Foreword: Almost from the outset of the Republic, the Federal Government has collected taxes on the production of whiskey. George Washington himself rode out to help put down the Pennsylvania “Whiskey Rebellion” of farmer/distillers objecting to federal taxation. For many years the principal revenue stream into Washington, D.C., came from taxing liquor. Shown here is a $500 whiskey revenue stamp. Before and even after passage of the Bottle-in-Bonding Act of 1897 by Congress, tax collectors could use their authority to harass and even bring ruin to distillers. Recounted here are three examples of government overreach.
William McRoberts, an immigrant from Northern Ireland, found considerable initial success as a distiller and wholesale liquor dealer from Cincinnati. When the Civil War ended, McRoberts built a distillery near Latonia Station, on the Louisville Short Line & Kentucky Central Railroads, located about four miles south of Cincinnati. Known on Federal rolls as RD #2, 6th District of Kentucky, McRoberts designated this plant the Willow Run Distillery. His success was such that he was able to build his family the mansion home, shown below.
Fire was to be McRoberts’ undoing. Just after Christmas 1867, a conflagration ignited at the distillery, destroying the plant. Storage areas held 9,000 barrels of highly flammable whiskey that fueled a fire so intense that the stone walls of the building crumbled. The loss to McRoberts and his partner was set at $450,000, equivalent to more than $9 million today. Although insurance paid $200,000, the remainder came from the owners’ pockets Undeterred by this setback, McRoberts immediately rebuilt.
His fire precautions proved unavailing. In 1869 McRoberts suffered a second major fire, again with great monetary loss. This time he lacked the resources to rebuild. He sought to recoup from the Federal government the amount he already had paid in taxes for the now destroyed whiskey, but was refused. Prior to passage of the Bottled-in-Bond Act of 1897, distillers were taxed on product immediately after it was put in barrels and stored for aging.
Eventually McRoberts sued in Federal Court for a refund, triggering a tense confrontation with authorities. In 1870 a Federal liquor gauger/inspector named Mohan had a heated argument with McRoberts, attacked him with a knife and was arrested. In the end the distiller was forced to sell his mansion, his wife left him taking their two children, and he faced financial ruin. When McRoberts died in 1875 at the age of 52 following a train accident that cost him both legs, his lawyers were still arguing unsuccessfully for a refund.
Fast forward eighteen years. Jacob Sheaffer was highly respected in his home town of Lancaster, Pennsylvania. The scion of an early settler family, Sheaffer owned a distillery, a liquor dealership and a shoe store. Times were good until October, 1893, when a fire destroyed his distillery, resulting in relentless pressure from a federal collector of revenue that ultimately may have resulted in ending Sheaffer’s life. As the U.S. Government years later tacitly acknowledged, he deserved a better fate.
In 1893, Sheaffer’s warehouse was destroyed by fire, taking with it some 40,000 gallons of whiskey that was aging there. He had insurance, but that proved problematic. Although the policies were in full force, many of the companies that had issued them refused to pay on the grounds that the fire had been set, in effect accusing Sheaffer of arson. He took them to court and won.
Using the money he received in the insurance settlement, Sheaffer rebuilt his distillery and began to make whiskey again. Then, after a delay of three years, the U.S. Government in 1896 demanded immediate payment of the tax on the whiskey that had been destroyed in the fire, assessing the debt at $45,166, equivalent today to about $1 million. Although Sheaffer asked authorities to abate the tax in view of the circumstances, he was was refused and the Treasury Department proceeded to enforce collection. In desperation, the Pennsylvania distiller stole some cattle, sold them, and was caught.
With his reputation in Lancaster now besmirched, Sheaffer almost certainly knew and dreaded what would come. In 1897 Federal authorities seized all Sheaffer’s business properties, including the distillery, the warehouse, its contents, and his shoe store. Jacob had borrowed almost $15,000 from relatives and friends to rebuild his distillery; now he met to inform them he was forced to default on their loans. The cumulation of these events threw Shaeffer into deep despair and impaired his health. A year later at age 52, he died.
Outraged at what had occurred, his relatives appealed to Washington for redress. A Pennsylvania senator in 1903 introduced a sympathetic bill that asked the U.S. Court of Claims to determine compensation for the injustice. It passed. The Court agreed that a mistake had been made and that recompense was due. It awarded the Sheaffer estate $34,055. Unfortunately, the money ceded to Sheaffer’s family could not bring Jacob back from the early grave to which his own government seemingly had hounded him.
Mark Twain called it a “ten million dollar swindle.” The U.S. Commissioner of Revenue saw it as the answer to preventing the government from being deprived of “a vast amount of revenue” through frauds committed by liquor distillers. They both were referring to the spirits meter invented by a New York mechanical engineer. Peoria, Illinois, liquor dealers Adolphus and Julius Nusbaum were typical of the hundreds caught up in the Tice Meter controversy.
The story began in 1867 when evidence emerged that the U.S. Government was being cheated out of tax money through frauds committed by distillers, often in collusion with dishonest inspectors. For the Commissioner of Revenue the answer was to improve measuring liquor output by means of meters attached to stills that reputedly would aid inspectors in detecting gross understatement of the amount of spirits manufactured. After a competition, it selected the design offered by Isaac P. Tice. Called the Tice Meter, the patent design is shown below. The Treasury subsequently demanded that all distillers and rectifiers in the U.S. buy the expensive device. This included the Nusbaum brothers.
It did not take long for the Commissioner of Revenue to begin having doubts about the utility of the Tice Meter and an expert commission was appointed to make a series of practical tests. When the report came in negative, the Treasury Department in 1871 discontinued requiring use of the device, claiming to have found a more accurate meter than Tice’s. In the meantime, hundreds of distillers and rectifiers had been forced to buy them — and now the Tice meters had been trashed. Some distillers asked for a payback from Congress. A bill approving repayment was vetoed by President William McKinley. Another recourse was to the courts, the path taken by the Nusbaums. They sued Enoch Emory, the U.S. collector of revenue for the Chicago district in Federal District Court to recover the $1,500 they had sent him to pay for the Tice meter for use in their whiskey blending operation. Today that cost would be equivalent to at least $33,000.
Emory’s lawyers argued that the money was Tice’s and not his and implied the Nusbaums should be litigating against Tice. The judge agreed and threw out the brothers’ case. At that point, the now wiser Nusbaums ceased their efforts at repayment and took their losses. By 1873 — just two years later — they shut the doors on their Peoria liquor house and went out of business, likely agreeing with Mark Twain about the “ten million dollar swindle.”
Note: More extensive articles on each of these whiskey men can be found elsewhere on this blog: William McRoberts, November 19, 2016; Jacob Schaeffer, January 22, 2016; and the Nusbaum Bros., January 29, 2018.
Addendum: This is to alert both followers of this blog and others that I have a new website involving whiskey. It is a compilation of more than thirty vignettes about Old West saloons and saloonkeepers. Outlaws, gunslingers, and shootings abound. This new blog can be accessed at wet enterprise: select saloons of the old west@blogspot.com. If this new site proves popular, other compilations under the “wet enterprise” heading may be forthcoming.
No comments:
Post a Comment