AG contradicts Jack Daniels’ bill — says whiskey barrels can be taxed

A legal opinion from the state attorney general’s office says the barrels used to age whiskey in Tennessee distilleries are subject to property taxes paid by businesses, despite a contention to the contrary in a bill pending before the General Assembly.

Producers of Jack Daniels whiskey have been pushing the bill (SB2076) since officials in Moore County laid plans to begin applying the tax to aging barrels, something not done in the past. The fiscal note prepared by legislative staff estimates that would mean about $2.8 million in new revenue for Tennessee’s smallest county.

State Comptroller Justin Wilson asked for the AG opinion on the legal issue of whether whiskey barrels are covered by a provision in the Tennessee constitution that exempts from taxation articles “manufactured of the produce of this state,” typically understood to cover farm products.

The bill by Sen. Ken Yager (R-Kingston) and Rep. David Alexander (R-Winchester) says, basically, that since barrels are made from timber that is produce of the state, it cannot be taxes. The legal opinion says that’s wrong, citing state Supreme Court opinions dating back into the 1920. Under those precedents, the exemption only applies to the “manufactured article” when it’s in the hands of the manufacturer – the sawmill operator, for example. Once sold by the producer and turned into something else, such as furniture or whiskey barrels, the product is taxable in the hands of the buyer.

The full opinion is HERE. An excerpt:

In sum, the proposed legislation would exempt from taxation wooden barrels while the barrels are used to produce whiskey. But those barrels are not within the scope of the exemption allowed for manufactured articles” under article II, section 30. 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. A statute exempting such barrels from taxation would not comport with article II, section 30, of the Tennessee Constitution.