In the months ahead, Kentucky lawmakers will examine the current tax rate of historical horse racing gaming in the state to determine if taxes can be raised while maintaining HHR's success.
The efforts and decisions of that task force will be the industry news going forward from a legislative session highlighted by state lawmakers successfully protecting HHR, which has been critical to the Kentucky industry's success.
HHR devices resemble slot machines but their results are based on previously run horse races and tied to pari-mutuel wagering pools.
At the end of the legislative session March 30, the Kentucky Equine Education Project, which advocates for the state's equine industry, celebrated the new legislation (SB 120) that will protect HHR and noted that it will work with the task force looking at the tax rate. Currently, HHR average daily handle is taxed at 1.5%.
After the bill was passed by the Kentucky House of Representatives, Churchill Downs Inc. CEO Bill Carstanjen also pledged his company would work constructively to revise and raise the tax structure on HHR. CDI operates multiple HHR gaming facilities in the state.
"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," KEEP said in a statement. "This legislation creates the Pari-Mutuel Wagering Taxation Task Force, comprised of a bipartisan group of legislators from both legislative chambers. The Task Force is tasked with submitting proposed findings by Dec. 1, 2021.
"KEEP has been part of these conversations, was supportive of this Resolution, and looks forward to engaging with the Task Force throughout their work in 2021."
Proponents of increasing the HHR tax rate have noted that on-track wagers at the state's larger tracks are taxed at 3.5% and have suggested a higher tax rate for HHR would provide more money to the state's general fund.
But a study by the University of Louisville's Equine Industry Program cautioned that a tax increase would weaken HHR in the competition for consumers' discretionary dollars regarding gaming. In a Feb. 24, 2020 summation of the study's findings, assistant professor Thomas Lambert noted that the state would not be able to pencil in a rate and expect a corresponding return.
"Bottom line, (the) 2019 fiscal year projections of $2 billion in handle for instant racing (another term for HHR) could decrease 20% to $1.6 billion," Lambert said. "Taxes for the commonwealth in this scenario would not be $71 million due to a tax increase but $56 million.
"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."
During the recently completed session, a bill was proposed that would increase the tax on advance-deposit wagering handle by Kentucky residents from the current 0.5% to 2.5%. That bill failed to advance out of committee. In Lambert's summary, he also noted that such a policy also would impact customer demand.
"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," Lambert notes.
KEEP noted that the industry secured its biggest objective of protecting HHR during the legislative session. It thanked its members and the industry for supporting the effort.
"Just months before the legislature began their session, the legality of historical horse racing 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."
KEEP was also active on several other issues during the legislative session that would affect the horse industry and community, all breeds and disciplines. A summary of some of those issues is below (with status).
HB 229 (Signed Into Law)
HB 229 expands the definition of "property" to include livestock and poultry for the purposes of criminal damage to property offenses. Previously, the law only included cattle. The definition of livestock in this law includes horses, due to KEEP's successful effort to expand that definition in 2017. KEEP was supportive of the legislation and is grateful for the efforts of Rep. Matthew Koch (Republican, Paris) efforts to pass this bill.
HB 100 (Introduced)
HB 100 would shift the onus of cost to care for seized animals from the public to the animal's owner. Additionally, the bill would prohibit the destruction of seized animals except for humane reasons. KEEP supported this bill and oversaw more than 250 messages sent to legislators in support of the legislation; however, the bill was not ultimately considered during this session. KEEP will support efforts to advance this legislation in future sessions.
Expanded Gaming Legislation (Not Considered)
Several bills were introduced to allow for expanded gaming in Kentucky, but none were considered. KEEP carefully monitored these bills.
