Despite setting new records (see above), Kentucky Distillers Association President Eric Gregory says there are two clouds overhanging Kentucky distillers.
The first is taxes. Bourbon production has skyrocketed more than 350 percent since the turn of the century, triggering a $2.3 billion building boom, expanding production and warehouse capabilities and pioneering advanced visitor centers that are significantly elevating Kentucky’s tourism profile.
But distilling remains the highest taxed of all 532 industries in the state, Gregory said, and distillers this year are paying a record $25 million in barrel taxes, a discriminatory tax that hampers growth and investment.
The tax-assessed value of all aging barrels is now $3.4 billion, double the rate since 2009.
Kentucky is the only place in the world that taxes aging barrels of spirits. This discriminatory inventory tax on Bourbon is already having an impact on the number of distilleries locating in the Commonwealth, which now ranks 13th in the country in the number of operating distilleries, Gregory said, adding:
“Kentucky needs to protect its signature industry and not let it become economically uncompetitive and disadvantaged for tax and regulatory reasons,” Gregory said. “Kentucky cannot afford to lose its historic distilling monopoly.”
The Kentucky General Assembly passed the Bourbon Barrel Reinvestment Credit in 2014, which sought to offset the barrel tax by giving distilleries a credit against their corporate income taxes and requiring the money to be reinvested in their Kentucky facilities.
The credit has helped spur tremendous growth, Gregory said, but rapidly increasing barrel taxes are now far outpacing the amount of corporate income tax credit that’s allowed, particularly since the legislature lowered the corporate rate last year.
Gregory reiterated the call for lawmakers to make the credit refundable. “Just think of the jobs, revenue and investment we would create and attract if distilleries could realize the full benefit of the barrel credit,” he said.
The second issue is escalating tariffs and never-ending trade wars which continue to pose serious threats to global exports of Kentucky Bourbon, especially to EU countries, the largest market.
Kentucky Bourbon exports had been increasing an average of 25% a year since 2016, but have dropped 20 points through August of this year. EU exports, which had been averaging 38% growth, have plummeted to -1% through August compared to the same time last year.
“Kentucky Bourbon is collateral damage in a trade dispute that has nothing to do with us,” he said. “While we remain hopeful for a resolution soon, the impact on our industry, our partners and our farm families is significant and growing.”