Blog Post | 114 KY. L. J. ONLINE | February 7, 2026
Aging Peacefully: Kentucky’s Bourbon Barrel Tax Phaseout
By: Ashley Peal, Staff Editor, Vol. 114
If it ain’t Kentucky, it ain’t bourbon. Nearly all of the world’s bourbon is produced in the Commonwealth, with the aging barrels outnumbering the local residents.[1] Until recently, Kentucky was the only state to place a tax on those aging barrels,[2] turning the state’s signature industry into a significant tax revenue source that funded state and local governments.[3] In 2023, after years of compromises and calls for reform,[4] the Kentucky General Assembly voted to phase out the tax on aging barrels at the start of 2026.[5] This new phaseout prompts celebration in the bourbon industry and concern among local governments that have long relied on this dependable source of revenue.
The phaseout targets the “barrel tax,” a property tax on bourbon barrels aging in warehouses across the Commonwealth.[6] The tax was an ad valorem tax, meaning that the barrels were taxed in proportion to their value, rather than a flat rate that taxed all barrels the same regardless of their worth.[7] The state rate for barrels was $0.05 per $100 in value, less than the general property tax of $0.45 per $100.[8]
All manufacturers in Kentucky are subject to a tax on inventory stored within the state, but the bourbon industry was “disproportionately impacted.”[9] Bourbon barrels are aged in Kentucky rickhouses (the industry term for warehouses storing aging bourbon barrels) for several years.[10] Straight bourbon must be aged for at least two years, but Wild Turkey, a prominent Kentucky distillery, ages its barrels for five years or longer.[11] Because the tax was applied annually, distillers paid this property tax repeatedly on the same barrels as they aged. In 2025 alone, Kentucky distillers paid $75 million in aging barrel taxes, which was a 27% increase from 2024, and a 163% increase over the past five years.[12]
Although Kentucky distillers have been burdened by this growing tax, local communities have benefited.[13] Revenue from the barrel tax funded school districts, libraries, fire departments, and other local government services.[14] Former Henry County Judge-Executive John Brent stated that the county’s school system “could see their budget go up by 50 percent thanks to this barrel tax.”[15] But with the phaseout in effect, Henry County, “home to Angels Envy distillery,” will lose millions of dollars every year.[16] Nelson County schools will lose over $6 million, with its library losing $280,000 and the sheriff losing $250,000.[17] These situations are not unique, as over 25 counties in Kentucky are projected to lose $30 million annually in tax revenue.[18]
The phaseout was enacted in 2023 through House Bill 5, which gradually reduces the maximum state and local tax rate that may be levied against the aging bourbon barrels.[19] Starting January 1, 2026, only 96% of the value of the barrel is taxable, decreasing by 4% each year until January 1, 2043, at which point all aging barrels shall be exempt from any state and local property taxes.[20]
The statute includes a safeguard for school systems, fire districts, and other emergency services, but these protections fall short.[21] Support Education Excellence in Kentucky (SEEK) is a formula-based funding program for public schools that is set to help mitigate some of the lost revenue for school districts.[22] For example, Jennifer Rowe, a Senate majority budget staffer, explained that Nelson County School system, who is facing a $6.28 million revenue loss from the phaseout, will receive $4.3 million in revenue back from SEEK, which leaves a $2 million deficit.[23] By designing the phaseout to span nearly two decades,[24] the program provides local governments time to adapt to these revenue changes, however, no amount of time or planning will make up for a $2 million dollar budget loss.
Tax cuts inevitably shift burdens, and the elimination of the barrel tax is no exception. The phaseout is a huge win for the bourbon industry, diminishing their tax liability and helping Kentucky remain competitive with other states that offer advantageous tax benefits to attract distillers.[25] The phaseout will allow distilleries to grow, creating new jobs in local communities and attracting tourism through experiences like the Kentucky Bourbon Trail.[26] At the same time, a reduction in tax revenue is a blow to local governments, and some distillers may also feel the loss, as the barrel tax helped fund infrastructure developments and public safety services that directly supported their operations.[27] Some critics question whether the phaseout was even necessary to remain competitive, highlighting the rapid expansion of Kentucky’s bourbon industry, with the number of distillers increasing from 19 in 2009 to 95 in 2021.[28] These distillers chose Kentucky despite its one-of-a-kind barrel tax.
As the phaseout of the bourbon barrel tax begins, the fiscal consequences will trickle in slowly. The statute prioritizes bourbon’s growth, with the expectation that increased tourism and economic expansion will outweigh the tax revenue lost through the phaseout,[29] but local communities are still left feeling on the rocks. Will the ‘Bourbon Boom’ fill the gap,[30] or will the counties of the Commonwealth be left to pour from empty barrels?
[1] Kentucky Bourbon Facts, Ky. Tourism, https://www.kentuckytourism.com/things-to-do/bourbon/bourbon-101 (last visited Feb. 1, 2026).
[2] Mark F. Sommer & Elizabeth M. Ethington, Kentucky’s Bourbon Barrel Tax May Be Headed Toward Bitter Ending, Bloomberg Tax (Mar. 15, 2023, 04:45 AM EDT), https://news.bloombergtax.com/tax-insights-and-commentary/kentuckys-bourbon-barrel-tax-may-be-headed-toward-bitter-ending/.
[3] Id.
[4] See Ky. Distillers’ Ass’n, Legislative Packet 2023, Bourbon’s Partnership with the General Assembly, https://kybourbon.com/wp-content/uploads/2024/02/KDA-Legislative-Packet-2023-Final-1.pdf (highlighting years of collaboration between the Kentucky Distillers’ Association and the Kentucky General Assembly).
[5] Id.
[6] Ky. Rev. Stat. § 132.140.
[7] Ad Valorem Tax, Legal Info. Inst., Corn. L. Sch., https://www.law.cornell.edu/wex/ad_valorem_tax (last visited Feb. 1, 2026).
[8] Pam Thomas, Kentucky’s ‘Booming’ Bourbon Industry Doesn’t Need Another Tax Cut, Ky. Ctr. for Econ. Pol’y (Jan. 12, 2023), https://kypolicy.org/kentuckys-booming-bourbon-industry-doesnt-need-another-tax-cut/.
[9] Sommer & Ethington, supra note 2.
[10] A Closer Look at Our Kentucky Rickhouses, How Simple Structures Produce Complex Favors, Elijah Craig Bourbon (2019), https://elijahcraig.com/a-closer-look-at-our-kentucky-rickhouses; Kentucky Bourbon Barrels: Why They’re Special And How They’re Used in Whiskey Making, Wild Turkey Bourbon, https://www.wildturkeybourbon.com/en-us/latest-news/kentucky-bourbon-barrel-whiskey-making/ (last visited Feb 1, 2026).
[11] Id.
[12] The Bourbon State: Challenges Continue Amid Record Barrel Inventory & Skyrocketing Taxes, Ky. Distillers’ Ass’n (Oct. 8, 2025), https://kybourbon.com/industry-news/the-bourbon-state-challenges-continue-amid-record-barrel-inventory-skyrocketing-taxes/.
[13] See Jacob Martin, The Future of Kentucky’s ‘Bourbon Barrel Tax’ Could Mean Some Local Governments Are Stuck Paying the Tab, The Pub. Radio Servs. of W. Ky. Univ. (March 17, 2023, at 14:31 PM CDT), https://www.wkyufm.org/news/2023-03-17/the-future-of-kentuckys-bourbon-barrel-tax-could-mean-some-local-governments-are-stuck-paying-the-tab.
[14] Pam Thomas, Cutting Bourbon Industry Taxes Harms the Communities That Sustain It, Ky. Ctr. For Econ. Pol’y (Mar. 2, 2023) https://kypolicy.org/cutting-bourbon-industry-taxes-harms-the-communities-that-sustain-it/.
[15] Martin, supra note 13.
[16] Id.
[17] Thomas, supra note 14.
[18] Martin, supra note 13.
[19] H.B. 5, Gen. Assemb., Reg. Sess. (Ky. 2023).
[20] Id.
[21] Id.; See Bourbon Barrel Tax Force, Minutes of the 2nd Meeting of the 2022 Interim, Ky. Legislature (July 22, 2022), https://apps.legislature.ky.gov/minutes/bourbon%20barrel%20taxation%20tf/220722OK.PDF; See Monica Harkins, Phase-Out of Kentucky’s Bourbon Barrel Tax Protects Funding for Schools, Fire Districts, WDRB (Apr. 4, 2023), https://www.wdrb.com/news/phase-out-of-kentuckys-bourbon-barrel-tax-protects-funding-for-schools-fire-districts/article_d7d51ce2-d327-11ed-adf1-9310866a751f.html.
[22] SEEK and SEEK Payments, Ky. Dep’t of Educ. (Sept. 29, 2025, at 08:56 AM EDT), https://www.education.ky.gov/districts/SEEK/Pages/default.aspx.
[23] Bourbon Barrel Tax Force, Minutes of the 2nd Meeting of the 2022 Interim, Ky. Legislature (July 22, 2022), https://apps.legislature.ky.gov/minutes/bourbon%20barrel%20taxation%20tf/220722OK.PDF.
[24] Ky. Rev. Stat. § 132.140.
[25] Sommer & Ethington, supra note 2.
[26] The Bourbon State: Challenges Continue Amid Record Barrel Inventory & Skyrocketing Taxes, supra note 12.
[27] Thomas, supra note 14.
[28] Id.
[29] See The Bourbon State: Challenges Continue Amid Record Barrel Inventory & Skyrocketing Taxes, supra note 12 (highlighting the Kentucky Bourbon Trails three million visitors from across the globe).
[30] Robin Levinson King, How Kentucky Bourbon Went from Boom to Bust, BBC (Aug. 9, 2025) https://www.bbc.com/news/articles/ckglnk6yxlko (attributing the decline in bourbon sales to the pandemic, inflation, and tariffs).