Lexington Brewing & Distilling Company

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FILE: The barrel room at Lexington Brewing & Distilling Company. Legislators on the Bourbon Barrel Taxation Task Force say they want to strike a balance between the success of distillery companies and the needs of Kentucky communities where they operate.

FRANKFORT — Legislators on the Bourbon Barrel Taxation Task Force say they want to strike a balance between the success of distillery companies and the needs of Kentucky communities where they operate.

The task force held its third meeting of the year on Thursday, hearing from county officials about the barrel tax’s impact on local coffers.

Lawmakers established the panel earlier this year to study the tax structure on bourbon barrel sales and propose ways to increase revenue while also boosting jobs. Task force members are expected to report their findings in December, ahead of the 2023 legislative session.

One legislator, House Majority Whip Chad McCoy, R-Bardstown, who is also co-chair of the task force, said the state must look to the future to remain successful in the industry. He said one large distillery in Kentucky has already moved to Texas, and he fears another could move as well.

“I just, in my heart, believe that Kentucky can be so amazing, but we have been so reactive in our history rather than being proactive,” McCoy said. “I just keep coming back to my little town of Bardstown – Bourbon Capital of the World, trademark. We will lose that Bourbon Trail if we don’t continue to bring in those new folks who are not in this room, who are not here, who are not yet impacted by this.”

Sen. Christian McDaniel, R-Taylor Mill, said no tax structure is perfect, but everyone must work together for success.

“Any taxation structure, a county’s taxation structure or corporate taxation structure or whatever it is, is a structure for a reason,” he said “And that reason is you’ve got to look at it as a whole. If you pick out any given tax, you can find your flaw in anything, very simply.”

McDaniel said both distillery firms and governmental entities are important, and he encouraged both sides to look for solutions. He also cautioned that the state general fund and the budget reserve trust fund are not an answer to disputes over the tax structure.

During Thursday’s meeting, lawmakers heard from Jim Henderson, executive director of the Kentucky Association of Counties, and Jerry Summers, judge-executive of Bullitt County.

Summers told the panel that, since 2012, counties have provided about $2.5 billion in financial incentives to distilleries based on the expectation of the future barrel tax revenue. He also cited concerns about some costs associated with infrastructure near distilleries in Bullitt County.

“Last year alone, to repair the roads for the construction for the distilleries in our community, we spent close to $350,000 out of our general fund,” Summers said.

Henderson said, though nothing is set in stone yet, abolishment of the tax would be tough for some counties. KACo estimates that the barrel tax generated more than $10 million in revenue for local taxing districts in 2021, not including schools.

“There’s just no other way to say it, but that it does put a hole in the budget of our counties, our schools, our cities, our fire departments, our sheriff’s offices, and we just have to acknowledge that is a fact, unless there’s something else,” he said.

Henderson argued that the simple solution is to leave the tax as it is.

Last month, task force members heard from representatives of the Kentucky Distillers’ Association who voiced concerns that Kentucky needs to take steps to ensure the viability of the bourbon industry.

They argued that the amount of barrel taxes paid by the industry has increased from $10.7 million in 2009 to $33 million today. That creates a barrier for new distillers wanting to establish their operations in Kentucky, they said, and that other states are structuring taxes in a more competitive way.

The next meeting of the task force is scheduled for Sept. 23 at 10 a.m.

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