With the goal of studying the taxes and rates related to horse racing in the Commonwealth, the Pari-Mutuel Wagering Taxation Task Force heard from local race tracks at its meeting Monday in Frankfort.
The task force was created after the passage of Senate Bill (SB) 120 during the 2021 regular session, which clarified the definition of historical horse racing in Kentucky, thus allowing its growing operations to continue in the state.
Keeneland Vice President of Strategic Initiatives and Public Affairs Vince Gabbert, who co-chairs the Kentucky Chamber’s Agriculture and Equine Policy Council, was on hand to present on behalf of his employer and the industry as a whole.
Gabbert showed slides illustrating the investment Kentucky has attracted from private business because of historic horse racing, which was around $1.5 billion at eight total facilities, citing the stability of the industry through passage of SB 120 as the reason for the significant growth.
“These numbers, while they seem large, have happened in a very short amount of time,” Gabbert told task force members. “Essentially, every single market and facility is experiencing growth. And you have this significant amount of investment that translates not only into permanent jobs, but also into construction jobs, occupational taxes and local taxes that these facilities generate.”
Mike Anderson, President of Churchill Downs Racetrack, explained to legislators at the meeting how there are two taxation components that should be considered when evaluating historic horse racing machines: statutory, through an excise tax of 1.5 percent of wagering handle; and regulatory/contractual, through purse money, which is paid out to the connections of the top equine finishers in a given race.
Anderson said contractual purses paid to Kentucky Horsemen are 15 percent of net revenue, after free play and taxes, which includes 14 percent to fund association purses and 1 percent to the Kentucky Breeders Incentive Fund.
The 1.5 percent excise tax goes to industry-specific initiatives, such as thoroughbred and standardbred breed development funds, equine drug research, the equine industry program at the University of Louisville, and to higher education equine trust and revolving funds. Anderson said most of those funds are capped and the remaining balance goes to the state’s general fund.
“In most competing states, purse money is statutorily set,” Anderson said. “For example, in Indiana, their tax rate includes a purse component. In order to look at an apples-to-apples comparison, it is very important that we compare the excise tax plus the purse money.”
According to Anderson’s presentation, the real effective tax rate of Kentucky’s historic horse racing machines, when adding the excise tax plus purse contributions, is 32.3 percent of takeout. Takeout is calculated at 8.66 percent of each dollar wagered, with the remaining 91.34 percent returning to the bettor.
Senate Majority Floor Leader Damon Thayer, who co-chairs the committee, argued after the presentations that Kentucky’s tax rate is competitive with other states.
“For all the folks on the right or the left screaming about the 1.5 percent tax rate – that was set by this General Assembly in the 2014 revenue bill – it is not some low-ball amount of money that the horse industry is getting away with,” Thayer said. “It is very similar to the way it is taxed in every other state.”