Kentucky distillers pay ‘record’ $50m barrel tax

Taxes on Kentucky barrels skyrocketed by nearly a third this year due to increased production costs, new data has shown.

Trade body the Kentucky Distillers’ Association (KDA) said the state’s producers paid more than US$50 million this year in barrel taxes, a ‘record’ rise of 30% on the previous year when distillers paid US$40m.

This is despite the number of barrels of ageing Bourbon in Kentucky reaching a milestone of 12.6m in January 2023, up by 3% on the previous year.

The KDA warned that distillers ‘remain held back by historically high production costs’ from inflation.

The new numbers are based on inventories reported as of 1 January 2023, submitted to the Kentucky Department of Revenue for tax purposes and include all distillers in the state.

The KDA also said distillers are dealing with double-digit cost hikes on grain, cooperage and labour. Barrel taxes have more than doubled in the past five years, soaring by 122%, the KDA warned.

Since 2010, barrel taxes have skyrocketed by 315% and continue to increase rapidly.

The state remains the only place in the world that taxes ageing barrels of spirits, according to the KDA.

A major breakthrough for Kentucky distillers came earlier this year when the General Assembly passed a bill to gradually remove the US state’s ‘discriminatory’ tax on ageing barrels of spirit.

The House Bill 5 phases out the barrel tax over 20 years while protecting funds for schools, fire departments and emergency services, and gives local governments time to plan and diversify their excise base.

“Last session, Kentucky’s family of distillers made the argument that disaster was coming for the homegrown 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.

“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.”

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Author: Nicola Carruthers