“The definition of insanity is doing the same thing over and over and expecting different results.” Though there is no evidence that Einstein ever uttered such words the line is not too far from reality when it comes to taxes on Kentucky Bourbon and where those barrels are left to mature.
Kentucky distillers are currently working with state legislators to remove a bourbon barrel tax that is only charged in Kentucky. House Bill 5 proposes to remove the barrel tax over a 16 year period. The bill has passed through the House and now goes on to the Senate. The amount of annual tax is estimated at around $40 million a year and is projected to double over the next 5 – 7 years if left as is.
The Kentucky Distillers’ Association – KDA argues that this is an unfair tax and is causing the state to lose out on new distillery startups that can choose to go to other states like Indiana or Tennessee to avoid this tax.
Let’s take a look at exactly what bourbon is and what makes Kentucky bourbon different and if Kentucky distillers could legally mature barrels out of state and still label it as Kentucky Bourbon.
What is Bourbon?
There are two sets of requirements for a whiskey to legally be labeled a Kentucky Bourbon. The first set of requirements define ‘What is Bourbon’ at the federal level and the second set of requirements go a few steps further to define ‘What is Kentucky Bourbon’ according to Kentucky state law.
The TTB Standards of Identity for Distilled Spirits definition for bourbon whiskey covers bourbon made throughout all 50 states. Here is how the TTB defines Bourbon Whiskey.
| Class | General Class Definition | Type | General Definition |
|---|---|---|---|
| Whiskey | Spirits distilled from a fermented mash of grain at less than 95% alcohol by volume (190 proof) having the taste, aroma and characteristics generally attributed to whisky and bottled at not less than 40% alcohol by volume (80 proof) | Bourbon Whisky | Whisky produced in the U.S. at not exceeding 80% alcohol by volume (160 proof) from a fermented mash of not less than 51 percent corn and stored at not more than 62.5% alcohol by volume (125 proof) in charred new oak containers. |
Related Stories
– Kentucky Proposal Would Eliminate $40 Million Annual Bourbon Barrel Tax Bill – The Only One in the U.S.
– Kentucky House Passes HB5 to Put an End to Bourbon Barrel Tax; Bill Moves on to Senate
Here is how the KDA summarizes the description for Bourbon Whiskey from the TTB.
Bourbon: A whiskey made in the United States from a mash containing at least 51 percent corn, distilled at a maximum of 160° proof, enters the barrel at no more than 125° proof, is aged in a new charred oak container (usually a barrel), and bottled at no less than 80 proof. No coloring or flavoring may be added.
What is Kentucky Bourbon?
The state of Kentucky goes one step further with their definition of bourbon. To be labeled a Kentucky Bourbon it must meet all the requirements outlined by the TTB above and follow the Kentucky law as listed below.
Here is the actual verbiage in Kentucky law.
No whiskey produced from grains which are cooked, fermented, and distilled in Kentucky, except whiskey the barrel containing which is branded “Corn Whiskey” under the internal revenue laws, shall be bottled in Kentucky or removed from this state unless such whiskey has been aged in oak barrels for a period of not less than one (1) full year; provided, however, that whiskey aged less than one (1) year may be removed from the state and bottled, or bottled in Kentucky, if the word “Kentucky” or any word or phrase implying Kentucky origin does not appear on the front label or elsewhere on the retail container or package except in the name and address of the distiller as required by federal regulation. For violations of this section, the department shall revoke the permit of the licensee from whose warehouse or premises such whiskey shall have been removed or in which such whiskey shall have been bottled.
And here is how the KDA summarizes the description for Kentucky Bourbon Whiskey.
Kentucky Bourbon: Bourbon that has been produced from grains which are cooked, fermented, and distilled in Kentucky; the Bourbon then must be aged in Kentucky for a period of not less than one (1) year in order to have the word “Kentucky” or any word or phrase implying Kentucky origin appear on the front label or elsewhere on the retail container or package.
So, technically, a Kentucky Bourbon has to be aged in Kentucky for a year and a day. After that, barrels could be shipped to another state like Indiana, Ohio, Tennessee or Missouri for the additional 3 – 7 years to reach its flavor peak before it’s ready to be bottled. And then shipped back for bottling.
Q: Would Kentucky Distillers Actually Send their Barrels Out of State?
A: Yes, it’s been done before.
If you have ever traveled along Utica Pike in Southern Indiana next to the Ohio River you’ll see what today seems like a strange site. You see, around the Port of Indiana, right across the street from the Consolidated Grain & Barge Co. (CGB) grain bins is a road named “Brown Forman Road”. I remember the first time I saw the sign and wondered why would Brown Forman be in Indiana. Well, after a discussion with Brown-Forman Master Distiller Chris Morris and some digging by Brown-Forman Historian Tim Holz we have some surprising answers.
Brown Forman Aged Bourbon Whiskey in Utica Indiana Rickhouses from ’62 to ‘84
Here is how Brown-Forman Historian Tim Holz explained when and why Brown-Forman was aging bourbon in Indiana.
“Brown-Forman stored whiskey at our Utica Warehouses for 22 years from 1962 – 1984. Construction on eight warehouses began in 1961. The site eventually contained a total of 21 warehouses. They were one story heat-cycled brick warehouses that held approximately 25K barrels a piece.
“Brown-Forman sold the property in 1986 and its today part of the Ports of Indiana manufacturing and agriculture complex. As far as I know there are no structures left from our time there as the area has been redeveloped for new manufacturing and distribution facilities.”
Aerial Photos of the Brown-Forman Rickhouses in Utica, Indiana
Could Kentucky distillers move their aging barrels of bourbon whiskey to nearby Indiana or Ohio? Yes, its not that far away. For many residents, Southern Indiana is basically a suburb of Louisville. Will they? A lot is riding on HB5.
Photo Credit: Brown-Forman Archives
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