Bourbon barrel tax repeal means local governments across Kentucky will need to adjust
Kentucky’s $9 billion bourbon industry is celebrating a law eliminating a property tax they say prevented industry growth in the state. House Bill 5 was signed into law by Gov. Andy Beshear last month. The law slowly phases out a property tax on bourbon aging in warehouses in over 25 counties in the state beginning in 2026 before being eliminated completely by 2043.
Opponents of the law say local communities will be impacted by the loss of revenue generated by the tax that helps fund essential services. They've also criticized industry officials for asking for a tax break while reporting historic growth and revenue.
Bardstown Mayor Dick Heaton spoke against the measure at the special committee meeting in Frankfort during the General Assembly. He was one of several county officials who stands opposed to the tax they say will eliminate revenue that’s vital for essential services.
Heaton said while the tax will be gradually repealed over an extended period of time the law will create ramifications in the future.
“That 3% (decrease) a year hopefully won’t kill us, but once it goes to zero that’s going to be a significant number,” Heaton said. “So I don't think in four years' time it will be a major problem, but in 20 years' time it definitely will be.”
Under the law, the property tax on spirits as they age inside barrels would gradually decrease by roughly 5% every year until being eliminated completely in 2043. The law also adds an agreement requiring distillers to make payments in lieu of lost tax revenue to local governments for funding of school and emergency services.
According to Mayor Heaton while the agreement was reached to secure funds for schools and emergency services municipalities will have to pivot regardless to account for the loss of revenue under the new law.
“We have held off passing other taxes because we have had the advantage of the bourbon barrel tax well that will change going forward,” Heaton said.
The Bardstown Mayor said that infrastructure projects, such as improved water lines and waste treatment, that have totaled nearly $30 million are in progress in the city to provide for the needs of the distilleries. Funding for these projects comes largely from taxpayers.
At one time the mayor was happy to provide infrastructure improvements if it meant it could attract new distillers to his city, which brought an increase in revenue through the barrel tax.
Heaton said now that the tax is going away he's more critical of the stress the distilleries put on his community.
"In a pretty short window of time, you've got a town like Bardstown that will have spent over $30 million dollars on infrastructures," Heaton said. "The distilleries are not totally responsible for that but they're responsible for more than their share. Four distilleries will consume 25% of the water cap."