Tax Analysts Blog

I'll Raise a Glass to Lower Booze Taxes

Posted on Apr 9, 2014

For the uninitiated, bourbon is a type of whiskey distilled from corn. Bourbon can be expensive; Black Maple Hill sells a bottle for $125. Or it can be cheap; I’ve seen it for $8 a bottle. But whether expensive or cheap, it is almost always from Kentucky. In fact, 95 percent of all bourbon in the world is produced in Kentucky. And nine of the top 10 bourbons are from Kentucky -- the lone exception curiously is produced in Utah. Some of the Kentucky bourbon brands are household names: Jim Beam, Wild Turkey, and Maker’s Mark. Jack Daniels is not bourbon, by the way, but Tennessee whiskey. There is apparently a difference, but frankly, after the first glass, I can never tell.

In any event, the Kentucky governor just signed a bill (HB445) giving a big tax break to bourbon producers. The measure will allow distilleries to take a nonrefundable corporate or individual income tax credit against the amount of barrel taxes paid. Kentucky imposes a weird tax on barrels of bourbon produced. It is not a consumption tax, but rather a production tax. There is no real reason for imposing the tax other than to get money. The tax is essentially an excise devoid of a rationale other than that there are a lot of bourbon makers and thus a lot of barrels of bourbon. The tax raises about $13 million a year, which is distributed to education, healthcare, libraries, and public safety. You would think that those services are important enough that their funding would not be dependent on a narrow tax on the alcohol industry.

The bourbon folks have wanted to repeal the tax since, well, forever. But because the tax is being used to educate the youngsters, it’s not possible. So the pols in Kentucky did the next best thing: They essentially eliminated the tax by giving the distilleries income tax credits for the barrel tax paid. If you think about that for five minutes, you will realize how ridiculously contrived it is. Why not just repeal the dumb tax and replace the revenue with money from the general fund? That’s what they are doing.

By the way, the barrel tax credit scheme was part of a bill that included tax breaks for historical preservation (a silly idea); a reduction of the wholesale tax rate on beer, wine, and distilled spirits (a wonderful idea); and an extension of the film industry tax credit for two years (a dumber idea has never been proffered). Still, in the end, indirectly lowering the tax burden on bourbon distillers is worth raising a glass over.

Read Comments (2)

edmund dantesApr 8, 2014

So, how much of the tax break will pass through to the retail level? Even ten
cents? Probably not, as Jack Daniels already sells at a premium to Wild Turkey
and Jim Beam. I agree with you, I can tell the difference on the first drink,
but not on the second.

Here's a note on repealing the Hollywood tax cuts:

emsig beobachterApr 8, 2014

I'll drink to this!

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