Bourbon distilleries to get income tax credit for property taxes paid on aging barrels

Barrel tax credit celebrated in bill signing ceremony

FRANKFORT, Ky. (April 15, 2014) – There are more barrels of bourbon aging in Kentucky right now than there are people living in the Bluegrass state – and every one of those barrels has long been taxed as property. Today, Gov. Steve Beshear joined distillery industry representatives to ceremonially sign House Bill 445 that, among other things, gives distilleries relief from the ad valorem taxes levied every year on aging bourbon barrels.

Beginning in 2015, Kentucky distilleries are set to gain an income tax credit for the state and local property taxes paid on aging barrels of bourbon. Distilleries are required to invest the barrel tax credit in capital improvements, including construction, renovation, tourism related facilities and equipment.

“I have long supported giving the industry a tax credit to offset the barrel tax, and this action allows us to support our bourbon industry without reducing local property taxes to school districts or local communities,” Beshear said. “Bourbon is our heritage and very much a part of our tourism and economic development future. It’s important that we support this signature industry so it continues to grow and be competitive.”

The distilled spirits income tax credit will be phased in at a rate of 20 percent annually over the next five years. The entire credit will be available beginning in 2019. In 2013, the barrel tax generated approximately $14 million in state and local property taxes.

“Bourbon is a true signature industry, but it’s been treated unfairly for generations with this tax,” said Senate President Robert Stivers. “With all the recent growth and investment, especially with the Kentucky Bourbon Trail, this was the perfect time to act. Distillers will use this tax credit to create jobs and produce more product, which helps the Kentucky economy. It’s good for distillers, it’s good for business and it’s good for the commonwealth.”

“This bill should be considered a clear, positive step related to the Governor’s ‘Kentucky Competes’ Tax Reform plan, and I think its passage indicates that Kentuckians are ready for progressive action on a modernized tax structure,” said Rep. Rick Rand of Bedford.

The bill is one of the “most monumental pieces of legislation in the history of Kentucky’s signature Bourbon industry,” said Eric Gregory, president of the Kentucky Distillers’ Association.

“This reinvestment tax credit will allow our distilleries to create more jobs, increase investment and better compete in the global marketplace,” he said. “Plus, it will help attract more craft distilleries and strengthen Kentucky’s rightful place as the one, true and authentic home for bourbon.”

In addition to the barrel tax credit, several other provisions in House Bill 445 create jobs and modernize the state’s tax code. Some of those provisions include the angel investor tax credit, the expansion of the New Markets tax credit, and advanced deposit wagering.