Bourbon warehouse generic aging barrels

Inside Bardstown Bourbon Co.'s distillery (WDRB file photo)

LOUISVILLE, Ky. (WDRB) -- The top official in one of the state's biggest bourbon-producing counties told lawmakers that eliminating Kentucky's tax on aging bourbon barrels — a major goal of the distilling industry — would have a devastating effect on local governments like his.

"I firmly believe this would be an undue burden on my 85,000 residents in my community to have to subsidize an industry that is doing so well," said Jerry Summers, judge-executive of Bullitt County, home to Jim Beam, the world's largest bourbon maker.

Summers spoke Thursday during a meeting of the Kentucky legislature's Bourbon Barrel Taxation Task Force, a committee examining the industry's desire to do away with or dilute the tax, which it calls unfair and uncompetitive.

Bourbon distilleries pay about $33 million annually in barrel taxes, with most of the money going to local entities such as school districts, counties, cities and fire districts, according to the Kentucky Distillers Association.

About $28 million a year is at stake for the local jurisdictions where the bourbon industry is present, Jim Henderson of the Kentucky Association of Counties told WDRB News earlier this week.

The Kentucky Distillers Association, the industry's main trade group, has called on lawmakers to find "a creative solution" to eliminate the barrel tax while also ensuring local governments don't lose out on the revenue it provides.

The industry is in the middle of a $5.2 billion boom in investments including new and expanded distilleries and rickhouses to hold aging barrels. There were 10.3 million aging barrels of bourbon in the state last year, up from 4.6 million in 2009, according to the distillers association.

About 95% of the world's bourbon is made in Kentucky, but the industry says that dominate share could "slip away" to states like Tennessee where the industry is taxed less.

Summers said Bullitt County is expecting more than 30 new rickhouses between Jim Beam and Four Roses alone. Last year, the county used its general tax revenue to fund $350,000 in road projects related to distilleries, he said.

The surge in bourbon investment means more jobs and taxable property, which should mean that county coffers grow.

But in practice, barrel tax is one of the few ways local governments actually share in the industry's growth, Summers said.

Bullitt County doesn't have an occupational tax on wages. The big bourbon makers are often multinational companies who insure themselves, so the county has no insurance premiums to tax.

And cities and counties have also given away their most basic form of revenue — general property taxes — to help the industry.

Bullitt and nearby Nelson and Marion counties have agreed to exempt $2.5 billion in new construction by Beam, Maker's Mark, Heaven Hill, Sazerac, Bardstown Bourbon Co. and other distillers from property taxes for 30 years through the use of industrial revenue bonds, according to Summers' presentation to lawmakers.

"This is what communities have done to support this industry and to keep it viable," Summers said. "…We gave up property taxes for 30 years, but yet we expect something back in return for that investment."

Sen. Chris McDaniel, a northern Kentucky Republican who chairs the Senate budget committee, said during the hearing that it's clear the bourbon industry's desire for tax relief conflicts with the interests of local governments.

"The counties are very worried and rightly so," McDaniel said. "... This is this is a fight that's been picked. We can try to avoid that elephant in the room, but the fact is, that's what it is."

McDaniel added that he doesn't think the state as a whole should be the one to absorb the lost revenue. Kentucky still has "terrible" unfunded pension liabilities, and the Republican-dominated legislature has committed to "work toward a 0% income tax," McDaniel said.

Senate President Robert Stivers, R-Manchester, told WDRB News earlier this week that there is no "definitive path" for lawmakers to follow related to bourbon taxes.

"We don't want to do anything in this task force that hurts the local school system, nor other governmental entities that get income from these taxes," Stivers said. "So we're looking at it from that perspective, with no preconceived agenda. But we also want to do more, if possible, to help the bourbon industry continue to expand and employ more people."

Reach reporter Chris Otts at 502-585-0822, cotts@wdrb.com, on Twitter or on Facebook. Copyright 2022. WDRB Media. All rights reserved.