According to a new report by the Kentucky Distillers’ Association (KDA), Kentucky distillers are steadily churning out more bourbon despite suppression by increasingly high production costs.
The data for the report, released Wednesday, was drawn from the inventories recorded as of January 1, 2023 and submitted to the Kentucky Department of Revenue for tax purposes. It reveals that Kentucky hit a new milestone, with 12.6 million barrels of bourbon currently aging in the state — nearly three times its population.
But while the number of newly filled barrels of bourbon in Kentucky grew three percent last year, the state’s distillers are now paying four times as much in barrel taxes. Inflation and high production costs both contributed to the massive increase in taxes, causing them to surpass $50 million this year — a record 30 percent increase over the previous year.
“Last session, Kentucky’s family of distillers made the argument that disaster was coming for the home-grown industry if elected officials didn’t do something to rein in the ever-growing discriminatory barrel tax,” KDA president Eric Gregory said in the report’s press release. “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.”
Total new production increased slightly to 2.7 million barrels, and total inventory including all spirits was another record 13.3 million. Barrel taxes have more than doubled in the last five years, and since 2010, they have skyrocketed 316 percent — and continue to escalate at an unsustainable rate.
In order to counteract the looming tax issue, the state signed House Bill 5 into law earlier this year. This bill phases out the barrel tax over 20 years while protecting funds for schools, fire departments and EMS districts, and gives local governments plenty of time to plan and diversify their tax base.
“Everyone recognized that the astonishing tax liability distillers are facing is unsustainable and would be for any business,” Ashli Watts, president and CEO of the Kentucky Chamber of Commerce added. “Without our signature industries, like bourbon, Kentucky will lose.”
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