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Scrapped barrel tax law causes uproar in Kentucky

10 July 2023 By Sarah Neish

Communities in Kentucky are furious that a barrel tax that has historically helped to fund schools, roads and facilities is being phased out.

Local officials in Kentucky are railing against the axing of a significant barrel-ageing tax that whiskey makers have paid for decades.

Figures who have invested millions into improving the infrastructure of their local towns to support the expanding Bourbon industry, now fear their cash will not make it back into the communities that rely on the annual cash injection, as state legislature voted in April to phase out the barrel tax law.

“We’ve been their biggest advocates and they threw us under the bus,” said Jerry Summers, a former Jim Beam exec, and now the judge-executive for Bullitt County, Kentucky.

“Our industry was always a handshake agreement. Where you have an alcohol-based plant that produces a hazardous material, you need emergency management, EMS, a sheriff’s department,” he added.

Bullitt County received US$3.6 million during 2021 from the barrel tax on ageing whiskey, with the majority of funds being ploughed back into schools and the local fire department.

Whiskey-makers say that without the removal of the tax, they may be forced to start building warehouses in other states, which could result in Bourbon production moving away from its heartland.

“It has become painfully clear that the barrel tax is turning away new distilleries from Kentucky and sending them to competitors states,” said Eric Gregory, president of Kentucky Distillers’ Association.

Kentucky is currently the only US state to pay tax by the barrel on its ageing spirits, costing Bourbon distillers around US$40 million per year, a sum that is expected to double every six to seven years.

Distillers argue that scrapping the tax will give the Bourbon sector, 95% of which is based in Kentucky, “equal treatment” with other manufacturing industries that are not taxed during the production process.

However, a growing conflict is emerging between the Bourbon companies and those in the local communities who have backed and facilitated that growth over the last few decades.

“This is a tax cut for a booming industry,” said Republican state Rep. Candy Massaroni of Bardstown. “And ultimately, this is going to put more of a tax burden upon my constituents.”

Democratic Gov. Andy Beshear, who signed off the bill to shelve the barrel tax, said that several “industry compromises” were vital to his support.

“You have an industry that supports so many jobs and calls Kentucky home. At the same time, you’ve got communities that have helped build that industry. I know there are, right now, probably some difficult feelings,” he said during a news conference.

Trade body the Kentucky Distillers’ Association (KDA) said that it has agreed to a longer phase-out of the barrel tax to allow local governments 20 years to plan and diversify their tax bases.

The phase-out is expected to begin in 2026 and will not be completed until 2043.

“Most local communities will see no reduction from current revenues for at least the next 10 years,” said a statement released by the Kentucky Distillers Association.