The Associated Press reported, “Tennessee’s attorney general says the state constitution doesn’t exempt whiskey barrels from property taxes. Attorney General Herbert Slatery’s opinion comes as Jack Daniel’s and others push barrel exemption legislation. That bill says the constitution already exempts them by saying, ‘No article, manufactured of the produce of this State shall be taxed otherwise than to pay inspection fees.’ The opinion concludes whiskey barrels aren’t “manufactured articles” because they aren’t converted into different items.”
The whiskey folks may be attacking the issue in the wrong way and it may be because Jack Daniels makes barrels. I think (based on a recent tour of the George Dickel distillery) that the barrel acts as a catalyst with the whiskey and the barrels are raw materials (and taxable until filled) just like the corn, etc. that goes into the whiskey. The oak and the whiskey mix to produce the flavor. That the barrel is sold at the end of the process is immaterial as the barrel is like the usable by-products in many manufacturing operations. Therefore, all the barrels containing whiskey would be exempt from personal property tax as work in process in a manufacturing operation.
The Tennessee Code Annotated §57-2-106(a)(4) requires “Tennessee Whiskey” to be “Aged in new, charred oak barrels in Tennessee”. That the new barrel imparts a unique flavor to the whiskey is recognized in this statute. Therefore, the barrel is consumed in the aging process.
Note that George Dickel charges more for whiskey that has been in the barrel longer (granted more of the whiskey evaporates over time), so the interaction between oak and whiskey is a key to the process.
The Attorney General should have been asked, “Is a barrel that imparts favor to whiskey being aged and acts as a catalyst for the whiskey as it ages considered a raw material until filled with whiskey and then becomes “work in process” in the manufacturing of whiskey and, thus, exempt from Tennessee personal property tax?”