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Kentucky Sets New Record for Aging Whiskey Barrels. But It’s Not All Good in The Bourbon State.

I can vividly remember back in 2010, Kentucky Governor Steve Beshear touting there were over 4,000,000 barrels of aging whiskey in Kentucky, essentially one for every person in the state. Now, more than a decade later and under Governor Andy Beshear (former Gov’s son), that number was reported by the KY Distillers Association (KDA) to […]

The post Kentucky Sets New Record for Aging Whiskey Barrels. But It’s Not All Good in The Bourbon State. first appeared on The Bourbon Review.

I can vividly remember back in 2010, Kentucky Governor Steve Beshear touting there were over 4,000,000 barrels of aging whiskey in Kentucky, essentially one for every person in the state. Now, more than a decade later and under Governor Andy Beshear (former Gov’s son), that number was reported by the KY Distillers Association (KDA) to be at a towering 12.6 million barrels of aging whiskey, 3 to 1 barrel to person ratio in Kentucky. This is a new record for barrel inventory in Kentucky.

Sounds like good news. And it is, for the most part. Certainly better than the alternative as the Bourbon Industry faced a decades long drought of decline from the 70’s to 2000. And the growth of growing barrel inventory has been consistent, setting records year after year after year.

New barrel production clocked in at 2.7 million as 2m has been topped annually for five consecutive years. Total yearly barrel production (brandy, vodka, et) hit 13.3 million, a record in itself. In 2022, the KDA reported that whiskey production has shot up 475% since 1999.

In short, the industry is rolling. With robust production comes an increase in all associated materials needed to make the whiskey, to store the whiskey, and labor put forth to make both the whiskey and the barrels.

Barrel Taxation Hits New Record

The flipside to the coin, the KDA reported another record that the industry is not too thrilled about. Dishing out $50.2 million in barrel related taxation. This is also a record of a reported 30% increase in paid taxes from the prior year which approached $40 million. The year prior to that, taxation was closer to $30 million.

With steep inflation related to COGS (barrel materials, grain, labor, et et), barrel taxation has increased 122% in the last five years. Since 2010, those taxes have risen 316%. The total assessed barrel valuation hit a staggering $6.7 billion, up from the prior year’s mark of $5.2 billion.

Kentucky is the ONLY state in all of America that imposes a yearly property value related tax on all spirit barrel inventory. As a result, it got hot here in the Bourbon State between government and industry, hotter than the top floor of a 100 story rickhouse in August. Better put, it finally came to a boil.

As a result, Kentucky Governor Andy Beshear approved House Bill 5 which essentially outlines a 20 year period which ends with the halting altogether of annual barrel taxation in Kentucky. It is progressive in structure, meaning the yearly percentage tax decline increases over time. Funding for local community schools, EMS, fire departments and appropriate municipal related areas are reported to still receive Bourbon Industry funding.

Leading up to House Bill 5, the thought of eliminating yearly barrel taxation to local communities was unnerving to put it lightly. Injunctions were filed to stop new production of barrel warehousing. Yes, that happened. One official said it felt like “a divorce” had happened between their community and the industry. However, mends were made as it seems like peace time has returned to Bourbon Country.

The post Kentucky Sets New Record for Aging Whiskey Barrels. But It’s Not All Good in The Bourbon State. first appeared on The Bourbon Review.

Never Say Die Bourbon: A Whiskey with a Back Story

The stories behind the whiskies we drink are almost as enjoyable as the whiskies, and the story behind Never Say Die Bourbon is an intriguing… Read More

The stories behind the whiskies we drink are almost as enjoyable as the whiskies, and the story behind Never Say Die Bourbon is an intriguing one. There’s a near-death experience, followed by success on horse racing’s grandest stage, and a side story linking it to the founding of The Beatles. Never Say Die co-founder Brian Luftman joins us to share that story on this week’s WhiskyCast. In the news, Chivas Brothers workers approve a new contract, Kentucky Bourbon distillers set more records, and the deadline to avoid European import tariffs on American whiskey is getting closer.

Photo courtesy Ninth House/Never Say Die Bourbon.

Kentucky Distillers Report Record Production

For the fifth consecutive year, Kentucky Bourbon distillers filled more than two million barrels of whiskey, with total production reaching 2.7 million barrels in 2022,… Read More

For the fifth consecutive year, Kentucky Bourbon distillers filled more than two million barrels of whiskey, with total production reaching 2.7 million barrels in 2022, a 3 percent increase over 2021. The state also recorded new milestones of 12.6 million barrels of maturing whiskey inventory valued at $6.7 billion, according to data released by the Kentucky Distillers Association.

The data is based on annual reports all distillers file with the Kentucky Department of Revenue detailing their inventories as of January 1. The report also shows the state’s distillers paid a 30 percent increase in barrel taxes to more than $50 million.

The barrel taxes have been a source of controversy for many years. Essentially, it is an inventory tax that funds local schools and government functions. Earlier this year, the General Assembly passed legislation to gradually phase out the tax over 20 years while protecting funding for schools, fire departments, and EMS districts.

“Bourbon Capital of the World” Hits the Brakes on New Whiskey-Related Projects (Episode 1003: May 7, 2023)

Bourbon’s construction boom in Central Kentucky is raising concerns in Nelson County, home to Bardstown, the “Bourbon Capital of the World.” County officials have reached a compromise with whiskey makers for a 90-day moratorium on planning approval for new warehouses in agricultural zones. Nelson County Judge Executive Tim Hutchins wants a review of current ordinances allowing virtually unfettered development of warehouses without public input, while allowing projects in areas zoned for industrial use to move forward. We’ll talk with Judge Hutchins on this week’s WhiskyCast In-Depth about the moratorium and the impact of losing millions of dollars in barrel tax revenue in the coming years. In the news, Sazerac CEO Mark Brown is stepping aside in a long-planned succession, while Scotland’s Parliament has approved new rules to make it easier for whisky makers to borrow against their stockpiles of maturing whisky. We’ll also have details on a host of commemorative whiskies celebrating the coronation of King Charles III, along with the rest of the week’s whisky releases.

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Thanks a Thousand! (Episode 1000: April 16, 2023)

We’re celebrating a major milestone this week with the 1000th episode of WhiskyCast! To mark the occasion, Mark went back through the archives to pick some memorable moments and interviews from the past 18 years for this special episode. You’ll hear from legends like the late Parker Beam and Michael Jackson, along with Jimmy Russell, Jim McEwan, Maureen Robinson, Fawn Weaver, and Richard Paterson…just to name a few. This episode is a lot longer than usual, and there’s plenty more that we could have included. In the news, Scotch Whisky Association leaders are hoping to persuade Parliament to reject a Read More »

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Barrel Tax Bill Under Consideration in Kentucky Legislature

February 28, 2023 – Kentucky state lawmakers have just 11 legislative days left to consider a bill that would phase out the state’s “barrel tax” on barrels of aging Bourbon. House Bill 5 would start phasing out the tax in 2026 and end it completely in 2039, and is pending in the Kentucky House Appropriations and Revenue Committee. Kentucky is the only state that taxes inventories of maturing spirits, and the tax raised approximately $40 million for local governments in 2021. Distillers have the ability to take a credit for the barrel taxes they pay against their corporate state income Read More »

February 28, 2023 – Kentucky state lawmakers have just 11 legislative days left to consider a bill that would phase out the state’s “barrel tax” on barrels of aging Bourbon. House Bill 5 would start phasing out the tax in 2026 and end it completely in 2039, and is pending in the Kentucky House Appropriations and Revenue Committee.

Kentucky is the only state that taxes inventories of maturing spirits, and the tax raised approximately $40 million for local governments in 2021. Distillers have the ability to take a credit for the barrel taxes they pay against their corporate state income taxes, but income tax cuts in past years have made it so that they pay more in barrel taxes than they do in state income taxes.

The bill is the product of the General Assembly’s “barrel tax task force” that met last summer in Frankfort to hear testimony from stakeholders, including the Bourbon industry and local government officials. It would continue the current 100% credit through 2025, but distillers would only receive a 3% credit starting in 2026 with incremental increases each year until 2039, when the tax would be eliminated. That would significantly increase the amount of money the tax generates in the first 10 to 12 years of the phaseout, while gradually reducing it in subsequent years.

Eric Gregory of the Kentucky Distillers Association issued qualified support for the bill in a statement:

“Eliminating the job-killing inventory tax on aging barrels requires consideration of the distilleries that pay it and the local communities that benefit from it. Kentucky’s signature Bourbon industry believes the phase-out schedule in House Bill 5 ultimately benefits local communities across Kentucky by more than doubling the industry’s tax before any reduction occurs. In fact, most local communities will see no reduction from current revenues for at least the next 10 years.

While the bill will initially and significantly increase our tax liability, we appreciate the leadership of A&R Chairman Jason Petrie and Speaker David Osborne to put forth a proposal to slowly phase out the discriminatory tax.

The success or failure of House Bill 5 will determine whether Kentucky’s distilling industry continues to call the Commonwealth home, bringing jobs and tax revenue as it grows, or whether it is forced to look at other states for future growth or even potentially relocating existing facilities.

Thank you to the legislature for addressing this crisis. It is imperative that the Kentucky General Assembly end the tax on a $9 billion homegrown industry that employs 22,500 Kentuckians and attracts millions of tourist visits to Kentucky each year.”

Local leaders blasted the bill during a news conference Monday in Bardstown, claiming the elimination of the tax will lead to cuts in local services and public schools.

Links: House Bill 5 | Kentucky Distillers Association

Kentucky Barrel Inventory Reaches New High

September 27, 2022 – Kentucky distillers set a new production record in 2021, according to state revenue department data released today by the Kentucky Distillers Association. Distillers filled more than 2 million barrels for the fourth consecutive year, and had a total of nearly 12 million barrels of Bourbon and other spirits aging in the state’s rickhouses as of January 1, when they’re required to file an inventory report with the state. The inventory generated a total of $40 million in “barrel taxes,” the property tax leveled on every barrel of maturing spirits in a distiller’s inventory. That money goes Read More »

September 27, 2022 – Kentucky distillers set a new production record in 2021, according to state revenue department data released today by the Kentucky Distillers Association. Distillers filled more than 2 million barrels for the fourth consecutive year, and had a total of nearly 12 million barrels of Bourbon and other spirits aging in the state’s rickhouses as of January 1, when they’re required to file an inventory report with the state.

The inventory generated a total of $40 million in “barrel taxes,” the property tax leveled on every barrel of maturing spirits in a distiller’s inventory. That money goes to local governments to fund public education and other services, but distillers have long claimed it to be “discriminatory” because Kentucky is the only place that has a barrel tax.

“We’re thrilled that our homegrown and historic industry continues to flourish, but these numbers could have been much higher if Kentucky didn’t have a major barrier to entry for new distilleries in the form of this barrel tax,” KDA President Eric Gregory said in a news release. The KDA has successfully lobbied in previous years to get legislation passed allowing distillers to take a credit for their barrel tax payments against their state income tax bills each year, but a move by state lawmakers several years ago to reduce corporate income taxes now means some larger distillers have more credits than they pay in income taxes in some years, forcing them to carry over excess credits to future years. The total number of outstanding tax credits could exceed $100 million, according to Gregory.

“We’ve got to find a solution to this, because the numbers are just soaring and the state can’t afford that, the locals can’t afford for it to just go away off the books, and we can’t afford to continue this because it’s such a disincentive to locate here and a barrier to entry for distillers,” Gregory said in a telephone interview.

The KDA has proposed making the credits either refundable or transferrable, which would allow a distiller to pass along excess credits to pay a contractor for construction work as an example.

The barrel tax is politically sensitive because it is earmarked specifically for local and county governments, which build their annual budgets expecting a certain level of revenue from the property tax. Distillers have been walking a tightrope trying to get tax relief at the state level while not hurting the local communities in which they operate.

The legislature has a task force looking at the issue and taking testimony from local governments as well as the industry, and will be spending the time between now and the start of the next legislative session in January trying to craft a solution.

Editor’s note: This story was updated with additional information following an interview with Eric Gregory.

Links: Kentucky Distillers Association