Bourbon industry contributes $9bn to economy

The Kentucky Bourbon industry is planning to spend US$3.3 billion on expansion and improvement projects over the next five years, according to a new report.

The figure came from The Economic and Fiscal Impacts of the Distilling Industry in Kentucky, 2021 report, released biennially by the Kentucky Distillers’ Association (KDA).

KDA members said they plan to invest US$3.3bn in distilling projects by 2025, representing a total of US$5.2bn in capital investment over a 10-year period.

More than US$100 million will be spent on building or expanding Kentucky Bourbon Trail experiences. The Kentucky Bourbon Trail and Craft Tour reported a 160% increase in visitor numbers last year, just down slightly from the pre-pandemic record reached in 2019.

Investments between 2021-2025 will create 4,565 new jobs, US$258m in payroll and US$29m in tax revenue, the study revealed.

The Kentucky Bourbon industry contributes US$9bn to the state’s economy annually, the report found. The sector generates more than 22,500 jobs, up by 83% over the last two decades.

Furthermore, distilling provides more than US$285m in local and state tax revenue.

State governor Andy Beshear said: “Distilleries, jobs, wages, revenue and investment are up triple digits across the board in the last 12 years.

“In turn, this amber wave has spurred more corn production, barrel cooperages and other supply-side manufacturers that are sustaining families and adding vibrancy to local communities.”

The industry currently has 10.3m ageing barrels of Bourbon, surpassing the 10m mark for the first time. Bourbon production rocketed by 435% since 1999, the study revealed.

The report also said there are now more than 2,200 distilleries in the US as a result of the craft boom.

Kentucky’s share of distilleries has lowered between 2001 and 2020, the report noted, from 24% to 6%, with jobs down from 43% to a third over the same period. Ten states have more licensed distillery operations than Kentucky.

“Bourbon is a great investment for Kentucky, and this study proves that,” said KDA president Eric Gregory. “But more than 2,000 distilleries have made the decision not to locate in Kentucky, despite our rich traditions and ready-made infrastructure.

“It is critical that distillers, partners and elected officials continue to work together to eliminate artificial and unnecessary barriers to growth. Doing so will attract more distillers and investment to the Commonwealth. Our economic future is in our hands.”

‘Discriminatory’ taxes

Kentucky has the fifth-highest spirits tax rate in the US, with distilleries paying more in federal alcohol tax (US$1.8bn) than any other state. The state remains to be the only place in the world that taxes ageing barrels of spirit.

The KDA said Kentucky distillers are expected to pay a record US$33m in ageing barrel taxes in 2021.

According to the KDA, tax reform is one the top priorities for the Kentucky Chamber of Commerce.

In 2014, the Bourbon Barrel Reinvestment Tax Credit was created to offset the ‘discriminatory’ duty that distillers pay on ageing barrels.

However, the rocketing number of barrels is far outpacing the amount of credit that distillers can take, the KDA said. Some large distillers now realise only 30% of the credit.

Ashli Watts, president and CEO of the Kentucky Chamber of Commerce, said: “With so many beneficiaries of Bourbon’s success, why would we keep barrel taxes in place and leave additional growth on the table?

“One sure way to encourage job creation and investment is to eliminate the burdensome barrel tax that shackles distilling’s growth.”

Earlier this month, the KDA appointed Jack Mazurak as director of governmental and regulatory affairs.