As Kentucky sets record for bourbon barrels, distillers push to eliminate production tax

LOUISVILLE, Ky. (WDRB) -- The Kentucky Distillers Association is pushing to eliminate the barrel tax in the state as another spirit — that sees lower taxes — gains interest.

As of January, there were 11.4 million bourbon barrels of aging spirits in Kentucky, the largest amount in the industry's 200-year history. Kentucky is the only place in the world that taxes aging barrels of spirits, and distillers are giving a shot at other states for production.

Eric Gregory, the president of the nonprofit KDA, said the "skyrocketing" impact of aging barrel taxes is a cause for concern.

"We're thrilled that our homegrown and historic industry continues to flourish, but these numbers could have been much higher if Kentucky didn't have a major barrier to entry for new distilleries in the form of this barrel tax," Gregory said.

Kentucky Bourbon — The Kentucky bourbon industry hit an all-time high of $5.2 billion.

Kentucky distillers pay more than $285 million in local and state taxes each year. On top of that, they pay over $1.8 billion in federal alcohol taxes.

The state's tax rate is $8.41 a bottle, while California, which leads the country in the number of distilleries, is $3.30.

"Any distiller that wants to locate in Kentucky, they are automatically going to be paying overhead and taxes on a product that is not going to be ready to go for six, seven, eight, nine years," Gregory said.

The KDA said its been working with lawmakers to lower or remove the taxes, but that could come at a cost for other industries.

"We've been working with the legislative task force to try to figure out ways to eliminate that tax or offset that tax while minimizing any impact to local, education and community programs," Gregory said.

Bourbon distillers are also watching the growing competition of tequila. As more celebrities' are backing tequila products or creating their own brands, tequila sales have grown 70% over the last year, Gregory. said

"This year, for the first time ever, Americans will spend more money on tequila and mezcal drinks than they will whiskey," he said.

According to KDA, there are more than 2,400 bourbon distilleries across the country.

"We've got distilleries in 40 counties, which means there's 80 counties out there that could be taking part in the bourbon boom," Gregory said. "And we would like to make that happen. We want to defend our title as the birthplace of bourbon but also stay the one true authentic home for bourbon."