KY Bill: Use Taxes to Fund Horse Racing

Draft legislation is aimed at funding regulation and drug testing in Kentucky.

A Kentucky lawmaker is preparing racing-related legislation with a primary goal of funding the Kentucky Horse Racing Commission, equine drug testing, and supplements for purses and stakes at the state’s racetracks.

The draft bill authored by Republican Sen. Damon Thayer basically shifts tax dollars back to the horseracing industry. Depending on pari-mutuel handle, the measure could raise $4 million to $6 million a year, Thayer said.

The concept is similar to one in which a 6% tax on stallion fees was used to create breeders' incentive funds in Kentucky.

A December report from the Governor’s Task Force on the Future of Racing recommended a hike in the pari-mutuel tax and purse deductions to help fund the KHRC and drug testing. Thayer said he opposes that plan.

“It’s not fair for the fans and (horse) owners to pay the freight,” he said. “We can use tax dollars generated by the horse industry to regulate the horse industry. People will say we can’t afford (to take money from the general fund), but my counter argument is we can’t afford not to do it for Kentucky to remain viable as the horse capital of the world.”

Under the plan, tracks would continue paying pari-mutuel taxes on live handle (Churchill Downs and Keeneland 3.5%, and the other six tracks in the state 1.5%). There also is a 3% excise tax on simulcast handle in Kentucky.

In return, the tracks wouldn’t have to pay for drug testing, which will get more expensive as the program expands into things such as anabolic steroids and out-of-competition testing. Thayer said the funds are needed to enforce the new rules.

The KHRC would benefit most from the shift in tax dollars. The task force has recommended the organization hire staff to improve regulation. The Thayer bill calls for all the KHRC, not racing associations, to pay for all employees, such as stewards.

The legislation would place some of the excise tax into the KHRC stakes and purse development fund, which in part would come from receipts on claimed horses. The bulk of the money—up to $500,000—would go toward purses and stakes at Kentucky harness tracks that race 30 or more dates per year; the only one that currently qualifies is The Red Mile in Lexington.

Quarter Horse purses would get up to $50,000, and Thoroughbred tracks could get funds at the discretion of the KHRC. Harness tracks, however, must provide a “detailed description of how the retained excise tax has been spent to promote and maintain its facilities and its live meet.”

A Breeders’ Cup-related tax credit is included in the draft legislation, but with a twist. If the World Championships isn’t held in Kentucky in 2009—the event is slated to return to Santa Anita Park in California next year—the tax credit will apply to 2010. The money, however, would be deposited in the KHRC stakes and purse development fund and would not go to Breeders’ Cup.

Other tracks that offer one day of racing with purses in excess of $600,000 would be eligible for a one-day tax holiday as well. But restrictions would limit it to Ellis Park, Turfway Park and The Red Mile. The money would be deposited in breed development funds.

Though the draft legislation doesn’t directly deal with advance deposit wagering, Thayer said it won’t be long before legislators consider taxing ADW handle because it’s going up, not down like on-track and off-track handle.

“I believe a bill will be filed to put an excise tax on ADW bets that originate in Kentucky,” he said.

The Kentucky General Assembly meets for four days (Jan. 6-9) for organization purposes. The main part of the session begins Feb. 3.

It remains to be seen whether expanded gambling will be addressed. Democratic Rep. Tom Burch has pre-filed a racetrack video lottery terminal bill, and Democratic Rep. Greg Stumbo has said he will file legislation to authorize racetrack VLTs.