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Kentucky bill to phase out Bourbon barrel tax

The Kentucky General Assembly has passed a bill to gradually remove the US state’s ‘discriminatory’ tax on ageing barrels of spirit, described as a ‘common-sense compromise’.

The state of Kentucky produces 95% of the world’s Bourbon

Trade body the Kentucky Distillers’ Association (KDA) said the final passage of House Bill 5 (HB 5) ‘strikes a fair balance’ by continuing to provide funding for schools, fire departments and emergency medical services while giving local governments 20 years to plan and diversify their tax bases.

The state remains the only place in the world that taxes ageing barrels of spirits, according to the KDA. The industry has been paying the taxes for more than 50 years.

The revenue collected from this property tax largely goes to school districts, cities, counties, libraries, fire districts, and other local government entities in Kentucky.

The passing of HB 5 gives the distilling sector ‘equal treatment’ with other manufacturing industries that are not taxed during the production process, the KDA said.

The trade body said the move means distillers are protected against a 525% hike in barrel tax revenue, which could ‘force them to make tough business decisions’.

The KDA said in a statement: “We are hopeful governor Andy Beshear will see the many benefits of HB 5 and sign the legislation into law. We also hope communities and distillers can move forward together to continue creating good-paying local jobs and attracting millions of tourists from around the world.”

Despite the relief, the KDA warned that distilling remains Kentucky’s highest-taxed industry, paying US$286 million in taxes annually.

Including other ageing spirits, the state’s total inventory is almost 12m barrels – a ‘milestone’ in the 200‐year history of Kentucky Bourbon, the KDA said.

In January 2022 barrel taxes for Kentucky’s Bourbon industry hit their highest in history at US$40m. The state’s distillers were said to be paying nearly US$7m more in barrel taxes in 2022 than in 2021.

The Bourbon industry in Kentucky generates US$9 billion each year for the state’s economy, and sustains more than 22,500 jobs with an annual payroll topping US$1.2bn a year, the KDA said.

Visitor numbers to the Kentucky Bourbon Trail surpassed two million for the first time last year.

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