In a blow to the Jack Daniel’s distillery, the state Attorney General Herbert Slatery says the whiskey barrels are not a separate product, and the tax audit, which is estimated to cost the company $2.8 million on account of the barrels, goes forward. The substance of the dispute is whether the barrels are part of the manufacturing process, in which case they are taxed as equipment, or whether they are a separate product in a cottage industry. It is claimed that the barrels are sold and reused, and the fact of having been once used to make the famous whiskey adds to their value. For now, the company has lost that argument.
Perhaps they will mount a legal challenge to this decision. Besides this, the company seeks legislative relief for what it calls a “property tax” that it says hasn’t been paid since Prohibition. The distillery says they aren’t just trying to save money, but to avoid an industry-wide tax on everyone, including small producers. State officials counter that audits are targeted, and are used when serious errors are suspected.
It’s an intriguing case to follow. The state obviously feels entitled to that revenue. Is it a new “tax” that Jack Daniel’s hasn’t paid until now? Were they trying to pull a fast one? It remains to be seen if the company can obtain some relief here, and if so, how Tennessee will replace that tax revenue.
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