Kentucky’s bourbon industry is doing well, according to a state lawmaker who represents the “bourbon capital of the world.” However, taxation policies are causing some distillers to take their barrels elsewhere and threaten future growth.
State Rep. Chad McCoy, R-Bardstown, made those remarks toward the end of the Bourbon Barrel Taxation Task Force’s first meeting Friday in Frankfort. The task force, which McCoy co-chairs with Senate President Robert Stivers, R-Manchester, is a special committee established by the General Assembly to look at the tax issue and its impact on the industry and communities that receive the revenue.
McCoy, a lawyer who is not running for reelection this year, represents the small Kentucky city 35 miles south of Louisville that trademarked the bourbon capital slogan. According to the city’s tourism bureau, 11 distilleries within 16 miles of Bardstown are open to tourists and generate a lot of business for the region.
“Right now, we’re doing great,” he said. “We’re having record profits. We’re having record years of revenue and record production. Everything seems to be going well.”
But he said Kentucky is the only place in the world that taxes spirits as they age in a barrel before they are bottled and sold, creating a “barrier to entry” for new distilleries in the state.
Kentucky taxes bourbon at 5 cents per $100 of assessed value. Cities and counties’ assessments are based on their property tax rate.
“This tax, applied during the required aging portion of the Bourbon manufacturing process, discriminates against spirits versus Kentucky’s other major manufacturing industries,” wrote Kentucky Distillers’ Association President Eric Gregory in a guest op-ed for the Lexington Herald-Leader two weeks ago.
According to the KDA, the assessed value for spirits in the state last year was $4.4 billion. That’s up from $1.7 billion in 2012.
Stivers called the bourbon industry one of the state’s signature industries. He said he wants to see how the state can cut taxes to foster more business growth while not negatively impacting school boards, libraries and other public entities that rely on the tax revenue.
Because of the barrel tax, McCoy said other states, such as Texas and West Virginia, are openly recruiting aspiring distillers to make their products there. It takes years and millions of dollars in investment for bourbon to hit shelves in liquor stores and bars, and if they want to operate in Kentucky, they have to pay higher taxes.
At one point, 43% of the distillery jobs in the U.S. were based in Kentucky. Now, McCoy said, it’s less than one-third. Kentucky is also 12th in the nation in the number of distilleries, and other states are catching up, he added.
“This industry is so important for our tourism, and for my little town in Bardstown, for my county,” he said. “I know we make a lot of money on that barrel tax, and that’s great. But, if we don’t do something about it, we will lose all of this.”
Article courtesy of The Center Square, a website that offers high-quality statehouse and statewide news across the United States.
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