The General Assembly returned to Frankfort this week. When they reconvene next Tuesday, there will be 22 legislative days to finish the regular business for the year.

Leadership has consistently signaled this session’s agenda will be limited. After taking the time to consider one issue, the Bluegrass Institute believes tackling the bourbon barrel tax should make the list as a top priority for action before adjourning.

There’s a long list of reasons* why our organization has arrived at this conclusion, all of which will be discussed in future posts.

The first — and most concerning to a limited government think tank like BIPPS — is the impact the discriminatory tax is having on the possibility the next generation of distilling entrepreneurs will get their start in Kentucky.

We’ve reviewed the materials presented from all parties to last year’s interim Bourbon Barrel Task Force. Several slides from the Kentucky Distiller’s Association (KDA) created serious concerns about Kentucky’s competitiveness going forward.

No question, Kentucky continues to be the dominant player in bourbon production. It would be shortsighted, however, to base policy decisions on that fact when there are clear and visible threats to our position as the Bourbon Capital of the World.

This quote from a travel and cuisine author illustrates the unease Kentucky’s industry has been conveying to policymakers:

In their July ‘22 presentation, KDA provided** the following facts:

• The number of distilleries in the U.S. grew 230% since 2015. A significant portion of this growth is happening outside Kentucky.

• 11 states have more distilleries than Kentucky.

• Kentucky ranks 12th in the number of distilled spirits permits in the U.S.

• Kentucky’s share of distilling industry jobs has fallen from 43% in 2009 to 30% in 2021.

The barrel tax is an anti-competitive tax with serious long term ramifications. According to KDA, “no other place in the world taxes aging spirits - except Kentucky.” The trade association argues “No other industry taxes a ‘work in process.’ Aging is part of the manufacturing of Bourbon and the it should not be taxed until it is a finished product.”

The Bluegrass Institute agrees. And, other states are gunning for Kentucky.

Policymakers should take this threat to our state’s signature industry seriously. Or risk waking up one day to realize the next generation of distillers launched their businesses in another state because the General Assembly didn’t act to keep Kentucky competitive.

Part 2 will be posted next week…

————

* BIPPS has raised concerns about the possibility of refundable tax credits. We’re being told this option is not a preferred solution and isn’t under serious consideration to address the problems with the barrel tax.

** Dr. Paul Coomes has conducted economic research for the bourbon industry for years. Coomes research integrity is well known in Frankfort.