FRANKFORT, Ky. (AP) — Kentucky has more barrels of bourbon than it does people - and soon those barrels could be aging tax free.
State lawmakers have voted to effectively eliminate a tax on aging barrels of distilled spirits in a nod to one of the state's signature industries that is quickly becoming a tourist attraction.
For years, Kentucky distillers have had to pay a tax every year for every barrel of bourbon it has aging in a warehouse - the only such tax in the country.
Kentucky still manufactures 95 percent of the world's bourbon because it is home to major corporations that make bourbon in bulk. But smaller, craft distilleries have been opening in other states to avoid Kentucky's bourbon tax, according to Eric Gregory, president of the Kentucky Distillers' Association.
"There are more distillers in downtown Portland than there are in Kentucky right now," Gregory said. "Who is to say one of these startup distillers in a few years won't be the next Makers Mark or Woodford Reserve?"
Kentucky distillers have increased their inventories of aging bourbon to more than 6.9 million barrels in 2013 from 5.8 million barrels in 1999. Kentucky tax collections have more than doubled during that time, to $13.8 million from $6.3 million.
But efforts to eliminate the tax have stalled over the years because the state relies on those taxes to pay for public education.
This week, lawmakers approved a tax credit that will offset the cost of the tax, effectively eliminating it for distillers. Distillers still pay the tax, and the money still goes to public education. But distillers get the money back in the form of a tax credit that will eventually reduce overall state revenues by $14 million.
The tax credit is part of a bill lawmakers passed this week setting revenue collections for the next two years. It will become law unless Democratic Gov. Steve Beshear vetoes it. Kerri Richardson, the governor's spokeswoman, said the governor is still reviewing the bill and has not decided if he will veto it. But she noted the governor has supported similar tax credits in the past.
But distillers can't pocket the savings as profit. Instead, they have to spend any savings from the tax credit on reinvesting in their Kentucky facilities. Specifically, the law allows distillers to spend the money to build a "visitor's center" to promote tourism.
Since 1999, the Kentucky Distillers' Association has marketed a "Bourbon Trail" highlighting the state's distilleries. More than 2.5 million people have visited the trail in the last five years, according to the association's website. Republican Senate President Robert Stivers said the booming tourism industry has helped garner more support for the bourbon industry in a state that has several counties where it is illegal to purchase alcohol.
"Times have changed," Stivers said. "It used to not many people were interested in helping the bourbon industry and now it's become much more attractive, not only from the sales but the way the Bourbon Trail has kind of developed."