Phasing Out the Bourbon Barrel Tax Would Be A Win for Kentuckians

Thanks to the leadership of Senate President Robert Stivers and House Speaker David Osborne, all Kentucky income taxpayers are now keeping more of their hard-earned money. 

President Stivers, Speaker Osborne, and many other lawmakers used the 2022 legislative session to put the individual income tax on the path to zero. That historic victory for taxpayers has already reduced the state income tax rate from 5 percent to 4.5 percent, and a recent authorization vote from the General Assembly will allow the rate to be reduced again, down to 4 percent, in 2024. This pro-growth tax cut is providing much-needed relief to individual taxpayers, families, and small businesses across Kentucky while ensuring Kentucky remains an attractive place to live, invest, do business, and raise a family in the economy of tomorrow.

Making this great news even better, Kentucky lawmakers now have the opportunity to build on this accomplishment by phasing out the bourbon barrel tax. House Bill 5, which has been approved by the House of Representatives, would begin phasing out this harmful tax on production in 2026 and eliminate it by 2039. Kentucky is the only state that imposes such a tax. 

“This pro-growth reform would remove Kentucky’s competitive disadvantage and send a strong signal to distillers across the country that the Bluegrass State is open for business,” wrote Grover Norquist, president of Americans for Tax Reform, in a recent letter to Kentucky lawmakers. “HB 5 would build on your recent accomplishments and compliment your goal of making Kentucky a low tax, pro-growth state. It would attract investment and ultimately generate new jobs, higher wages, and better opportunities, making HB 5 a huge win for all residents of Kentucky.”

To read the full letter, click here.

March 15, 2023

To: Members of the Kentucky Senate

From: Americans for Tax Reform

Re: Support House Bill 5

Dear Senator,

On behalf of Americans for Tax Reform and our supporters across Kentucky, I thank you for your strong commitment to taxpayers. The pro-growth income tax relief you all have delivered in recent years will allow individual taxpayers, families, and small businesses across Kentucky to keep more of their hard-earned money at a time when they need it most. 

Reducing and phasing out the income tax will also ensure Kentucky remains an attractive place to live, invest, do business, and raise a family in the economy of tomorrow. Thanks to your continued hard work, Kentucky’s future will be brighter.

I encourage you to build on this historic victory for Kentuckians by supporting House Bill 5, legislation that would phase out the bourbon barrel tax over the next 17 years. HB 5 compliments your efforts to give Kentucky a glowing reputation as a pro-taxpayer, business friendly state.

Under the status quo in Kentucky, distilleries must pay taxes on aging bourbon barrels. This tax on production is not imposed in any other state, and is only imposed on the bourbon industry in Kentucky. Not a single other manufacturer in the Bluegrass State is forced to pay such a tax on goods that are being produced.

In 2022, this harmful tax cost distilleries more than $39 million! Distillers could move just across state lines to Indiana, Ohio, or Tennessee and be able to invest that money in new jobs, higher wages, and their business operations. 

This may well be a big part of why Kentucky has fallen from having 25 percent of all distilling permits across the country 10 years ago to less than 3 percent today, and is home to just 128 of the 4,450 distilled spirits licensed operations nationwide. Kentucky’s bourbon barrel tax clearly demonstrates the reasons economists and tax policy experts view production taxes as unsound policy.

Fortunately, HB 5 would address these concerns by starting to phase out Kentucky’s bourbon barrel tax in 2026 and eliminating it by 2039. This pro-growth reform would remove Kentucky’s competitive disadvantage and send a strong signal to distillers across the country that the Bluegrass State is open for business. 

HB 5 would build on your recent accomplishments and compliment your goal of making Kentucky a low tax, pro-growth state. It would attract investment and ultimately generate new jobs, higher wages, and better opportunities, making HB 5 a huge win for all residents of Kentucky.

ATR supports HB 5 and urges you to vote YES.

Sincerely,

Grover Norquist
President
Americans for Tax Reform