Kentucky Bourbon’s Tax Burden: A Turning Point for the Spirit Industry

Kentucky Distillers’ Association (KDA), the state’s leading trade body, has disclosed that Kentucky’s distillers have paid a staggering US$50 million in barrel taxes this year, marking a record 30% increase from the previous year’s US$40 million.

Despite the growing inventory of aging Bourbon barrels in Kentucky, which hit a record 12.6 million in January 2023, up 3% from the prior year, the industry faces significant economic pressures.

The KDA has highlighted the ongoing challenge of historically high production costs driven by inflation. These costs encompass everything from grain and cooperage to labor. As of January 1, 2023, barrel taxes have more than doubled over the past five years, surging by 122%, and have escalated by an astounding 315% since 2010.

Kentucky holds the unique and burdensome distinction of being the only place globally that levies taxes on aging spirit barrels, a factor that the KDA emphasizes continually.

However, a significant development occurred earlier this year with the passage of House Bill 5 by the General Assembly. This landmark bill aims to phase out the state’s barrel tax over 20 years, ensuring the protection of funds for schools, fire departments, and emergency services, while allowing local governments time to adjust and diversify their revenue sources.

KDA President Eric Gregory expressed relief over the legislative action, acknowledging the dire consequences the industry faced without intervention: “Last session, Kentucky’s family of distillers made the argument that disaster was coming for the homegrown industry if elected officials didn’t do something to reign in the ever-growing discriminatory barrel tax,” he stated.

Gregory praised the Kentucky government and General Assembly for their foresight and sensible compromise, which not only resolves the barrel tax issue but also safeguards schools and local communities.

“This year’s barrel report – and the resulting massive barrel tax liability – prove their work was necessary and sets the Bourbon industry on a path to sustainability in Kentucky instead of across our border,” he concluded.