Whiskey Men Hounded by Tax Collectors

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.

Mark Twain, the Tice Meter, and the Nusbaums

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 Isaac P. Tice, 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.

Liquor tax stamp

The story began in 1867 when strong evidence emerged that the national 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 measure liquor output by means of meters attached to stills that reputedly would aid inspectors in detecting gross misstatements of the amount of spirits manufactured.  The Commissioner advertised for inventors to come forward with meters and asked the National Academy of Sciences to appoint a committee to review the submissions and select a winner.

The Academy could not have appointed a more prestigious panel. One was Dr. Joseph Henry, shown right, a physicist who had conducted pioneering research in electromagnetism and served as the first secretary of the Smithsonian Institution.  Another was Dr. Julius Erasmus Hilgard, shown left, president of the American Association for the Advancement of Science and a professor at Johns Hopkins University, who was an expert on measurement.  They examined eighteen different meters and ended recommending one submitted by Isaac P. Tice. 

Tice, an engineer from New York, was an inveterate inventor who already had patented an improved windmill, milk rack, and water meter, among other items.  After the water meter proved to be commercially profitable, Tice had turned his attention to liquor.  In March 1867 he had patented what he called a “Revenue Guard for Stills” shown right and later a still itself that could be more easily monitored.  Apparently neither met the specifications from the Commissioner of Revenue because in December 1897 the inventor submitted what became known as the Tice Meter.  Shown below, it was that device chosen by Drs. Henry and Hilliard. 

Shortly thereafter, the Treasury Department began to require selected distillers to buy them, causing a fire storm on Capitol Hill where an “extended and acrimonious” discussion in both Houses of Congress ensued and an entirely new meter examining committee was empowered.  That caused a frustrated Tice to shut down his factory until 1868 when the second committee also endorsed his device.   Now the Treasury was free to demand that all distillers and rectifiers in the U.S. buy one.  

This included the Nusbaum brothers of Peoria, a city whose main drag is shown above as it looked at the time.  The brothers, Adophus and Julius, were born in Pennsylvania, the sons of John Nusbaum, a wealthy merchant who had immigrated to the United States from Germany.  Finding their way to Peoria, the brothers had established their liquor business about 1868 with facilities located on the banks of the Peoria River at the foot of Elm Street.  There they were using a still to rectifying (blend) whiskeys for taste and color and issuing them as their proprietary brands.

 Tice Meters were costly and the cries of anguished whiskey men reached the ears of one of the most celebrated Americans of the time — Mark Twain. Twain took aim at the requirement.  Characteristically using humor to get his point across, he quoted an anonymous source (actually himself) in an 1868 “Letter from Washington”: “Why, when the Tice meter was covertly foisted upon the public by the Government and every distiller in America preemptory commanded to come forward and buy one at $600 to $1,500, when a better machine could have been furnished for half the money, he said he believed there was a ten million dollar swindle behind all that, and that certain high officials were privy to it and reaping a vast profit from it.  — which was no doubt true as gospel, but where is the wisdom in talking about these dangerous topics.”

It did not take long for the Commissioner of Revenue to begin having doubts about the real utility of the Tice Meter and so a third 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 by Congress.  Their claims were denied. 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 deposited with him for Tice meters to be used in their rectifying operation.  Today that would be equivalent to at least $20,000.   

Emory’s defense was that he was only the conduit to Isaac Tice and he had forwarded the Nusbaums’ money to the inventor upon proof that Tice had sent the required meters to the Nusbaums.  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 their case against Emory.  The brothers did not appeal the lower court decision.

At that point, the now wiser Nusbaums ceased their efforts at repayment and took their losses.  But the question remains:  Was the Tice Meter, as Twain labeled it, a “ten million dollar swindle” that netted government officials millions of dollars in illicit profits?   I have my doubts.  If Enoch Emory was telling the truth about sending the Nusbaum’s money to Tice, he would not seem to have benefited.  It also seems unlikely that Tice or anyone else could have been bribing the expert panels that alternatively were approving or dismissing his meter.  

My theory is that this debacle likely was the kind that often occurs in Washington when scientists, bureaucrats and Congressmen get embroiled in a complex technical area where there is strong “push-back” from a powerful industry.  The results, as demonstrated here, often are chaotic.  That would be no consolation to the Nusbaums.  By 1873 — just two years later — they appear to have shut the doors on their Peoria liquor house and gone out of business.