There are two thing that are certain in life and that is death and taxes. But, the bourbon barrel tax that Kentucky distillers pay is a tax that is only charged in Kentucky. There is no other state in the U.S. or other country in the world for that matter that charges a tax on aging distilled spirits.
House Bill 5 is trying to change that by eliminating what the Kentucky Distillers’ Association – KDA calls a discriminatory tax. When making bourbon it must be stored in a charred oak container (barrel). Technically, as soon as the new make whiskey touches the barrel it is legally considered bourbon, not necessarily good bourbon but bourbon, nonetheless. And by Kentucky state law that bourbon must be aged in the barrel in Kentucky for a minimum of a year and a day to legally be called a Kentucky bourbon. Kentucky bourbons are typically aged from 4 to 8 years, but the actual number of years varies widely by distillery.
Distillers argue that there is no other industry in the Bluegrass state that pays this kind of manufacturing tax. The KDA also argues that the state is losing out on new distilleries because startups are choosing to build in other states in order to avoid paying this tax.
Related Story – Read the details of House Bill 5
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Kentucky House Passes House Bill 5
HB5 passed it first hurdle by being passed by the House. The next step is to move on to the Kentucky Senate and, assuming that passes, it would move on to Kentucky’s Governor Andy Beshear for approval.
The Kentucky Distillers’ Association representing 52 Kentucky distillers put out a statement in reaction to House passing of this proposed new law. If approved, the Kentucky Bourbon Barrel Tax would be slowed phased out between 2026 and 2039 until it is completely eliminated.
Kentucky Distillers’ Association Puts Out a Statement about House Bill 5
“The Kentucky Distillers’ Association thanks and applauds the Kentucky House of Representatives for passage of the common-sense compromise to House Bill 5, a long-term phase out of Kentucky’s discriminatory barrel tax on Bourbon that no distiller pays anywhere else in the world.
“We appreciate the leadership of A&R Chairman Jason Petrie and House Speaker David Osborne who put forth this compromise which addresses funding issues with schools, local fire and emergency services, and barrels under industrial revenue bond contracts.
“Distillers will continue to pay the punitive tax over the next 17 years, giving local communities a significant influx of revenue and ample time to diversify their budgets and plan for the future without having to depend on the success of a single industry.
“Most importantly, schools will be held harmless under the companion House Bill 447 should their funding decrease over the phase out. And distillers will be required to honor IRB contracts and commitments by continuing to pay taxes on those barrels.
“The KDA and its members have always asked to be treated just like every other industry in Kentucky. No other manufacturer pays taxes on its goods during production. Taxes aren’t levied on vehicles rolling down the assembly line, dish washers as they are being built, or tobacco drying in the barn.
“The distilling industry is the highest-taxed large manufacturing industry in Kentucky, and our companies already pay a multitude of other taxes like all other businesses including property, sales and use, local occupational taxes plus alcohol license fees at the state and local levels.
“Bourbon has been blessed with historic growth over the last decade, but Kentucky continues to lose out on the next generation of distillers and those jobs and investments. They are simply not coming to Kentucky, and the bourbon barrel tax is a main reason why.
“Thank you to all House members who voted for these critical measures.
“We urge the Senate to pass House Bills 5 and 447 and keep Kentucky the one, true home of Bourbon.”
— KDA President Eric Gregory
We will keep you posted with updates.
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