Rising conflicts amid whiskey and bourbon industry expansion due to tax and environmental concerns

Over many years, the whiskey and bourbon producers of Tennessee and Kentucky have enjoyed a favorable reputation in their local communities. Their distilleries and aging barrelhouses not only provide employment opportunities but also contribute to the rural charm of their locales, enhancing the pride of a thriving domestic industry.

Nevertheless, escalating global interest in the sector has sparked domestic disputes.

Kentucky, producing 95% of the world’s bourbon, has seen county-wide dissent in response to a legislative decision to phase out a crucial barrel tax that traditionally funded public utilities, schools, and road construction. Local authorities, who contributed land and invested heavily in infrastructural enhancements for the bourbon manufacturers, are now doubtful of recovering their investments.

The residents of both states are resisting the industry’s growth, even resorting to lawsuits against distilleries. Grievances range from the damaging impact of the so-called “whiskey fungus” to the loss of premium agricultural land and the transformation of liquor-themed tourist spots into something akin to theme parks, rather than traditional distillery tours.

The once cherished bond appears to be waning.

Jerry Summers, ex-executive with Jim Beam and the equivalent of the county mayor for Bullitt County, lamented, “We’ve been their biggest advocates and they threw us under the bus.”

Bullitt County has relied on the annual barrel tax on maturing whiskey for years, yielding $3.8 million in 2021 according to Summers. The majority of this revenue supports schools, but also funds the county services crucial for the Jim Beam and Four Roses facilities, including a full-time fire department.

New barrelhouses are receiving tax exemptions via industrial revenue bonds for extended periods, with counties initially supporting these breaks due to the expected continuity of the barrel tax. However, this year’s legislative decision to gradually eliminate the barrel tax, encouraged by the Kentucky Distillers’ Association, left county officials feeling betrayed.

“Our industry was always a handshake agreement,” Summers said. “Now, those agreements are being broken.”

By the time the barrel tax is completely eradicated in 2043, certain distilleries will pay no taxes to Bullitt for some warehouses. Despite this, the county will be obliged to maintain services and ensure both the distilleries and surrounding communities are protected, Summers said.

Andy Beshear, the Democratic Governor who endorsed the bill passed by Kentucky’s Republican-dominated legislature, argued the bill would promote investment, despite the sacrifices made by the industry.

Kentucky Distillers’ Association President, Eric Gregory, highlighted that the bill introduces a new excise tax to aid school districts and a separate tax to support fire and emergency management services, although not applicable in all counties. He emphasized that even with these reliefs, distilling remains Kentucky’s most taxed industry, contributing $286 million in taxes annually.

Meanwhile, whiskey sales are thriving.

As whiskey shifts from being a cheap, “bottom shelf” drink to a trendy choice due to the introduction of small-batch products, its revenue has seen a nearly four-fold increase since 2003, hitting $5.1 billion last year. According to the Distilled Spirits Council of the United States, the premium segment alone saw a more than 20-fold rise to $1.3 billion during the same period.

Prominent brands have since been acquired by multinational beverage corporations. Jim Beam is now owned by Japan’s Beam Suntory, Bulleit by Britain’s Diageo, and Wild Turkey by Italy’s Campari Group.

Some officials have dismissed the distillers’ group’s threat of leaving Kentucky if the tax were to be eliminated as a bluff. Summers has called for a halt in building new barrelhouses in Bullitt County unless conditions change, and he is not alone in this sentiment.

Conversely, Lincoln County in Tennessee has seen neighbors taking legal action against Jack Daniel’s over an extensive, unauthorized expansion. The main grievance remains the unaddressed issue of the black fungus that feeds on the ethanol emitted during whiskey maturation.

This “whiskey fungus”, an annoyance around liquor facilities for centuries, has become a more substantial issue due to the more extensive and concentrated release of ethanol from the new, larger barrelhouse complexes. The fungus results in a black, sooty film covering nearby homes, cars, and vegetation.

Famed author and agriculturalist Wendell Berry from Kentucky has raised another concern about local food security and the loss of prime agricultural land due to the industry’s expansion.

Amid these challenges, Fred Minnick, a bourbon author and world whiskey competition judge, noted that this is an intriguing time for the industry, given the unprecedented popularity of bourbon. He mused, “It will be fascinating to see if bourbon remains a hero.”

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More about bourbon industry conflicts

• Kentucky Distillers’ Association
• Jack Daniel’s expansion dispute
• Whiskey fungus issue
• Distilled Spirits Council of the United States
• Impact of whiskey industry on local economies