Bourbon distillers face tax bills, higher tariffs after record year

WASHINGTON – For the first time there are more than 10 million barrels of bourbon aging across Kentucky, and distillers set records by filling nearly 2.5 million barrels in a single year.

That all sounds like a triumph for America’s native whiskey. Yet bourbon producers are contending with trade fights that hurt sales and a pandemic that is hampering tourism. Bigger tariffs are in store later this year.

There’s also a hefty, one-of-a-kind tax bill due.

Distillers in Kentucky are slated to pay more than $33 million in aging barrel taxes in 2021 alone. That figure is 140% higher than it was 10 years ago.

“This is truly a historic and landmark record but that milestone comes with a cost,” Eric Gregory, president of the Kentucky Distillers’ Association, said about the record production and tax rates. Because bourbon-aging barrels are considered property, they are subject to property tax in Kentucky, Gregory said.

“Every year that barrel ages, it is taxed again and again and again and again,” he said. “If you’re drinking a bottle of 18-year-old Elijah Craig, that whiskey from that barrel had been taxed 18 times before it was bottled.”

“No other place in the world does this, they don’t do it in Japanese whiskey, or Canadian whiskey or Scotch whiskey or Irish Whiskey or even Tennessee whiskey. We’re the only place in the world that taxes aging barrels as spirits,” Gregory said.

The tax puts Kentucky distillers at a competitive disadvantage, he added: “Not only does it raise prices, but that is important capital that we could be using to invest here in Kentucky.”

In addition to the aging-barrel taxes, Kentucky distillers are set to pay approximately $300 million in state and local taxes and another $1.8 billion in federal excise taxes on alcohol.

Then there are the tariffs.

Since the entirety of bourbon production can only occur within the U.S., per a 1964 congressional resolution that called it a “distinctive product of the United States,” a tariff on the drink comes across as a strategic political punch to Kentucky, which is represented by Sen. Mitch McConnell, the top Republican in the Senate.

Kentucky’s unique climate and pure limestone water is why the Bluegrass State is considered the birthplace of bourbon, responsible for 95% of the world’s supply of bourbon. Kentucky’s bourbon business employs approximately 20,100 workers and generates a smooth $8.6 billion annually.

“No other country in the world can produce a whiskey and call it bourbon. So when you’re looking at something to target that is uniquely American and can’t move its production overseas, bourbon is a good target,” Gregory explained. “There are no winners in trade wars, only…