The Kentucky Distillers’ Association announced that the number of newly filled barrels of Bourbon in Kentucky continued a steady growth of 3% last year, but distillers are now paying four times as much in barrel taxes than they have aging barrels.
Despite a new milestone of 12.6 million barrels of aging Bourbon, companies remain held back by historically high production costs from inflation that caused barrel taxes to skyrocket to more than $50 million this year, a record 30% increase over the previous year.
With double-digit cost increases in Bourbon inputs like grain, cooperage and labor, barrel taxes have more than doubled in the last five years, soaring 122%. Since 2010, barrel taxes have thundered 316% and continue to escalate at a rapid and untenable pace.
Bourbon industry leaders and advocates are emphasizing that this year’s unprecedented barrel valuation of $6.7 billion and resulting barrel taxes are the exact reason the compromise House Bill 5 was so important in the legislative session.
“Last session, Kentucky’s family of distillers argued that disaster was coming for the home-grown industry if elected officials didn’t do something to reign in the ever-growing discriminatory barrel tax,” said KDA President Eric Gregory.
“Thankfully, the Governor and our champions in the General Assembly saw where this was headed and found a sensible compromise to fix the barrel tax while protecting schools and local communities,” he said.
“This year’s barrel report – and the resulting massive barrel tax liability – prove their work was necessary and sets the Bourbon industry on a path to sustainability in Kentucky instead of across our border.”
The bipartisan House Bill 5 compromise signed into law earlier this year phases out the barrel tax over 20 years while protecting funds for schools, fire departments and EMS districts, and gives local governments plenty of time to plan and diversify their tax base.
“Everyone recognized the astonishing tax liability distillers are facing is unsustainable and would be for any business,” said Ashli Watts, President and CEO of the Kentucky Chamber of Commerce. “Without our signature industries like Bourbon, Kentucky will lose.”
“We applaud our elected officials in Frankfort who have embarked on a winning strategy to set Kentucky up for the future. From record economic development to tax reform to rethinking how we retain businesses and employees, they are doing the hard work – including last year’s bipartisan House Bill 5 compromise – to strengthen Kentucky for generations to come.”
The new numbers are based on inventories reported as of Jan. 1, 2023, submitted to the Kentucky Department of Revenue for tax purposes and include all distilling companies in Kentucky, the vast majority of which are KDA member distilleries.
Total new production increased slightly to 2.7 million barrels, the fifth year in which distillers filled more than 2 million. Total inventory, when counting Bourbon and other spirits like brandy, was 13.3 million barrels, also a record. Total barrel taxes were $50.2 million.
“Bourbon is a manufacturing powerhouse every state would love to recruit,” said Frank Jemley, President and CEO of the Kentucky Association of Manufacturers. “We were losing that competition as distillers faced massive increases in the barrel tax, unique to Kentucky, year after year.
“This year’s numbers are more similar – steady production growth met with an immense barrel tax liability. But now, with a plan in place to phase out the tax, distillers are looking far into the future in Kentucky rather than elsewhere.
“That means more jobs and investment for our Commonwealth, and we’re grateful to the leaders in Frankfort who got it done,” added Jemley.