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Call for removal of ‘punitive’ Kentucky barrel tax

The Kentucky Distillers’ Association (KDA) is calling for an end to ‘discriminatory’ taxes on barrels, which have rocketed by 140% over the last decade.

Buffalo Trace barrels in Kentucky
Buffalo Trace owner Sazerac pledged US$1.2 billion to boost production over a 10-year period

According to the KDA, Kentucky distillers are expected to pay a record US$33 million in ageing barrel taxes in 2021. Kentucky distillers pay about US$2 billion annually to the government in taxes, the KDA revealed.

The KDA is calling for the removal of taxes after data from the Kentucky Department of Revenue revealed there are 10.3m barrels of Bourbon ageing in distillery warehouses across the state as of 1 January 2021.

Furthermore, the industry achieved a new record in 2020 for the number of Kentucky Bourbon barrels filled in a single year – nearly 2.5m. It also set the record for the total number of all ageing barrels including other spirits such as brandy – reaching nearly 11m.

Eric Gregory, KDA president, said: “Kentucky’s signature Bourbon industry continues to invest in our Commonwealth at unprecedented levels, despite global pandemic disruptions, exorbitant taxes and ongoing trade wars. This is truly a historic and landmark record.”

The state is said to be the only place in the world that taxes ageing barrels of spirits as part of the production process. The KDA said the ‘discriminatory’ tax hinders growth and jeopardises Kentucky’s ability to gain new distillers.

“The Bourbon industry is investing more than US$5bn in this state to increase production, build innovative tourism centres and create thousands of new jobs,” Gregory added. “But punitive barrel taxes are punishing this growth and harming our chances to land new distilleries.

“It’s time for the legislature to take action and make barrel taxes refundable or transferable, which will further incentivise distilling investment in the Commonwealth. Kentucky should not have a tax structure that penalises growth and investment on any manufacturer.”

While the state passed a corporate income tax credit in 2014 to balance barrel taxes, Gregory warned that the rising number of barrels far exceeds the amount of credit that distillers can receive. Some distillers now only realise 30% of the credit, the KDA warned.

Meanwhile, Kentucky Bourbon production has soared by 436% since 1999, the KDA found. Furthermore, ageing Bourbon inventory has jumped by 200% during that time, with the number of barrels tripling.

The tax-assessed value of all ageing barrels reached US$4.4bn in 2020, surpassing the US$4bn mark for the first time – a rise of US$589m over the previous year.

‘Collateral damage’

In addition, trade wars and retaliatory tariffs have affected exports of Bourbon. In 2018, the European Union imposed a 25% tariff on American whiskey and other goods in response to a US tariff on steel and aluminium from the EU. The EU tariff on American whiskey is due to double to 50% on 1 December 2021, after it was moved from its earlier date of 1 June.

As part of a coalition of 50 trade groups, the KDA called on the Biden administration to axe tariffs on American whiskey.

“Our industry is collateral damage in trade disputes that have nothing to do with Bourbon,” Gregory said.

“We reiterate our request that the Biden administration secure the immediate suspension of tariffs on American whiskey before more long-term damage is done. It’s been more than three years. The time to act is now.”

In September 2021, Kentucky-based Bourbon maker Buffalo Trace took legal action following a spate of online whiskey fraudsters.

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