In the midst of a bourbon boom, the Kentucky General Assembly has passed a bill to gradually phase out the state’s tax on aging spirit barrels.
Under the new law, the Kentucky barrel tax will be removed over a 20-year period beginning this year. The Kentucky Distillers Association (KDA), representing 52 members, worked with legislators to pass HB5, which was signed by Kentucky Governor Andy Beshear on March 31.
Kentucky is the only place in the world that taxes aging spirits. KDA advocates said the decades‐long tax structure threatened the state’s bourbon industry and caused a loss of industry jobs and distilleries to other states. The state’s share of distilleries nationwide fell from 24% to 6%, and Kentucky’s percentage of distilling jobs dropped from 43% to 30%, according to data cited by the KDA in September 2022. The taxes cost Kentucky distillers $33 million in 2022, the highest amount in history.
But removing the tax was no easy compromise, as the revenue from aging barrels provide funding for schools, cities, counties, libraries and other government agencies. The original bill was modified significantly to put protections in place for agencies that depended on the funds. The final law aims to keep tax rates close to current levels without doubling or tripling as they were projected to do over the next six to twelve years with the expected increase of bourbon production.
“Distillers are protected against an astronomical 525% hike in barrel tax revenue, which would have forced them to make tough business decisions on where to grow,” read a statement from the KDA. “Even with this relief, distilling remains Kentucky’s highest taxed industry, paying $286 million in taxes each year.”
Kentucky produces 95% of the world’s bourbon, including major brands such as Maker’s Mark, Heaven Hill and Jim Beam.
Montana Sunday and Monday Spirit Sales Move Ahead
Montana is one of seven states that prohibits the sale of spirits on Sundays, but a new bill may change that. On April 4 the Montana House of Representatives passed HB867, which would allow spirit sales from state agency liquor stores on Sundays and Mondays. The bill now heads to the Senate.
“The overwhelming majority of states give adult consumers the option to purchase their favorite distilled spirits any day of the week they choose,” said Andy Deloney, senior vice president and head of state public policy for the Distilled Spirits Council of the United States. “Unfortunately, the same is not true for Montanans who are prohibited from making distilled spirits purchases on Sundays and sometimes Mondays.”
Since 2002, 21 states have passed laws permitting Sunday sales of distilled spirits, bringing the total to 43 states. Alabama, Montana, Mississippi, North Carolina, South Carolina, Texas and Utah prohibit Sunday sales.
Massachusetts Extends Cocktails To-Go
Last week Massachusetts joined a number of states that have extended laws allowing restaurants and bars to sell cocktails-to-go. Governor Maura Healey signed HB 58 on March 29, which extends the pandemic-era law until March 30, 2024.
The law was established in 2020 to give restaurants and bars another revenue channel when dine-in service was restricted.
Since the beginning of the pandemic, 18 states and the District of Columbia have enacted laws to permanently allow cocktails to-go. Fourteen others, now including Massachusetts, have temporarily extended laws to allow cocktails to-go, and several more are still considering legislation.