the county. It also pays third party auditors to conduct individual property tax audits … either randomly chosen or picked by the local assessor’s office.

From talking to multiple sources, the barrel tax issue all started with a third party auditor in 2017. That individual was the first to suggest that barrels were subject to property tax. Initially one individual within the State Comptroller’s office agreed by e-mail that the barrels were taxable, but even in that e-mail, the person said he had very limited knowledge of the whiskey and barrel manufacturing process.

Then, the state auditor’s office even went so far as to estimate that Jack Daniel owed Metro Moore $2.7 million in revenue from fiscal year 2017-18 that was “due but not yet collected” and buoyed by the exact number, the local office mailed Jack Daniel’s Distillery a bill … something they’ve done every year since.

Then in 2018, as the State Legislature considered the law that clarified that the barrels are exempt, the Comptroller’s office learned more about those facts and, ultimately, more senior members of the Comptroller’s office withdrew their support of the original auditor and Metro Assessor’s position.

A few weeks later, the Tennessee Legislature overwhelmingly approved a bill with some telling language. It allowed, “Tennessee whiskey barrels to remain exempt from property tax.” HB 2038 passed in the House of Representatives by a 78-12 margin and it’s companion bill SB 2076 passed unanimously in the Senate before heading to Governor Bill Haslam’s desk.

Hawkins makes detailed presentation

Hawkins made several assertion in his Power Point presentation:

Assertion #1: “Up until the early months of Lamar Alexander’s first term, Brown-Forman paid taxes on the barrels they purchased.”

Not true, said Metro Mayor Bonnie Lewis during open discussion.

“Never, ever has Jack Daniel’s paid a barrel tax to Moore County … ever,” she stated emphatically. “The 2018 law was nothing more than a clarification.”

It’s a fact confirmed by the Tennessee Distillers Guild who in 2018 told The Tennessean they polled the group’s membership and none have ever been accessed property tax on whiskey barrels. The Guild represents over 30 distilleries from Memphis to Knoxville and all points along the way including Jack Daniel’s Distillery in Lynchburg, George Dickel Distillery in Tullahoma, Prichard’s Distillery in Kelso, Short Mountain Distillery in Woodbury, Southern Pride Distillery in Fayettevile, and the Nearest Green Distillery in Shelbyville.

Assertion #2: “In concert with Brown-Forman’s management, the Alexander administration reclassified the barrels as manufacturing process equipment (or property), which is not subject to sales tax.

This is where the presentation gets a little muddy. Property tax and sales tax are two different things. The law Hawkins asked his fellow council members to sue the state over references barrels as the subject of property tax not sales tax.

Furthermore, Mayor Lewis confirmed with Jack Daniel’s Distillery that it does not pay sales tax on the barrels because it acquires or uses them under a “sale for resale” certificate, which is what any manufacturer uses when buying a component part of a product it manufactures and resells.

In a written statement to Mayor Lewis, the distillery stated, “In other words, for sales tax purposes, Jack Daniels treats the barrels and their parts as materials that will be manufactured into a final product sold to customer, which is consistent with the fact that the barrels are not subject to property tax because they are manufactured items.”

The exact language of the bill then State Representative David Alexander sponsored (HB 2038) is, “As enacted, specifies that aged whiskey barrels, during the time in which such barrels are owned or leased by a person that produces or manufactures whiskey in those barrels, are considered, and have always been considered, “articles manufactured from the produce of this state, or any other state of the union, in the hands of the manufacturer”, for purposes of exemption from property taxation.

“It’s an industry killer.”

Hawkins based his request, in part, on a 2017 Moore County audit that assumed “all equipment used in the manufacturing process has always been considered as property subject to property taxes in both Tennessee and Kentucky.”

In a 2014 interview with Whiskycast, Kentucky Distillers Association President Eric Gregory stated that, “Kentucky is the only place in the world that actually taxes barrels of aging spirit.”

And even Kentucky changed it’s mind. In April 2014, Kentucky Governor Steve Beshear rescinded its “barrel tax” calling it an “industry killer.”

It’s an opinion Metro Mayor Bonnie Lewis shares.

During Monday night’s meeting she told the council, “If you want to see to the impact of Jack Daniel in little Lynchburg come sit with me all day, every day since March,” she told the council. “It’s a ghost town. The people who have been allowed to open their businesses … it doesn’t matter. Because until Jack Daniel reopens, we’re Mulberry or Petersburg.”

{Editor’s Note: In March, Brown-Forman decided to suspend tours at the Lynchburg distillery in response to COVID-19. It remains shuttered today. Click here for that article.}

She also reminded the council that the “barrel tax” question was added to the ballot in 2012 and Moore County voters did not approve it. She also asserted that the 2012 barrel tax effort played a part in Brown-Forman shifting part of it’s barrel construction into Lincoln County.

“Drive south on Highway 55 and go into Fayetteville 37334, there’s where all your barrels are going. Those warehouses are built daily.”

She continued that moving forward with never-ending efforts to tax Jack Daniel barrels as property would make Fayetteville Mayor Bill Newman and Lincoln County taxpayers “very happy.”

In the end, the majority of council members agreed: John Taylor, Sunny Rae Moorehead, Meghan Bailey, Keith Moses, Houston Lindsay, Amy Cashion, Denning Harder, Arvis Bobo, and Gerald Burnett voted against approving money to pursue the barrel tax issue. Wayne Hawkins, Tommy Brown, and Gordan Millsaps voted in favor. David Boyce and Sandy Thomas were not present at the meeting. Attending remotely, Patrick Maynard lost connection prior to the vote. It failed 9-3.

When we reached out for comment, both of Moore County’s state legislators agreed with the council’s final decision.

“I would not support any any action to impose a barrel tax on our distillers,” Representative Iris Rudder told The Times. “You have to remember that any such tax wouldn’t just affect Jack Daniel. There would be lots of smaller distillers affected as well.”

State Senator Shane Reeves agreed.

“Jack Daniel’s has been making its world-famous whiskey since 1866 in Lynchburg,” he said. “That 150-year partnership, which has brought a lot of jobs, tourism, and revenue into this county, has only been possible because of the intentional effort by Moore County to have a low-tax, pro-business climate. Let’s not break something that has been working for over 15 decades.”

In a bit of serendipity, Jack Daniel mailed its annual Distillery Report to Moore County homes this week. In it, the Distillery reports that it accounts for one-half of all local taxes collected in Metro Moore County. Additionally, Visitors Center bottle sales contributed another $333,000 to Metro’s debt fund. They also employ over 700 Moore County residents, which is equivalent to 50 percent of all private sector jobs.

In addition, the reports states, that Jack Daniel’s “substantial payroll and vendor purchases ripple throughout the region” to the tune of $100 million in employee compensation and another $182 million in compensation throughout the state.

They also make hundreds of charitable donation to groups as close as the Whiskey Runners Car Club and Lynchburg Youth Baseball and national groups like the Alzheimer’s Association and the American Cancer Society. •

{The Lynchburg Times is the only independently owned and operated newspaper in Lynchburg. We cover Metro Moore County government, Jack Daniel’s Distillery, Nearest Green Distillery, Tims Ford State Park, Motlow State Community College, Moore County High School, Moore County Middle School, Lynchburg Elementary, Raider Sports, plus regional and state news.}