Tuesday, April 1, 2014

Kentucky Distillers' Association Applauds Passage of Bourbon Barrel Tax Reinvestment Credit

The Kentucky Distillers’ Association (KDA) announced yesterday that Kentucky lawmakers have passed a state revenue bill that gives relief to ad valorem taxes levied every year on aging bourbon.

House Bill 445 offers distilleries a corporate income tax credit against the amount of barrel taxes paid, and requires distilleries to reinvest that money into their Kentucky operations, said KDA President Eric Gregory. Kentucky is the only place in the world that taxes aging barrels of spirits.

“We are appreciative that the General Assembly recognizes our signature Bourbon industry as a major economic development engine of the Commonwealth,” Gregory said. “This reinvestment tax credit will allow our distilleries to create more jobs and increase investment in the state.

“Plus, it will help us attract more craft distilleries and strengthen Kentucky’s rightful place as the one, true and authentic home for Bourbon and the Kentucky Bourbon Trail experience. We thank the legislature for its hard work and partnership.”

Joe Fraser, Chairman of the KDA’s Board of Directors, said the industry has struggled for decades to find a solution without jeopardizing the local communities that distilleries call home. The KDA first filed this measure in 2010 and has been advocating its passage every year since. Local barrel taxes help support critical needs in education, health care, libraries and public safety, Fraser said. The bill does not impact that key funding; it simply allows a tax credit against barrel taxes paid by the distilleries, which total about $13 million a year.

“Thanks to this new law, distilleries will increase bourbon production to meet the growing global demand, which translates into new jobs, increased revenue for education, additional grain markets for our farm families and more tax revenue for local and state coffers.

“This is a win-win strategy that’s good for business and our local communities and keeps the Commonwealth competitive in the global marketplace,” said Fraser, who is Vice President of Operations at Heaven Hill Distilleries, Inc.

Beginning in tax year 2015, the bill will phase in the ad valorem credit over five years. Leveling the playing field on taxes will allow Kentucky to attract more craft distilleries that are locating elsewhere. Kentucky’s spirits tax rate is third-highest in the country while the state ranks eighth in the number of operating distilleries, according to the KDA.

“Right now, Kentucky produces 95 percent of the world’s Bourbon,” Gregory said. “But as these start-up distilleries grow, that number might slide to 90 percent or lower. Imagine the impact on Kentucky’s economy if we begin to lose our historic monopoly.

“That’s why this bill is one of the most historic and monumental achievements for our legendary industry and it will provide benefits to generations of Kentuckians for years to come.” Gregory thanked the General Assembly for passing two of the group’s other legislative priorities – a new craft distiller’s license with reduced fees and a bill allowing communities to approve the sale of alcohol at state parks. “It’s been a highly successful session,” he said. “We are truly thankful.”

The KDA, a non-profit trade association founded in 1880, is the state’s leading voice on spirits issues. Its 18 members have invested more than $350 million in new facilities, equipment and tourism centers in the last three years alone.

KDA 'heritage' members include Beam Inc. (Jim Beam and Maker’s Mark), Brown-Forman Corp., Diageo North America, Four Roses Distillery, Heaven Hill Distilleries, Inc., and Wild Turkey Distillery. 'Proof' members include Michter’s Distillery. 'Craft distillery' members include Alltech’s Town Branch Distillery, Barrel House Distilling Co., Corsair Artisan Distillery, Kentucky Artisan Distillery, Limestone Branch Distillery, MB Roland Distillery, The Old Pogue Distillery, Silver Trail Distillery, Wilderness Trace Distillery, and The Willett Distillery. 'Educational' members include the Distilled Spirits Epicenter.


Anonymous said...

It sounds like the distillers are being treated like non-profits.

stilldaddy said...

So under current law, a distillery who ages a barrel for 12 years pays taxes on it every year for 12 years?

Chuck Cowdery said...

Yep. ad valorem is Latin for "according to value." It's just like a real estate tax. Each year, the value of the aging inventory is assessed and a tax is paid. That remains, what changes is that now the distilleries can deduct it from their other state taxes.

Anonymous said...

How is the exact barrel tax rate? % of the value, fixed $$$ per barrel per year?

Chuck Cowdery said...

Fred Minnick does a bang up job on the subject, including an interview with the Senate President, who made it happen.

stilldaddy said...


What/where is the law in Kentucky that defines what is allowed to be labeled "Kentucky Straight Bourbon Whiskey"? What is legally allowed to have the name "Kentucky" printed on the bottle? I know what/where the legal definition of "straight bourbon whiskey" is, but not the addition of the Kentucky origin. I haven't been able to find it anywhere. I even looked through your book again! I wasn't sure where else to ask you this as an email sent to your address provided here was sent back, so I thought this was the most recent post where it would sort of apply.

Chuck Cowdery said...

There is a general TTB rule that statements of origin must be true. Otherwise, there is no law governing that.