NTRA president and CEO Alex Waldrop outlines new tax withholding and reporting standards on pari-mutuel winnings at a Sept. 26 press conference in Lexington

NTRA president and CEO Alex Waldrop outlines new tax withholding and reporting standards on pari-mutuel winnings at a Sept. 26 press conference in Lexington

Anne M. Eberhardt

Race on to Implement New Tax Standards

New withholding and reporting standards can be implemented beginning Sept. 28.

While the long-term industry benefits of new withholding and reporting standards for pari-mutuel winnings will soon be here to stay, the way the U.S. Treasury and Internal Revenue Service is permitting rollout of these player-friendly standards figures to create strong competition among outlets for the next month-and-a-half.

On Sept. 25 the National Thoroughbred Racing Association announced plans by the Treasury and IRS to update tax rules that will determine withholding and reporting standards based on the entire cost of a pari-mutuel ticket, rather than each individual combination represented on that ticket. It's a change the NTRA estimates could result in as much as a 10% bump in annual pari-mutuel handle.

The initial wrinkle that figures to have tracks, account-deposit wagering companies, and tote companies working overtime is the rollout period. Waldrop said that outlets can switch to the new standards as early as Sept. 28 and must have the new standards in place by Nov. 14.

An outlet that can make the change before its competition figures to be at an advantage especially with important fall racing already underway, the Keeneland meet approaching, and the Breeders' Cup World Championships set for Nov. 3-4 at Del Mar. Having the new standards in place would figure to be an attractive carrot, especially for ADW companies, seeking to lure customers.

TwinSpires.com said Tuesday that it has implemented changes that will go into effect Sept. 28, to coincide with the first day the modernized regulations will be allowed. The company said it has worked for quick compliance to ensure as much money as possible stays within the racing industry.

"This is a very big win for horseplayers and for pari-mutuel wagering on horse racing," TwinSpires president Ted Gay said. "The NTRA has estimated the changes could increase wagering on U.S. horseraces by as much as $1 billion per year."

Keeneland officials met with officials from its tote company, United Tote, Tuesday morning in hopes of having the new standards in place as quickly as possible. Keeneland officials anticipate having the new standards in place for start of the fall meet on Oct. 6.

Scott Daruty, president of The Stronach Group's Monarch Content Management, said he expects Stronach tracks and Stronach-owned ADW Xpressbet to quickly have the new standards in place. On Sept. 27 he noted that XpressBet would be ready to roll with the new standards on the first day, Sept. 28.

"Xpressbet and others have been working with the NTRA since January to ensure a smooth implementation for customers and we do not see any compliance issues," Daruty said.

TVG is working is committed to putting the new standards in place as fast as possible. The New York Racing Association is working with AmTote to quickly begin the new standards and on Sept. 27 said it would be ready to go on Thursday for Belmont Park and the NYRA Bets ADW.

"This is a tremendously positive change for the industry and one that NYRA has always supported," said David O'Rourke, NYRA chief revenue officer. "That's why we have worked aggressively to expedite compliance so that horseplayers wagering through NYRA Bets or at a NYRA track can see these positive changes as soon as possible."

"This is a tremendously positive change for the industry and one that NYRA has always supported," said David O'Rourke, NYRA Chief Revenue Officer. "That's why we have worked aggressively to expedite compliance so that horseplayers wagering through NYRA Bets or at a NYRA track can see these positive changes as soon as possible."

That carrot of quick implementation of the new standards would be attractive to players who understand the advantages. Currently a player spending $100 on a Pick 4 ticket with 100 combinations at $1 each would be subject to reporting winnings to the IRS if that wager returned $600 or more at odds of 300-1 or higher. If that same wager pays $5,000 or more on odds of 300-1 or higher, some of the winnings must immediately be withheld for taxes.

How the 300-1 threshold is defined is what will change under the new standard. In the example above, currently the 300-1 standard is based on each individual $1 combination. Under the new standard, the 300-1 standard will be based on the total cost of the ticket. In the example above that would be $100. In this example, that would mean the reporting (and withholding) standards would begin at $30,001—a rare payout.

Video

NTRA president and CEO Alex Waldrop said the new standard will reduce such reporting and withholding from 80% to 90%.

Obviously this is a very player-friendly development. Tracks, ADWs, and tote companies that can implement it first will be in position to attract players.

Perhaps the timing will work out to be the same or about the same time for all ADWs, but should one ADW get the jump on the competition, or if one were to lag behind; it certainly could have a positive or negative impact on attracting and retaining customers, who in most states can choose from several options.

Waldrop said the new standard will become optionally available Sept. 28 and that optional period will last until Nov. 14, when it will become mandatory. That optional period was a bit of a surprise to the NTRA and figures to create competition in the coming 45 days.

"The Treasury Department did something we didn't expect but we're certainly appreciative of. They gave us a 45-day period, at the end of which, there will be mandatory required compliance with the new regulations," Waldrop said. "In the interim, between (Sept. 28) and that Nov. 14 period, individual operators and tote companies will have the option to comply before (Nov. 14). They will have the option to provide these benefits if they are prepared and have the technology ready to do so. They can proceed anytime during that 45-day period to begin offering these benefits. That will be done on an operator-by-operator basis and a tote company-by-tote company basis."

Video

Competition figures to encourage most tracks and ADWs to have the new standards in place before the official compliance deadline of Nov. 14. Going forward, the NTRA expects the new standard to result in a a handle bump of around $1 billion annually.

"The results are expected to be powerful. The NTRA and its legislative team have pressed for these updated regulations for many years because we understand that these changes will result in more revenue for the industry," Waldrop said. "The existing reporting and withholding regulations were developed a generation ago, before the advent of exotic wagering. As we explained to the Treasury and the IRS, in 1978 when the current regulations were developed, there was only win, place, show, and daily double wagering. Today most wagering is some short of an exotic wager, either a multi-horse or multi-race bet."