Reader, Georgetown attorney and harness racing owner Matt Stephens asks what should be a simple question, but this is Frankfort, about House Bill 445 that reimposes a tax on the slot-like Instant Racing game.
“Where does HB 445 go from here? To a Senate Committee?”
The simple answer is, “yes,” likely the Senate Appropriations and Revenue Committee.
Here’s the long answer: there’s lots to analyze in a bill that was revised even before it passed the House. The Instant Racing tax provisions passed by the House almost certainly will not survive in the Senate, if any of them survive in the Senate. The reasons are it’s retroactive, its rate may limit expansion, the changes in how the funds would be used and the potential impact on the Family Foundation of Kentucky’s legal challenge to the game.
Retroactive
House budget writers, in both the original version and the final version passed Thursday, propose retroactively reinstating the tax on Instant Racing from 2011 through now at the prior 1.5 percent. The Kentucky Supreme Court threw out the Beshear administration’s decision to tax Instant Racing under the existing pari-mutuel excise tax because that tax is on “live” racing specifically.
Retroactive taxing can be radioactive when it hits another chamber. Senate President Robert Stivers, R-Manchester already has called that a red flag.
Rate amount
The original version of the bill that passed committee would have put a 2 percent tax on Instant Racing beginning April 1, something Instant Racing supporter Damon Thayer, the Senate majority floor leader and Georgetown Republican, said would destroy Instant Racing in Kentucky.
As Thayer was passing that judgment, House Speaker Greg Stumbo, D-Prestonsburg, announced that there’d be a different plan offered on taxing Instant Racing — and that’s what actually passed the House on Wednesday.
The revision modifies the existing tiered pari-mutuel excise tax structure in several significant ways for Instant Racing.
The rates of 1.5 percent for average daily handle below $1.2 million and 3.5 percent above $1.2 million are kept, but the Instant Racing tax would be locked in at the lower rate for the average daily handle up to $1.2 million a day. Churchill Downs Inc. has long complained that the tax structure for live racing (which doesn’t change) punishes growth by imposing the higher tax rate on all revenues if the higher rate is reached (instead of imposing it only on what’s above the $1.2 million, which is what the House is doing with Instant Racing).
That tiered tax structure may not be as problematic for Instant Racing operators because the higher rate wouldn’t go back to the first dollar, though it probably would lessen expansions at the two existing sites and the size of any new sites.
Uses and restrictions
Where the tax revenue would go also is changed significantly. It eliminates a host of industry-related programs, including the University of Louisville’s equine business program, from future Instant Racing tax revenues. Instead, the revenues only would go to the Kentucky Thoroughbred Development Fund or the General Fund (both of which were recipients under the old structure).
Other key points to note:
1. Putting money solely in the KTDF means if The Red Mile puts in Instant Racing, thoroughbred purses would benefit instead of harness purses. If the Keeneland Association buys Thunder Ridge and moves it close to the Tennessee border for quarter horse racing, Instant Racing there would benefit thoroughbred purses.
2. The bill also places a $2 million cap on what goes to the KTDF from Instant Racing, however, the language used appears to be a $2 million cap per track. Based on what is called a fiscal note attached to the bill, that may not have been the intent — or at least it wasn’t the intent when the tax would have been 2 percent.
The 2% rate will result in new pari-mutuel revenues of $4.4 million annually. $2 million of this amount will be distributed annually to the Thoroughbred Development Fund created by KRS 230.400, with the remaining $2.4 million going to the General Fund.
Obviously, going with the tiered structure makes those numbers moot, but would seem to indicate that drafters only intended for the KTDF to get $2 million total, not $2 milllion per track.
Here’s the bill language:
An amount equal to three-quarters of one percent (0.75%) of all money wagered on historical horse races at the track during the fiscal year, not to exceed two million dollars ($2,000,000) in each fiscal year, shall be deposited in the Thoroughbred development fund
That $2 million reference would appear to apply to a track’s cap, not the cap for all tracks.
Getting involved in the ongoing lawsuit
Then there’s the issue of whether the tax language would legalize the game and make moot the continuing lawsuit about the legality of the games. This sentence in the bill could be argued to resolve much of the case, unless the Family Foundation can show individual machines aren’t pari-mutuel:
As used in this subsection, the terms “pari-mutuel,” “scratch,” “disqualification,” and “dead heat” have the same meaning as established by the commission pursuant to an administrative regulation promulgated under KRS Chapter 13A
That sentence would seem to bolster the existing Kentucky Horse Racing Commission regulation on pari-mutuel racing, including Instant Racing — or historical racing as it is defined in the regulation.
Passing something that could mess with the court case is another red flag for Stivers and is something Thayer has said the Senate would be reticent to do.
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