Year of Publication



Martin School of Public Policy and Administration

Date Available


Degree Name

Master of Public Financial Management

Committee Chair

Dr. Caroline Weber

Committee Member

Dr. John Foster

Committee Member

Dr. Rhonda Trautman

Committee Member

Iuliia Shybalkina

Executive Summary

This paper will look at the impacts of barrel tax reform within the state of Kentucky and the impact of the sunsetting of such an important revenue generator for the Commonwealth given the recent passing of Kentucky House Bill 5 (HB5) on March 31, 2023. It will provide a brief history of the bourbon industry, how Kentucky became known as the homeland of bourbon, some background as to what the barrel tax is and why the tax was needed in the first place, and provide some context as to how the tax was assessed, how much it amounted to, and how the Commonwealth came to rely on this income to fund key programs, like public education. “There has been great debate around Barrel Tax relief,” and the debate has been around for years, therefore, the paper will dive into both the proponents’ and opponents’ viewpoints and arguments that have remained steadfast over the years.  Opponents o HB5 further rewards a thriving industry where tax breaks are not needed; o Prioritizes the bourbon industry over much-needed investments in education, healthcare, disaster relief, and other critical needs; o The construction of bourbon aging warehouses in many cases was subsidized with the issuance of industrial revenue bonds (IRBs);  Warehouses financed by IRBs no longer required property tax to be paid for the duration of the bonds (30-40 years);  Bonds were issued with the hopes that the barrel tax would continue to grow, offsetting the lost property tax revenue;  Over $2.5 billion in IRBs were issued.  Proponents o The barrel tax is discriminatory in that no other state levies such a tax on aging bourbon barrels; o It’s a job-killer and anti-competitive; o The barrel tax is the reason distilleries are being established in other states; o If not addressed, Kentucky will lose its identity as the true home of bourbon. The paper will lay out and define the interworking of HB5 and, perhaps more importantly, dive into the bourbon industry, both in Kentucky and the US, through researching and analyzing key economic and industry reporting over the past 20 years to answer my research question. To bring the paper to a conclusion, the analysis William D. Twigg, II The Barrel Tax July 6, 2023 3 makes some key assumptions to determine the potential and most likely impact on Kentucky’s public education system and other key functions that have come to rely on the barrel tax revenue for funding. The debate over the barrel tax is not new and this paper will provide a picture that reflects proof that the industry is not being significantly impacted by the barrel tax. The industry within the state is in what IBISWorld would call the growth stage, and although there are signs of increased competition, it continues to be extremely strong and profitable. In fact, you will find that the industry strength within the State has continued to allow communities experiencing this growth to provide the roads, workforce, land, and services the industry’s very existence relies on.

Digital Object Identifier (DOI)



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