File-Churchill Downs

Horses work out as the sun rises at Churchill Downs Friday, April 30, 2021, in Louisville, Ky. The 147th running of the Kentucky Derby is scheduled for Saturday, May 1.

(The Center Square) – A special legislative panel charged with reviewing Kentucky’s taxation policy on pari-mutuel betting met for the first time recently, but based on comments from one of its co-chairs, a recommendation for tax increases may be a longshot.

The Task Force on Pari-Mutuel Wagering Taxation was created after the General Assembly passed legislation in February that formally allowed the state’s horse racing and harness tracks to offer historical horse racing (HHR) machines onsite and at satellite facilities.

HHR machines look identical to slot machines at a casino. The difference is the outcome of a player’s bet is determined by selections made on a previously run race.

The machines have been in the state for a decade. However, the Kentucky Supreme Court issued an opinion last year that said some of the machines did not meet the definition of pari-mutuel wagering. That necessitated the legislative action.

The bill passed, but some supporters raised concerns about the tax structure on the machines. Currently, the state tax is 1.5% of the total HHR handle, or money wagered. That money is divvied between the several equine funds and the state’s general fund.

Critics have said the state is missing out on an opportunity to raise more revenue that could address the state’s needs.

An agreement was reached to have a panel review the tax structure, and that group would then bring recommendations to the legislature for the 2022 session.

State Rep. Adam Koenig, R-Erlanger, a task force co-chair, noted his colleagues' concerns about the effective tax rate in his closing remarks Friday.

“That's something that we have not yet figured out how we're going to address in this committee, but it will be addressed at some point soon,” he said.

According to the KHRC, more than $4.1 billion have been bet on HHR machines at tracks and satellite facilities through the first 11 months of the 2021 fiscal year. At 1.5%, that means the state received $61.7 million, After contributions to the equine funds, the general fund has received $27.4 million.

The total tax represents 17.3% of the track’s $356.6 million in revenue for the fiscal year to date.

By comparison, Indiana’s two racetrack casinos pay a 25% tax on the first $100 million of total win from slots and table games, a 30% tax on the next $100 million and 35% on revenues beyond that.

Senate Majority Floor Leader Damon Thayer, R-Georgetown, the other co-chair, called the tax structure on pari-mutuel wagering complex.

“But I will say this: it's working pretty well,” said Thayer, who has worked in the horse racing industry. “And I don't think it's a foregone conclusion that we make changes. I'm pretty pleased with the way it's going right now.”

Kentucky’s tracks, especially its thoroughbred facilities, have credited HHR machines with generating the revenue needed to increase purses for live racing. Racing officials say that’s helped tracks attract more horses. With more horses in races, odds typically improve as bettors have more choices.

Thayer added that once a new HHR facility opens at Turfway Park in northern Kentucky, the state will likely have the most lucrative purses in the sport. With that in mind, he urged his colleagues on the task force to take the Hippocratic oath and pledge to do no harm to the racing industry.

“We don't have a lot of signature industries,” Thayer said. “I count two of them, bourbon and horses. And I've said before, without bourbon and horses were West Virginia or Mississippi… They're wonderful states, but they don't have the signature industries that we have.”

He added that at the task force’s next meeting in August, members will learn more about the overall economic impact of the equine industry in the state, which Thayer said is responsible for 100,000 jobs and $3 billion in economic activity.