A proposal to create breeders' incentive funds and a modification of the tax on yearlings and 2-year-olds was slated for passage March 8 as part Kentucky Gov. Ernie Fletcher's tax modernization and budget package.The House and Senate left the horse industry benefits intact when they each passed the measure. The incentives then survived a conference committee meeting that lasted until 1 a.m. EST March 6.The budget was expected to take about 36 hours to print, so lawmakers were unable to vote on it March 7."As of today, I don't expect any hang-ups," Sen. Damon Thayer, who championed the horse industry provisions, said March 7. "It has broad and bipartisan support in both chambers."The money from the programs would come from an existing 6% tax on stud fees that generates about $15 million a year. That money currently goes to the state's general fund.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 Thoroughbred fund could be worth about $12 million.Money for the programs would accrue beginning July 1, the start of the fiscal year. Awards would be paid effective Jan. 1, 2006.As for the tax on the sale of yearlings and 2-year-olds, Kentucky residents would continue to pay the 6% sales tax on all horses bought at public auction, but non-residents would no longer need to remove the horses from the state within a certain amount of time to be exempt from the tax.Meanwhile, the General Assembly is considering a bill that would exempt the Breeders' Cup World Thoroughbred Championships from the 3%-3.5% pari-mutuel tax. Churchill Downs is slated to host the event in 2006.A similar exemption is on the books, but it expired because it called for the event to be held in Kentucky within three years. Churchill last hosted the Cup in 2000. Pari-mutuel tax receipts historically increase at least a million dollars the years in which Churchill hosts the event.