Published October 21, 2011
About an hour and a half drive south of Nashville is the small town of Lynchburg, Tenn. You probably haven’t heard of it unless you’re a fan of Tennessee whiskey.
That’s because Lynchburg only has one claim to fame: It has been the home to the Jack Daniel’s Whiskey distillery since 1866. The town and the brand are forever linked, and now, the town that gave birth to the world’s bestselling whiskey is talking about raising taxes on the business because it should “pay its fair share.”
The tax, estimates for which range from $4 million and $5 million, was proposed by 75-year-old retiree Charles Rogers, a resident of Moore County, the home county of Jack Daniel’s. The tax would add 3.4 cents to each bottle of the whiskey, and Rogers hopes the funds would go to pay bills for schools, bridges, roads and a water treatment plant. The Moore County Council passed a measure earlier this year, paving the way for the proposed barrel tax to be added onto the ballot.
Do officials in Lynchburg really believe Jack Daniel’s owes them something? Sure, the company proudly boasts about its hometown in advertising and labeling, but Jack Daniel’s relationship with Lynchburg could hardly be described as exploitative. Jack Daniel’s makes about $121 million in profits a year. It already pays $1.5 million in local property taxes on its Lynchburg operation, $4.40 per gallon in Alcoholic Beverage Taxes to the state, and millions in federal taxes.
Jack Daniel’s contributes much more than taxes to its community. The distillery employs more than 400 workers, draws in more than 200,000 visitors a year and even has its own credit union for employees and their families. The newly proposed “barrel” tax would add to the Lynchburg operation’s tax liability. This could ultimately bite Lynchburg on the backside.
The Jack Daniel’s brand and the town of Lynchburg are inextricably linked, so it’s unlikely that the distillery would pick up and move out. However, what is likely is that the company will be forced to lay off some of the 400-plus workers it employs, cut or freeze salaries, cut back on the numerous charitable activities it conducts in the state and shift some production to its other facilities in Atlanta and Dallas.
The bigger threat to the town of Lynchburg is that other businesses that might have opened in the town will look to another location. Businesses like Jack Daniel’s add a lot to the communities in which they operate. Yes, they pay tax revenue to the state and offer jobs to locals, but they also draw in tourists, benefiting a multitude of local businesses.
Residents of Lynchburg would be wise to remember that Jack Daniel’s is a business that exists to make money by providing a good that consumers want. If the cost of operating out of Tennessee becomes too high, the company very well might consider shifting more production out of state.
After all, if you increasingly bleed successful businesses for more and more tax revenue, you will find that vein drying up in the not-too-distant future.
Michelle Minton is a Policy Analyst at the Competitive Enterprise Institute (CEI).