Taxation of Whiskey plays an important role in American history. The Nation’s first constitutional crisis was the Whiskey Rebellion. The constitution was only a few years old and, for the States to ratify it, the new government was to take on all of the individual State’s debts from the Revolution. That meant the government was created in debt. In order to pay the debt, the new United States government needed a source of income – taxes. They created taxes on goods being imported into the country and they put an excise tax on some luxury goods, but their main source of revenue had to be something more lucrative and it was decided to tax “whiskey” which really meant distilled spirits including brandy and rum.

It fell to Alexander Hamilton to create this tax. He was inspired by Great Britain’s tax on spirits which was designed to put small British distillers out of business and favor the large distillers. Hamilton liked the idea of an industrial America with large corporations producing great quantities of product. He believed that the distilling business should be dominated by large producers. The tax would be on the “proof gallon” (one gallon of 100 proof spirits at 68 degrees Fahrenheit) and paid as soon as it was produced. This was fine for large distilleries in urban areas where a government official could be on hand to collect the tax, but in more rural areas collection would be a problem.

Kentucky had one tax collector for the entire state for distillers making whiskey throughout. This meant that the collector would visit the distillery and estimate how much whiskey the distillery could make in six months and charge the distiller that amount of tax. The problem being that many of these distillers did not distill for a full six months. They were often taxed for spirits they never made. To make matters worse the tax had to be paid in hard currency, which was rare in the new United States and even more so in the frontier areas of Western Pennsylvania and Kentucky. These areas still had a large barter economy where the people traded jugs of whiskey for goods and purchased land with barrels of whiskey. This led to discontent amongst the distillers and they rebelled against the tax in 1791.

The rebels were farmer distillers for the most part and they were often veterans of the American Revolution who were inspired by unfair taxation. They were willing to fight against unfair taxes and many tax collectors began encounter resistance to the tax from the start. Eventually tax collectors were tarred and feathered or beaten up when they came to collect taxes. The violence rose until, in Western Pennsylvania, a cabin owned by a tax collector was burned and a person was killed.

This inspired Hamilton to ask the President to raise an army and put down the “Rebellion”. But to paraphrase Thomas Jefferson “A rebellion was declared, armed for, marched against but never found.” Washington gathered an army larger than any during the Revolution and marched into Western Pennsylvania. They arrested only ten people and only two were ever convicted. These two both were later pardoned by President Washington because one was described as an “idiot” and the other as an “imbecile”. The ring leaders fled to Spanish territory near New Orleans and the rest went on and paid their taxes. The Pennsylvania rebels did not flee to Kentucky because the tax was there as well and if the government wanted to apprehend them, the Federal Marshalls would be waiting in Kentucky.

In Kentucky the rebellion was handled differently. The government knew that it would be impossible to get an army into the state and keep it supplied without the help of the local people, who for the most part supported the rebellion. Instead a judge was appointed who was sympathetic to the rebellion, Harry Innes. Innes was a distiller. He used legal maneuvering to tie the cases up in court for decades and most were settled without penalties or interest later when hard currency was available and the economy had moved away from the barter system.

Thomas Jefferson repealed the whiskey tax in 1802. He had opposed the tax when it was created and when he ran for President, he made its repeal one of his campaign promises. There was a short period without any taxation but when the United States and Great Britain found themselves at war once again, the government needed money to pay for the war. A whiskey tax was once again passed and from 1814 to 1817 distillers paid their taxes and funded the government’s war effort.

This second tax was repealed in 1817 and distillers were able to make spirits without a Federal tax until the American Civil War when President Lincoln once again taxed spirits to fund the United States Army. The distillers managed to avoid taxation in the 1840s when the United States fought Mexico. The war was short and the United States gained plenty of territory and California gold from the war so additional taxes were not necessary.

The “Whiskey Tax” played an important role in the funding of the new nation. It raised much needed funds when the government was formed and paid off the Revolutionary War debts. It also funded the military for our “second war of independence” in 1812. It was not until the American Civil War that it became a permanent part of the Federal budget.

Photos Courtesy of the New York Free Public Library Digital Archives