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Bourbon tax numbers down




FRANKFORT

Kentucky bourbon producers unveiled a new marketing plan this month to tout what they consider a growing tourist attraction to the Bluegrass State — the Kentucky Bourbon Trail.

The plan — aimed eventually at boosting attention to Kentucky distilleries akin to California vineyards — came complete with a new logo, brochure and a passport that could lead to a free T-shirt for people who hit all the distilleries along the route. Nevertheless, some bourbon makers say they’re concerned about Kentucky’s political climate.

“I think the real point that people are going to have to deal with is whether they will ever believe that the production and consumption of bourbon in Kentucky is a legitimate activity. I mean, is it a sin, or is it proper?” Maker’s Mark President Bill Samuels said in a telephone interview. “This is the only place I’ve ever been in the world, Kentucky is, where I have heard what I do for a living called a sin.”

Earlier this year, the General Assembly applied the state’s 6 percent sales tax to alcohol as a way to help ease Kentucky’s budget woes. Beer and bourbon producers railed against the idea, with both industries sending a parade of trucks to circle the state Capitol for a week in protest.

Bourbon makers even staged a protest on the Capitol steps, pouring out entire bottles into the melting snow. All to no avail.

Kentucky lawmakers passed the tax hike on alcohol and raised taxes on cigarettes by 60 cents a pack — commonly called “sin taxes” — as a way to help resolve a $456 million budget shortfall. Tax receipts for April, the first month in which the taxes took effect, showed a dip of more than 50 percent in tax receipts the government collects from wine and distilled spirits.

Comparing April 2009 to April 2008, state revenue from beer consumption increased by nearly $55,000 while the tax on distilled spirits consumption dropped by 55 percent from $781,940 to $350,239. Revenue from the wine consumption tax dropped by more than $75,000 during that period.

From March to April of this year, the distilled spirits consumption tax dropped by more than $453,000. The distilled spirits wholesale tax revenue dropped by nearly $1.3 million during that time.

Samuels said the numbers are a concern. He said bourbon is a signature industry of Kentucky and should be treated as such.

“It’s not very encouraging,” Samuels said of April’s decline.

Eric Gregory, president of the Kentucky Distillers’ Association, said March’s numbers may have been inflated because people stocked up before the pending tax increase on April 1. The subsequent decline may also be attributed to people having stocked up the month before and using that inventory, Gregory said.

It’s still a “significant” drop and “more than just a blip on the radar,” Gregory said.

“This is kind of what we expected and feared would happen when this tax increase went into effect, and it represents an alarming consumer retreat from the distilled spirits industry,” Gregory said. “If our homegrown distillers see this type of decline in their revenues, it’s going to be a very tough year for one of Kentucky’s signature industries.”

Don Berg, chief financial officer for Brown- Forman Corp., whose products include Woodford Reserve and Old Forester bourbons as well as Jack Daniels’ Tennessee Whiskey, said lawmakers’ claims that consumers would not notice an increase in the price of alcohol turned out to be wrong. That’s likely why Kentucky consumers bought more distilled spirits in March and less in April, Berg said.

It will likely take some months to determine the overall impact, Berg said, because in a down economy, consumers tend to “trade down” and purchase less expensive brands.

“We are very concerned about what our business is going to look like in Kentucky and how much of a hit we are going to see,” Berg said.

Nevertheless, lawmakers didn’t seem worried.

House Speaker Greg Stumbo, D-Prestonsburg, said the drop in sales of distilled spirits and wine had “nothing to do” with the higher taxes, but attributed them to “general economic factors.” Stumbo said the increase in the consumption of beer showed people are still buying alcohol.

“I’ve not had one person complain about that,” Stumbo said.

Senate President David Williams, R-Burkesville, said he was willing to look at any state taxes that put Kentucky distillers at a competitive disadvantage to those located in other states. But, Williams said, he’s not had any complaints from consumers about the liquor tax increase either.

“It’s hard for me to believe that it would have any impact on the company,” Williams said. “I think it’s more like a psychological or philosophical problem that they have with the thing and feel like they’re being picked on.”

Gov. Steve Beshear, a Democrat, said lawmakers “did the right thing” in imposing the tax increase.

“In general it’s just a slowdown in the economy that’s hitting all of us and it hit those revenues just like it hit most of the other ones,” Gov. Steve Beshear, a Democrat, said. “I don’t think 6 percent sales tax on the retail sale of those items is going to have any significant effect on consumption. I believe that you will see that over the long haul.”


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