At the end of the legislative session March 30, the Kentucky Equine Education Project, which advocates for the state’s equine industry, lawmakers passed SB 120 that allowed historical horseracing to be legalized under state law.
Now the Pari-Mutuel Wagering Taxation Task Force, made up of a bipartisan group of legislators from both chambers, will examine how the current tax rate of historical horse racing average daily handle can be increased from 1.5 percent without impacting the games’ tremendous popularity. The task force must submit its findings by December 1, 2021.
Proponents of increasing the HHR tax point out on-track wagers at the state’s larger tracks are taxed at 3.5 percent. They suggested a higher tax rate for HHR would direct more money to the state’s general fund.
However, a study by the University of Louisville’s Equine Industry Program indicated if taxes were raised on HHR, it would face increased competition for consumers’ discretionary gaming dollars. In a summary of the study, issued February 24, 2020, Assistant Professor Thomas Lambert stated the state would not be able to set a new, higher rate and expect a corresponding return. “Bottom line, the 2019 fiscal year projections of $2 billion in handle for instant racing could decrease 20 percent to $1.6 billion. Taxes for the commonwealth in this scenario would not be $71 million due to a tax increase but $56 million.”
Lambert continued, “While the commonwealth is receiving higher tax revenues, this would result in substantially lower revenues for the racing facilities in the state and its partners, likely reducing the amount of monies available for racetrack purses and operating expenses, including payroll expenses. The literature on gaming, casinos and horse racing is voluminous with estimates of the elasticity of demand for gambling, including estimates of how wagering demand will fall as a greater amount of taxes are withheld.”
In a statement, KEEP said, “Part of the negotiations that led to the ultimate success of SB 120 was a pledge by the industry to work with legislators to examine the current tax structure of HHR and determine whether taxes can be raised while preserving HHR’s success.” To that end, Churchill Downs Inc. Chief Executive Officer Bill Carstanjen pledged his company would work constructively to revise and raise the tax structure on HHR. CDI operates multiple HHR gaming facilities in Kentucky.
KEEP noted the industry achieved its main objective of protecting HHR during the legislative session. The statement continued, “Just months before the legislature began their session, the legality of historical horseracing was called into question by the Kentucky Supreme Court and the legislature was required to take action in order to maintain the status quo of HHR. Thanks in large part to the phone calls, emails and social media activism by KEEP’s grassroots supporters, legislators voted in support of maintaining HHR. Thank you for all that you did in support of Kentucky’s signature industry during this legislative session. This success was not possible without KEEP’s members.”
