A bill that would end the barrel tax on Kentucky bourbon makers

Frankfort, Ky. The containers. Now they are about to get relief from one of them.

The Kentucky Legislature has voted to completely eliminate the property tax on the barrel value of aged spirits. The move — taken in the final hours of this year’s session — came under fire from the booming bourbon industry but left a bitter taste among some local leaders whose communities rely on the tax money. Governor Andy Becher signed the measure as soon as it reached his desk.

The state’s $9 billion distillery industry sees the passage of the bill last week as a major milestone in maintaining bourbon’s dominance in Kentucky.

Proponents say that without the measure, the tax bill for distillers would have been added to the growing stockpiles. Manufacturers are beginning to build warehouses in other states, which could lead to production elsewhere, they are concerned. The Bluegrass State is home to 95% of the world’s bourbon production, according to the Kentucky Distillers Association. The barrel tax is assessed only in Kentucky, and he said its elimination would encourage more rounds of growth in a state where about 12 million barrels of spirits are aging in warehouses.

“Kentucky distillers are treated equally to all producers whose goods are exempt from taxation during the production process,” the distillers association said in a statement.

But the industry’s victory came at a heavy price: severing ties with some local governments. Local officials have told lawmakers that spirits companies are breaking promises when seeking permits for refinery projects. The producers pointed out the benefits from the barrel tax to the local governments.

“They came up with projections of what the fees would be 10, 20, 30 years out,” said Josh Ballard, a city councilman in Lloret, home of Maker’s Mark Distillery. Talk about our children and our children will benefit. By allowing them to build in our community.”

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Local officials recognize the benefits of having distilleries nearby, including the popularity of whiskey tourism. But he pointed to the pressure that spirit production places on local governments — from road wear and tear to significant use of water and sewer systems — that will become even more of a financial burden once the barrel tax revenue is gone.

“When is it going to stop?” asked Richard “Dick” Heaton, the mayor of Bardstown, the center of bourbon production. “When will all the tax policy changes you all make be enough?”

The industry said it has agreed to help affected local governments, agreeing to a longer moratorium on the tax and funding schools, fire departments and ambulance services in counties where mixed spirits accumulate.

Officials in affected city and county governments will have “20 years to plan and grow their tax base,” Distiller’s group said. Those who store barrels in warehouses backed by industry revenue bonds pay a barrel tax for as long as the contracts are in place, to ease local property taxes.

Local officials and their supporters have downplayed the impact of the barrel tax on Kentucky distillers, who have seen unprecedented growth in the industry. Demand for American whiskey increased..

“This is a tax cut for a growing industry,” said Republican state Rep. Candy Massaroni, who represents Bardstown. “And finally, this will put more tax burden on my choices.

According to the bill, the industry would generate local revenues from barrel taxes between 2026 and 2043 before falling below the 2025 baseline until 2039. That forecast is based on 10% annual industry growth. If growth continues at a higher rate, before revenues fall below that baseline.

Bourbon gets its flavor and golden brown color from aging, with most premium bourbons aged between six and 10 years, according to the distillers association.

Last year, the industry paid nearly $40 million in barrel tax, nearly three times what it did in 2014, the distillers group said. Aged spirits are taxed at the local and state level. Statewide, it’s 5 cents per $100 of assessed value, he said. At the local level, it depends on each county’s property tax rate. Last year, the total tax value of all aged barrels in Kentucky exceeded $5 billion, the group said.

Based on current barrel filling and storage trends, those taxes will double every six to seven years, putting the industry on track to reach $250 million in barrel taxes by 2039 without any tax cuts or government action to drive barrels away. he said. The Distillers Association says its member distilleries are in the midst of a $5.2 billion construction boom.

Republican Sen. Jimmy Higdon, whose district covers the heart of Bourbon Country, said local officials “didn’t have dollar signs in their eyes” and were willing to pay far less to “do this.”

The Kentucky Economic Policy Center’s publishers already receive millions in economic development grants, income tax rebates and property tax exemptions. Even with the barrel tax break, the Dealers Group notes that it is Kentucky’s highest taxed industry.

After achieving the tax policy victory, the industry admitted that it needs to fix some relationships. The Distillers Association said it believes “communities and distillers can move forward together.”