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Kentucky considers bourbon tax credit bourbon

By Adam BeamAssociated Press

FRANKFORT - 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 state revenues by $14 million.

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