Explaining the bourbon barrel tax cut and who will be impacted

Posted at 7:00 PM, May 17, 2023
and last updated 2023-05-23 19:30:15-04

FRANKFORT, Ky. (LEX 18) — Kentucky's billion-dollar bourbon industry is thriving, but in order to keep growth going, Kentucky lawmakers agreed to get rid of a tax for distillers that some counties say is essential to their budgets.

With four distilleries, tours, food and even land markers, Robin Antenucci, executive director of Franklin County Tourism Commission says bourbon is what makes Franklin County's tourism thrive.

"Of course, bourbon is a big driver for tourism these days," said Antenucci. "We've got four unique bourbon offerings that bring people here from all over the world."

Antenucci says historically, Frankfort was a hub of bourbon production.

"History is a huge factor here in Frankfort and Franklin County. It's what brings a lot of visitors here. We've got a rich history; we've got a lot of preserved historic buildings. So, the bourbon history as well as the history of Frankfort as the seat of government of the Commonwealth being the Capitol is also a big player in our town," she said.

Because bourbon barrels stored to age in Kentucky are considered property, Franklin County also brings in hundreds of thousands of dollars every year in bourbon barrel taxes.

Judge Executive Michael Mueller says the money accounts for about 8% of their emergency budget.

"830,000 that's basically a ladder truck for the fire department or it's 23 sheriff's vehicles or it's really half the deputies in our jail," said Mueller.

Money also goes to schools and libraries.

Since Kentucky now has twice as many aging barrels as it has people, distilleries paid $40 million in barrel tax revenue in 2022, according to the Kentucky Distiller's Association (KDA).

Now leaders like Mueller say they are worried about the impact of no longer being able to rely on the funds.

"We've grown up the whole time together and all of the sudden they've divorced us," said Mueller.

Lobbyist for KDA, Jack Mazurak, says distillers were sick of paying some of the highest taxes of any industry in the country and pushed back against the barrel tax.

"The barrel tax is just one layer," said Mazurak. "We pay all the same taxes that any other industry does. And then there are specific taxes if you're making distilled spirits in addition to the barrel tax."

Despite seeing record profits and growth, by 2043, the barrel tax will be eliminated.

KDA believes the change will help its members "financially deal with industry concerns like trade wars, pandemic recovery, a challenging regulatory environment and increased competition from other states."

"We need to have that open for business sign. we need to play on a level playing field as every other state," said Mazurak.

The phase-out will begin in 2026. The bourbon tax percentage paid to counties will decrease then. KDA says because barrel production continues to rise year-over-year, counties should not see a dip in revenue for at least 10 years.

Mueller says his office has already started planning.

"We're having to take a step back because I can tell you — we're in the process of building some new parks and we literally thinking about a whole like bigger budget to do it and we probably cut it in half because of what's coming down the road."

Schools and emergency services are to be made whole through other state revenue streams like increasing the SEEK formula.

An impact study revealed Franklin County is one of nine counties expected to feel the impact the most.