September 30, 2023

As the whiskey and bourbon trade booms, beloved distillers face tax and emissions setbacks

MULBERRY, Tenn. (AP) — For decades, the whiskey and bourbon makers of Tennessee and Kentucky have been loved in their communities. The distilleries where the liqueur is crafted and the barrelhouses where it matures have complemented the rural character of their neighborhoods while providing jobs and the pride of a successful domestic industry.

Now the growing popularity of the industry around the world is causing conflict at home.

In Kentucky, where 95% of the world’s bourbon is produced, counties are rioting after the legislature voted to phase out a tax on barrels they depended on to fund schools, roads and utilities. Local officials who donated land and spent millions on infrastructure to help bourbon makers now say those investments may never be paid back.

Neighbors in both states have fought the industry’s expansion, even suing distillers. Complaints include a destructive black “whiskey mold”, the loss of prime farmland, and beverage-themed tourism developments that are more Disneyland than a distillery tour.

The love affair seems over.

“We’ve been their biggest advocates and they’ve thrown us under the bus,” said Jerry Summers, a former Jim Beam executive and Bullitt County executive judge, essentially the county’s mayor.

Bullitt County has long relied on an annual barrel tax on aged whiskey, which raised $3.8 million by 2021, Summers said. The majority will go to schools, but the money will also be used for services that support the county’s Jim Beam and Four Roses factories, including a full-time fire department.

Many of the new barrelhouses are being built with industrial income bonds that exempt them from property taxes for years or decades. The counties supported the property tax breaks because they expected to continue collecting the barrel tax. When the state legislature voted to phase it out earlier this year, after intense lobbying by the Kentucky Distillers’ Association, county officials felt betrayed.

“Our industry has always been a handshake deal,” Summers said. Now those agreements are broken.

Once the barrel tax expires in 2043, the distillers will pay no tax at all to Bullitt on some warehouses. The county will still have to provide them with services, protect them and protect the surrounding community from them if something goes wrong, Summers said.

“If you have an alcohol-based plant that produces a hazardous material, you need emergency management, EMS, a sheriff’s department,” he said.

Democratic Gov. Andy Beshear, who signed the bill after approval by Kentucky’s Republican-controlled legislature, said several industry compromises were vital to his support, while the bill will encourage investment.

“I know it was tough. You had an industry that supports so many jobs and calls Kentucky home. At the same time, you have communities that helped build that industry. I know there are probably some hard feelings right now,” said Beshear at a news conference.

Kentucky Distillers’ Association president Eric Gregory noted that the compromise bill creates a new excise tax to help fund school districts. Another tax helps fire and emergency services, although it does not apply in all counties.

“Even with this exemption, distilling remains Kentucky’s highest-taxed industry, with an annual tax of $286 million,” Gregory said in an email.

As the tax changes take place, whiskey is booming.

As a former Beam manager, Summers recalls the days when whiskey was a cheap drink from the bottom shelf. With small batch products, the drink cooled slowly. According to the United States Distilled Spirits Council, US whiskey revenues have nearly quadrupled since 2003 to $5.1 billion last year. During the same period, the super premium segment increased more than 20 times to $1.3 billion.

Now many of the most recognized brands are part of international beverage conglomerates. Jim Beam is owned by Japan-based Beam Suntory. The British Diageo owns Bulleit. The Italian Campari Group owns Wild Turkey.

When lobbying for the end of the tax, the distillers’ group suggested that the industry could leave Kentucky. Officials like Summers call that bluffing. He said Bullitt County doesn’t want new barrelhouses unless things change, and he’s not alone.

Nelson County, home to Heaven Hill, Log Still and other Kentucky communities involved in the industry, recently passed a moratorium on new bourbon warehouse construction as the county updates zoning and permitting rules. Soon, all new projects will require citizen input and zoning approval, Judge Executive Timothy Hutchins said.

“That got their attention, let’s put it that way,” Hutchins said. “Now we try to kiss and make up.”

The county gets about $8.6 million a year from the barrel tax, he said.

In Lincoln County, Tennessee, Jack Daniel’s was recently put on hold after neighbors sued over a massive unauthorized expansion. According to the lawsuit, since 2018, the company has built six 7,989-square-foot warehouses, each holding 66,000 barrels on a 48-acre site.

Jack Daniel’s has since been retroactively granted proper approvals, but neighbors say their biggest complaint hasn’t been addressed: a black mold that feeds on the ethanol released as whiskey ages.

The “whisky mold” has been a scourge in liquor facilities for centuries, but the size and scope of the new barrelhouse complexes means that much more ethanol is released in a concentrated area. The fungus coats nearby homes and cars in a sooty film and smothers trees and shrubs.

When Pam Butler moved to Lincoln County 30 years ago, there were only two barrelhouses in the area and she had “no problems.”

“I had a white car and it stayed white. I had a white horse trailer and it stayed white. Then, about five years ago, everything started to look nasty,” Butler said.

Butler owns a small ranch where she keeps horses next to Jack Daniel’s estate. She said her pasture is not thriving as it should, many of her trees are dying and she has developed asthma. She doesn’t know if her illness is related to the fungus, but said she only started experiencing symptoms in recent years.

Butler and several other neighbors want Jack Daniel’s to capture its ethanol emissions rather than release them into the neighborhood. The company declined to comment on the mold, but spokesperson Svend Jansen issued a statement saying it “will continue to work hard to be a good partner to all members of our community.”

“We recognize that there are sometimes a small number of people who do not appreciate or appreciate the growth of Tennessee Whiskey production in the areas where we operate,” the statement said.

Back in Kentucky, famed author and agronomist Wendell Berry has another concern: local food security and the destruction of prime farmland.

“I spent 30 years developing a regional food economy for Louisville,” said Berry.

“Cities like Louisville and Nashville are surrounded by fertile land that is well-watered,” but they import much of their food from California’s Central Valley, he said. “I have argued all my life that this land will be necessary for people who want something to eat.”

Berry recently lost a battle with Louisville distiller Angel’s Envy over the development of a 1,000-acre property adjacent to the farm where he grew up. Henry County approved the company’s plans for a bourbon tourism complex there, complete with cabins, an amphitheater and a helipad.

Angel’s Envy declined to comment.

Fred Minnick, who has written books on bourbon and judges international whiskey competitions, said it’s an interesting time for the industry because bourbon has never been more popular.

“Bourbon was the good man. Bourbon was loved by the state,” he said of Kentucky. “It will be fascinating to see if bourbon continues to be a hero.”

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