LOUISVILLE, Ky. (WDRB) -- A record number of bourbon barrels are aging across Kentucky right now, pouring millions of dollars into Kentucky counties. But lawmakers are considering a change that would impact how much those counties receive. 

Distilleries pay a distilled spirits tax on each barrel of bourbon for each year it ages. Bourbon must be aged for at least two years, but many distillers keep barrels aging for four or more years.

The millions in revenue generated from the tax benefits public school districts and county services, such as emergency services and road maintenance.

On Monday evening, the Nelson County Courthouse was filled with firefighters, sheriff's deputies, school superintendents and elected officials from across several counties.

House Bill 5, filed this legislative session in Kentucky, would repeal the distilled spirits tax. It's a fee that every distiller pays for every bourbon barrel every year it sits in a rickhouse.

Andrew McNeill with Bluegrass Institute supports the bill, which could phase out the tax incrementally starting in 2026 until it reaches 0% by 2039.

"Kentucky needs to remain competitive," said McNeill. "Do it in a way that local governments and local county judges, local fiscal courts, can plan and manage for a slow decline of this revenue stream."

The Kentucky Distillers' Association said the tax puts the state at a competitive disadvantage and is bad for business.

McNeill believes the 16-year runway is long enough for elected officials to make decisions, and that the bill would spur more investment.

"A responsible and effective judge-executive with the surge in revenue that will be witnessed as a result of the way that House Bill 5 is designed, and with that period of time to effectively manage how to take care of the services they need to take care of during this period of the phase-out of the bourbon barrel tax," McNeill said.

The KDA argues most communities would see no reduction for the next 10 years.

"The first few years, we're not going to lose any revenue, just as a fiscal court," Nelson County Judge-Executive Tim Hutchins said. "But the smaller cities, and the cities of Bardstown and Loretto, people that don't have any growth because they don't have anywhere else to build warehouses, they'll start sliding immediately."

In Nelson County, if the bourbon barrel tax were to drop to 0% immediately, that would mean a revenue hole of $6 million.

"And we start laying off. And losing ambulances, and fire trucks, and police cars and 911 dispatch centers," EMS Director Joel Prewitt said.

Wes Bradley, the Nelson County Schools Superintendent says the district counts on $5 million from the bourbon industry each year. He said there are mechanisms in place so that schools would still be funded, but if the tax was repealed, the burden could fall on local residents.

"Of that $5 million, about $2.2 million would be paid, actually, by the state. The additional almost $3 million would be paid by every other property owner in Nelson County," Bradley said.

Pam Thomas with the Kentucky Center for Economic Policy told the crowd that the state legislature has made economic reforms to help the bourbon industry over the past decade. However, the bourbon barrel tax stayed. She points out that nearly 12 million bourbon barrels are sitting in rickhouses across the state, despite the fee.

"It (the tax) simply allowed communities like your community experiencing the growth to provide the roads, the work growth, the land and services the industry's existence relies on," Thomas said.

State Sen. Jimmy Higdon (R-Lebanon) wonders why the tax repeal is even necessary.

"Last year, we had 70 announcements, 70, of new distilleries coming to Kentucky, and $2.8 billion in investments," Higdon said. "That's a lot of money. That's a lot of people. So, the bourbon industry is alive and well."

He does not support HB 5, which is sponsored by Rep. Jason Petrie (R-Elkton) and House Speaker David Osborne (R-Prospect.)

The Kentucky Distillers' Association said bourbon is a $9 billion industry and attracts millions of visitors.

The legislation is making its way through Frankfort and will head to the House Appropriations and Revenue Committee next.

Officials in attendance at the meeting, including the Nelson County Judge-Executive and Superintendent, hope to work with the KDA and lawmakers on solutions other than HB 5 to help the bourbon industry.

It's not clear if there's a plan to help the entities that depend on the money, but Nelson County may stand to lose the most as Kentucky's bourbon capital. 

“Eliminating the job-killing inventory tax on aging barrels requires consideration of the distilleries that pay it and the local communities that benefit from it.

Kentucky Distillers' Association released a full statement on behalf of its 52 member companies in regards to House Bill 5:

Kentucky’s signature Bourbon industry believes the phase-out schedule in House Bill 5 ultimately benefits local communities across Kentucky by more than doubling the industry’s tax before any reduction occurs.

In fact, most local communities will see no reduction from current revenues for at least the next 10 years.

While the bill will initially and significantly increase our tax liability, we appreciate the leadership of A&R Chairman Jason Petrie and Speaker David Osborne to put forth a proposal to slowly phase out the discriminatory tax.

The success or failure of House Bill 5 will determine whether Kentucky's distilling industry continues to call the Commonwealth home, bringing jobs and tax revenue as it grows, or whether it is forced to look at other states for future growth or even potentially relocating existing facilities.

Thank you to the legislature for addressing this crisis. It is imperative that the Kentucky General Assembly end the tax on a $9 billion homegrown industry that employs 22,500 Kentuckians and attracts millions of tourist visits to Kentucky each year.”

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