Kentucky lawmakers debate future of bourbon barrel tax with millions in tax benefits on the line

LOUISVILLE, Ky. (WDRB) -- Kentucky lawmakers are considering an update to how the state makes money off aging bourbon.

Right now, distilleries pay a distilled spirits tax on each barrel of bourbon aging each year — essentially a property tax — which goes to local entities. The largest chuck from the tax benefits school districts in those counties.

The Bourbon Barrel Tax Task Force in Frankfort started discussing the nuances of the tax this summer.

"You can't sell it, you can't move it for several years, but it's still being taxed," Senate President Robert Stivers, R-Winchester, said.

Stivers, the co-chair of the task force, said the tax is only in the discussion phase. There's no set plans to remove it at this point.

"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."

In July, Kentucky Distillers' Association shared information about how the tax discourages further growth.

"The KDA and its members support tax reform options that minimize impacts on local schools and county services while removing barriers to entry for new distillers," KDA President Eric Gregory said in a statement to WDRB News.

The task force will hear from concerned parties Wednesday like Jim Henderson with the Kentucky Association of Counties.

"Our simple position is don't do it," Henderson said, adding that the projected revenue loss based on 2021 data is $28 million dollars total.

"This is a tax that happens to exist," he said. "It's one that counties have grown dependent on in these counties where bourbon is big and expanding."

Bullitt County Schools agreed and said it received $2.6 million in tax revenue.

"This revenue alone is the third largest contributor to our general fund, behind only property and motor vehicle taxes," Bullitt County Public Schools said in a statement to WDRB News. "Without this dedicated revenue stream, we would be forced to eliminate important programs and supports that positively impact our students, families, and community."

Stivers said, so far, there aren’t any alternatives proposed to make up the potential millions if the tax goes away. It's a revenue gap Henderson will hope to point out in further detail to the task force.

"I think everybody's on the same side with regard to believing that it's important to continue to promote the thriving bourbon industry," he said. "We just don't want that to happen at the expense of counties or cities or schools or anybody else."

There's still at least two more meetings scheduled throughout the end of the year to continue discussing options.