Kentucky Kills Plan to Tax Retail Liquor Sales

Published June 1, 2005

A famous maker of Kentucky bourbon says a multimillion-dollar expansion of its distillery might proceed now that state lawmakers voted on March 9 to kill plans for a 6 percent retail sales tax on alcoholic beverages.

Maker’s Mark had planned a $35 million expansion of its distillery in Loretto, Kentucky. On February 16, the firm’s president, Bill Samuels Jr., told state lawmakers executives at the parent company were considering killing the expansion because of the retail sales tax proposal. Liquor is now untaxed at the retail level in Kentucky.

Lawmakers on March 9 instead voted to increase from 9 to 11 percent the wholesale tax on beer, wine, and distilled spirts. The effect will be to increase the price “just a couple of cents a bottle,” according to Chris Swonger, vice president of government affairs at Allied Domecq Spirits, USA, which owns Maker’s Mark.

“We were much happier with the wholesale tax than we would have been with a 6 percent retail tax,” Swonger said. “Kentucky is the home of bourbon. We found it hard to swallow a punitive tax like that.”

Corporate, Personal Taxes Cut

The increase in the wholesale liquor tax was one of several tax changes Kentucky lawmakers made. They also

  • raised the cigarette tax from 3 cents to 30 cents a pack;
  • lowered corporate taxes from 8.25 percent to 7 percent in 2006 and 6 percent in 2007;
  • cut the personal income tax by 2/10ths of 1 percent; and
  • eliminated the income tax for those living below the federal poverty level.

Full Effect Unknown

Gov. Ernie Fletcher (R) said the mix of tax increases and cuts will be revenue-neutral, but tax watchdog groups are analyzing the package to determine the full impact.

Aaron Morris, fiscal policy analyst at the Bluegrass Institute, said it’s difficult to say who is correct.

“People on the right are saying it will be revenue positive. People on the left say it will be revenue negative,” Morris said. “It will probably be positive in that the state will bring in more money next year, but in my opinion we will get more growth, more jobs, and more employers. As long as the growth of tax revenue doesn’t exceed the growth of income, that’s okay. You don’t want the government to take up a larger share of the economy.”

Steve Stanek ([email protected]) is managing editor of Budget & Tax News.