While bourbon production in Kentucky has seen a heightened demand in recent years, leaders in the industry say they are still being taxed unfairly, putting the state at a competitive disadvantage.

House Bill 5, sponsored by House Appropriations and Revenue Committee Chair Jason Petrie, would gradually decrease tax distillery’s pay on aging bourbon barrels.

The bourbon barrel tax taxes every barrel for every year it ages. No other manufacturer in Kentucky pays a state and local tax on its good during production.

In 2022, distilleries were taxed more than $33 million on their barrels.

In Monday’s House Appropriations and Revenue Committee meeting, Petrie said Kentucky now has less than 3% of all distilling permits across all 50 states, compared to 25% just ten years ago. He also stated Kentucky also now only has 128 of the 4,450 distilled spirits licensed operations, noting the importance of keeping the industry competitive and appealing to those looking to come to Kentucky.

The bill would begin to phase out the tax beginning in 2026, with the bourbon barrel tax being completely phased out by 2039.

Currently, the revenue collected through this tax goes to local governments. Many local officials testified in committee, expressing concerns about any lost revenue.

Petrie said the committee substitute adopted Monday would help with the transition by ensuring education funding in the SEEK formula is held harmless and other provisions focused on county, city, fire, and EMS officials and other concerns.

The committee also passed an amended version of House Bill 447 that dives deeper into the education funding piece of moving away from the tax.

House Bill 5 and House Bill 447 passed through committee and now move to the full House for a vote.

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