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Jack Daniel’s v. Uncle Sam: Tax audit leads to a fight with bite

What do Jack Daniel’s, whiskey barrels, and small businesses in Minnesota have in common? More than you may think at first glance. One of the nation’s largest whiskey makers is taking on its local legislature to ensure a tax issue is resolved before it becomes a big problem.

A problem that could impact more than just massive distilleries.

A tax bill with a bite. Whiskey isn’t the only thing with a bite in Tennessee. Jack Daniel’s recently found itself the subject of a tax audit that claimed the distillery owed a tax bill of over $2 million.

A fight for the little guys. The massive distillery is fighting back. It claims the battle goes beyond their operations. A master distiller with the company notes that Jack Daniel’s could afford the bill, but if Jack Daniel’s does not win this battle smaller businesses could find themselves facing a surprise tax bill based on this same issue.

Although a win would clearly benefit the company, it would also keep smaller businesses from a similar fate.

The tax issue that hinges on a definition. Tax law is a complex beast. The definition of a single term can make the difference between a huge tax bill and minimal to no tax obligation. The issue in this case revolves around the definition of the term “equipment”.

The auditor claimed that the whiskey barrels used to age the product was equipment. As such, it would be subject to a property tax. Instead, Jack Daniel’s argues that the barrels are not equipment subject to this tax, they are part of the inventory. The barrels get reused and sold off — often to small microbreweries.

But Jack Daniel’s isn’t just fighting the result of the audit, they are pushing for legislative reform. They want a law passed that will clearly state that the barrels are not subject to this tax.

Coming full circle — impact to MN small businesses. Minnesota has a number of small businesses, including microbreweries and distilleries that make use of similar types of barrels. This debate provides an example of the many taxes that can impact the operations of a small business.

A large operation like Jack Daniel’s is not the only one that could face a questionable audit. If your business is the subject of an audit, it is wise to seek legal counsel to better ensure your interests are protected.

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