Breed Incentives Intact as Kentucky House OKs Tax Plan

Proposals to create breed development programs and modify a tax on the sale of yearlings and 2-year-olds remained intact when the Kentucky House of Representatives approved Gov. Ernie Fletcher's tax modernization plan Feb. 18.

The Democrat-controlled House approved the tax package by a 96-4 vote. Fletcher, a Republican, presented the plan during his "state of the commonwealth" address Feb. 1.

Republican Sen. Damon Thayer, who pushed to have the horse-specific incentives included in the tax package, said the House vote was a major victory. The measure now goes to the Senate, where Thayer said it has support.

"A big hurdle was getting it through the House," said Thayer, an executive with the National Thoroughbred Racing Association and Breeders' Cup. "It's looking better and better by the day."

The language calls for three breed development programs in Kentucky: one for Thoroughbreds, one for Standardbreds, and one for all other breeds. An earlier proposal lumped the Standardbreds in with all other breeds.

The money for the programs would come from an existing 6% tax on stud fees that generates about $14 million a year. That money, which goes to the state's general fund, would go to the breed development funds.

The Kentucky Thoroughbred Breeders Incentive Fund would get 80%, the Kentucky Standardbred Breeders Incentive Fund 13%, and the Kentucky Horse Breeders Incentive Fund 7%. Based on typical tax receipts, the scheme would produce $11.2 million for Thoroughbreds, $1.8 million for Standardbreds, and almost $1 million for other breeds.

Should the tax modernization plan be approved by the legislature and include the breed development provisions, money for the programs would begin to accrue July 1. Monthly payments would be made based on tax receipts. The Kentucky Horse Racing Authority, which would administer the funds, would then have six months to solicit input from the breeding industry and devise a structure and regulations for the programs, which would officially begin Jan. 1, 2006.

As for the tax on the sale of yearlings and 2-year-olds, Kentucky residents would continue to pay the tax, but non-residents would no longer need to remove the horses from the state within a certain time period to be exempt from the tax.