Potential Solutions Discussed to Provide Relief to Distillers on Bourbon Barrel Inventory Tax

As one of Kentucky’s signature industries, bourbon distilling provides thousands of high-paying jobs and economic investment across the Commonwealth. While bourbon production in Kentucky has seen a heightened demand in recent years, leaders in the industry say they are still being taxed unfairly, putting the state at a competitive disadvantage.

One way the distillers argue they are taxed unfairly is the bourbon barrel inventory tax, which taxes aging barrels of the spirit years before it is rendered into a finished product. However, that inventory tax goes directly toward funding school districts at the local levels in those counties that house distilleries and rick houses.

At the Bourbon Barrel Taxation Task Force Meeting Friday in Frankfort, Co-Chair and Representative Chad McCoy challenged stakeholders from local governments and from the distilling industry to seek solutions that would attempt to provide relief for distillers while holding localities harmless, or limiting damage to the budget of the school districts.

According to data from the Kentucky Distillers’ Association (KDA), Kentucky at one time housed nearly 24 percent of all distilleries in the U.S., a figure that has since decreased down to only four percent in 2021. With the rise in popularity of Kentucky’s signature spirit, other states are entering the market and competing for distilling facilities, according to representatives from the KDA.

A variety of options were weighed from both sides of the issue on Friday, including the idea of phasing out the barrel tax over a number of years to give local governments and school boards time to account and prepare for the loss of revenue. Stakeholders also discussed the potential of decreasing the rate in which barrels were taxed or potentially even sunsetting the tax 25-30 years down the road.

Kentucky Chamber President and CEO Ashli Watts testified at the meeting alongside representatives from the KDA and from the Kentucky Association of Manufacturers.

“The bourbon industry has brought the kind of jobs to Kentucky that provide generational change and opportunities for families,” Watts said. “We feel strongly that barriers should be removed from the distilling industry, but we also strongly support our local governments. We are committed to furthering this discussion.”

The Bourbon Barrel Taxation Task Force is charged with studying the current ad valorem tax rate structure for bourbon barrel sales in the Commonwealth; proposing ways to increase tax revenue and new jobs in the Commonwealth by developing the best tax rate structure, including tax credits for the bourbon industry; and recommending methods for counties wherein barrels are stored to advantageously recoup lost revenue should that source be curtailed by state action.

The task force has one scheduled meeting remaining on the 2022 interim calendar on November 18.

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Manager of Public Affairs, Kentucky Chamber of Commerce

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