It was passed on Friday the 13th and takes effect on April Fool’s Day but, unfortunately, the alcohol tax rushed through by the Kentucky legislature is not a joke. It takes effect tomorrow, April 1. That's when consumers will start to pay an additional 6 percent sales tax at their favorite package store.
The new tax is on top of five other taxes on liquor, said Eric Gregory, President of the Kentucky Distillers’ Association. In fact, the sales tax already was being collected as part of a broader wholesale tax put into effect in 1982.
More than half – 53 percent – of an average bottle of spirits goes to local, state and federal taxes, Gregory said. Kentucky already has the third-highest effective tax rate on spirits in the country, and is the highest among most neighboring states.
"The legislature has really put Kentucky’s signature bourbon industry over a barrel with this unfair tax scheme," he said. "It’s a double tax that puts Kentucky at a significant competitive disadvantage with surrounding states and the rest of the country."
The KDA is closely monitoring sales and tax figures for any impact on the historic industry. Wholesale, case and excise tax receipts on spirits plunged 14 percent in February compared to last year, according to the Office of the State Budget Director.
"That raised a red flag and we’ll be watching to see if it’s a trend," Gregory said. "Everyone understands that the economy is down, which is why we argued for a more comprehensive solution instead of a short-term fix."
Gregory also expressed concern about potential harm to the 3,470 retailers that will be collecting the tax, as well as the tourism and hospitality industries. Only 30 of Kentucky's 120 counties permit alcohol sales, although revenue from alcohol taxes is distributed statewide, including in dry counties.
Gregory said he is looking forward to working with the legislature when it takes up comprehensive tax reform. "Kentucky bourbon is a home-grown industry that deserves better treatment. This might be April Fool’s Day, but we’re not laughing."