Bourbon’s Economic Impact Booms in Kentucky

February 6, 2019 – Ten years ago, leaders of Kentucky’s Bourbon industry staged a protest at the Capitol in Frankfort by pouring their whiskey on the steps to protest yet another tax hike on spirits by the Commonwealth’s lawmakers. They also put the wheels in motion for a better way to make their case to the politicians – by proving their impact on Kentucky’s economy.

Today, many of those same industry leaders were welcomed inside the Capitol to present the fifth in a series of biennial economic impact studies conducted by University of Louisville researchers for the Kentucky Distillers Association. That report found more than 20,000 jobs either directly or indirectly linked to Kentucky’s distilling industry with an annual payroll of around $1 billion. When the researchers calculated how that payroll works its way through the economy along with spending on capital projects, raw materials, and other operating costs, they found an overall economic output of $8.6 billion annually.

By way of comparison, the first study in 2009 found 9,848 jobs with links to the distilling industry with around $442 million in annual payroll spending. While the industry employs around 5,000 people directly, the indirect employment covers farmers, cooperage workers, trucking and logistics company workers, bankers, and even marketing firms – not counting the impact of the distilling industry on tourism-related jobs such as restaurant and hotel staffs.

“As you look at the employment spinoff factor, there’s like four other folks that are impacted by everything that’s happening here,” KDA director Kevin Smith of Beam Suntory told WhiskyCast. “The Bourbon boom’s massive economic impact, as we’re calling it over the last ten years has been significant,” he said in a telephone interview.

It should be noted that the report is based on data collected before retaliatory tariffs on American whiskey exports were imposed last summer by the European Union, Canada, Mexico, China, and other countries after the Trump Administration imposed its own tariffs on imported steel and aluminum from those trading partners. Kentucky distillers exported around $381 million in whiskies during 2017, with nearly half of that to countries now imposing tariffs on those exports.

Maker’s Mark Chairman Emeritus Bill Samuels Jr. was part of that Capitol protest ten years ago.

“Kentucky and its citizens have been the big winners since the General Assembly reversed course and began reducing taxes and eliminating Prohibition-era regulations on the spirits industry,” he said in a statement issued by the KDA. “This new economic impact study proves that conclusively.”

State officials, keeping in mind the $235 million in local and state tax revenue Kentucky’s distillers generate each year, lauded the report while highlighting their own efforts to pass tax reforms and remove restrictions affecting the Bourbon tourism business. The most recent changes cleared the way for distillery visitors centers to offer cocktails instead of just small samples and permitting out of state visitors to have bottles shipped home if their home state allows for it.

According to State Senate President Robert Stivers, “every time we pass legislation that takes the regulatory shackles off this legendary industry, our Commonwealth sees record investment, jobs and growth. That’s a return on investment that makes for sound public policy.”

Stivers and his colleagues in the General Assembly will be asked to do even more for the Bourbon industry this year. The KDA wants to see updates in a 2014 law that allows distillers to take a credit against their corporate income taxes for the “barrel taxes” they pay to local governments on maturing inventory. With increasing production and last year’s cut in the state’s corporate income tax, distillers are paying far more in barrel taxes than the credits they can take and the 2014 legislation did not allow for tax refunds or a transfer of those credits to contractors or other third parties.

In addition, the KDA may face a battle with one of their key partners in the Bourbon boom – retailers. House Bill 200 would end the state’s ban on so-called “distillery exclusive” bottlings. Currently, if a distiller wants to sell a unique whiskey at its visitors center, it has to make that same whiskey available to in-state retailers. KDA President Eric Gregory told WhiskyCast that would bring distilleries in line with Kentucky’s wineries and breweries, and the issue is one of parity. The Kentucky Association of Beverage Retailers, which represents the interests of local liquor store owners, has come out in opposition to the bill.

The industry also has a public policy goal in mind. According to Smith, the KDA is encouraging lawmakers to pass legislation aimed at increasing the use of ignition interlock devices by those convicted of driving under the influence. “Right now, the law requires repeat offenders to have them…we’d like to see that so hey, if you get a DUI, let’s get you back into a right mind-set here and do the proactive thing. The reality is that we want people to use our products responsibly, and unfortunately, sometimes people make bad decisions…this helps that. It doesn’t solve it, but it helps that,” he said.

Given that this year’s General Assembly session is an abbreviated one, Smith believes there may not be enough time for lawmakers to accomplish all three objectives. He projected the barrel tax credit reforms may have to wait for a special session or until next year’s session because of the complexity of that proposal.

The Kentucky Distillers Association represents most of the Commonwealth’s whiskey and spirits distillers, with the exception of Sazerac’s Buffalo Trace, 1792 Barton, and Glenmore distilleries. The entire report is available to download from the KDA’s web site. 

Editor’s note: This story has been updated to reflect that the Kentucky Association of Beverage Retailers opposes House Bill 200. We have more coverage of this story available at WhiskyCast.com. 

Links: Kentucky Distillers Association