This commentary is from the Kentucky Distiller's Association and was written by John Rhea of Four Roses Distillery; Jeff Conder of Beam Global Spirits & Wine; Tom Krekeler of Wild Turkey Distillery; Chris Morris of Brown-Forman Corp.; Andrea Wilson of Diageo North America; and David Hobbs of Heaven Hill Distilleries.
Bourbon is a proud symbol of Kentucky craftsmanship and tradition that's hailed around the world. It's a legendary signature industry that creates 10,000 good-paying jobs and pours hundreds of millions into the Bluegrass economy.
It's also a growing, thriving industry in these times of economic hardship. Distillery growth has helped Kentucky weather the global recession by adding 6 percent of new jobs this past decade, while other state manufacturers have shed 19 percent of their employment.
And, there is currently about $100 million being invested in new distillery operations, warehouses, bottling lines, visitor's centers and more. That means more jobs and additional revenue for the commonwealth.
But a discriminatory tax against our industry is restricting further growth.
Bourbon is one of the most heavily taxed industries in Kentucky, with nearly 60 percent of the retail cost of every bottle going to taxes. In fact, Kentucky taxes distilled spirits higher than any open-market states, except Alaska and Illinois — and more than $2.50 above the national average.
There are seven different taxes on every bottle of bourbon, which generate more than $125 million every year from spirits production and consumption. One tax is the ad valorem property tax that's assessed on aging bourbon barrels in Kentucky warehouses.
Last year, distillers paid more than $12 million in ad valorem taxes. It's a tax that no other alcohol manufacturer pays in the United States or around the world. That puts our distillers at a competitive disadvantage in the global spirits marketplace. Here's how:
■ Unlike other spirits, bourbon takes years to age before it can be enjoyed. Some of today's premium Bourbon brands have spent more than 12 years in a barrel.
■ Those barrels are taxed at the local and state levels each and every year, which drives up the production and retail costs of bourbon.
■ Other spirits, like vodka, can be produced and bottled in a matter of weeks, thereby avoiding costly ad valorem taxes.
■ Scotch whiskey — one of bourbon's chief competitors, produced and similarly aged in Scotland — pays no ad valorem tax in its home country.
■ In fact, no other whiskey or aged spirit anywhere else — Irish, Canadian, Japanese — pays such a tax, further penalizing Kentucky Bourbon worldwide.
■ Meanwhile, Kentucky distillers pay millions in ad valorem taxes on a product that won't generate revenue for many years.
■ That ties up important capital and harms their ability to expand and invest — from jobs to equipment, promotion, marketing and tourism.
Last week, members of the Kentucky Distillers' Association testified in support of House Bill 418 before the House Appropriations and Revenue Committee. This is an important measure that levels the playing field for Kentucky bourbon.
This bill, sponsored by Rep. Linda Belcher and co-sponsored by 18 other representatives in bipartisan support, allows distilleries to take a corporate income tax credit that would offset the amount of ad valorem taxes paid each year.
Distilleries would be required to reinvest that credit in their Kentucky operations, which would create local jobs and grow our economy.
This barrel tax reinvestment credit would not take effect until Jan. 1, 2013, so there would be no fiscal impact in the current biennium. More importantly, this proposal keeps our local communities whole.
Local ad valorem taxes help support critical needs in education, health care, libraries and public safety. This bill would not impact that key funding; it simply would allow a corporate tax credit against the ad valorem taxes paid, which then would be reinvested in the commonwealth.
The popularity and appeal of Kentucky bourbon is growing worldwide. It is one of Kentucky's most valuable and recognizable exports and is a growing tourism attraction thanks to the overwhelming success of the Kentucky Bourbon Trail tour.
The ad valorem barrel tax, however, limits distillers' ability to competitively promote their products internationally, which restricts job growth and further economic investment in the Bluegrass.
And, it's particularly harmful to our emerging craft distillers and to attracting that new generation of our industry to Kentucky. We are proud to be the birthplace of bourbon, and the only place in the world where visitors can enjoy the authentic bourbon experience.
But the costly ad valorem barrel tax is hindering our efforts. We ask for your support in addressing this Kentucky-only tax that discriminates against our signature bourbon industry.