Senate Passes Tax Bill Favorable to Horse Industry

Edited release from the American Horse Council
The U.S. Senate passed an international tax bill that includes two provisions that are favorable for the horse industry. The first is the clarification that the 30% alien withholding provision does not apply to nonresident aliens wagering in foreign countries; the second is a reduction in the holding period for horses to qualify for capitol gains treatment from 24 months to 12 months.

The principal purpose of the bill is to repeal the Foreign Sales Corporation/ Extraterritorial Income Act, parts of which were ruled illegal by the World Trade Organization last summer.

Senators Jim Bunning (R-KY) and Blanche Lincoln (D-AR) included the industry-supported clarification that nonresident aliens in foreign countries can wager on U.S. races through pools merged with U.S. tracks and not be subject to the U.S. 30% alien withholding tax when the bill was considered last fall by the Senate Finance Committee.

Senators Bunning and Lincoln continued to watch the provision to ensure that it remained in the bill finally passed by the Senate. "The racing and breeding industry greatly appreciates the tenacity of Senators Bunning and Lincoln in working for passage of the important alien withholding legislation. This provision has been passed by the Senate before and in-and-out of several bills through this Congress. But the persistence and support of Senators Bunning and Lincoln has been constant," said American Horse Council president Jay Hickey.

The U.S. racing industry has wanted to merge wagering pools for many years with tracks and operators in foreign countries, but has been concerned about the IRS provision that imposes a 30% withholding requirement on U.S. source income paid to nonresident aliens. Final enactment of this legislation would resolve that issue and eliminate a big hurdle to the industry's ability to expand internationally.

Senator Bunning was also able to include his provision to reduce the capital gains holding period for horses to 12 months in the international tax bill. All capital assets - with the exception of horses and cattle - qualify for capital gains tax treatment if held for 12 months. Horses, however, must be held for 24 months to qualify. The Bunning amendment would reduce the capital gains holding period for horses to 12 months, just like other business assets.

"The horse industry appreciates Senator Bunning's efforts to pass this provision reducing the holding period for horses. He introduced stand-alone legislation last fall and now has been successful in having it included in the international tax bill," said Hickey.

The international tax passed by the Senate would repeal the tax provisions for U.S. corporations doing business abroad that have been opposed for some time by the European Union and led to the imposition of tariffs on many US goods March 1, including horses. "While it does not appear that these tariffs are particularly onerous to U.S. horses, once the international tax bill becomes law, the EU has promised to remove the tariffs. This would alleviate any concerns over effect of the temporary tariffs," said Hickey.

The House of Representatives must still act on its version of the international tax bill. The House bill does not include the 30% alien withholding provision or the reduction the capitol gains holding period for horses. Any differences in the bills would have to be worked out in a conference with Members of the Senate and House and the final packag passed by Congress before it could go to the President for his signature