Congress did not renew three-year depreciation for 2018 as part of the Tax Cuts and Jobs Act (TCJA) passed in December 2017, which meant a seven-year schedule would now apply to yearlings in some cases. The TCJA did include 100% bonus depreciation and a $1 million Section 179 expense allowance for qualified depreciable property, two investment incentives that lessened the need for three-year in many cases. However, three-year depreciation continues to be a beneficial option for many racehorse owners.
This is because many horse owners are not eligible for Sec. 179 expensing due to the net income requirement and choose to elect out of the 100% bonus depreciation. One of the main reasons to elect out of bonus depreciation is to better match deductions with corresponding income. A 3-year life (depreciated over a 4-year period) is more realistic for a horse’s racing career versus the 7-year life (8 years).
As we have done several times over the past few years, the NTRA sought a legislative vehicle to address expired or expiring tax provisions such as three-year depreciation. We asked that at a minimum, the House and Senate retroactively extend three-year depreciation through 2020 in order to minimize potentially severe disruptions to the 2018 and 2019 tax-filing season. We argued that action was warranted because uncertainty with regard to eventual congressional action on tax extenders was undermining the effectiveness of these incentives and stands as a barrier to additional job creation and economic growth in the private sector.
On December 20, 2019, President Trump signed into law the Taxpayer Certainty and Disaster Relief Act of 2019 (the “Act). The Act retroactively reinstated or extended several individual and business federal income tax provisions including three-year tax depreciation for all racehorses through the end of 2020.
Total handle on Thoroughbred racing grew 3.3% in 2018, the first full year that the industry operated under the modernized regulations regarding the withholding and reporting of pari-mutuel proceeds adopted by U.S. Treasury Department and Internal Revenue Service (IRS) in September 2017.
Below is a statement from NTRA President & CEO Alex Waldrop on the 2018 handle increase:
“Boosted by a growing economy, a second Triple Crown winner, continued growth of racing’s big days and a full year operating under the new tax withholding and reporting regulations, 2018 proved to be a strong year for Thoroughbred racing” said Alex Waldrop, President & CEO of the NTRA. “It is worth noting that total handle topped $11 billion for the first time since 2010 and at 3.3%, growth in handle was the largest since 2000. Perhaps most intriguing were the per race day increases of 6.58% in handle and 6.81% in purses despite fewer races and race days.”
The U.S. Treasury Department and the Internal Revenue Service (IRS) announced in September that they would formally adopt modernized regulations regarding the withholding and reporting of pari-mutuel proceeds. The National Thoroughbred Racing Association (NTRA) had long pressed for these updated regulations that will allow horseplayers to keep more of their winnings, thereby increasing the amount wagered on U.S. pari-mutuel racing by as much as 10 percent annually, or upwards of $1 billion, according to independent estimates.
Under the new regulations, the IRS will consider the inclusion of a bettor’s entire investment in a single pari-mutuel pool when determining the amount reported or withheld for tax purposes, as opposed to only the amount wagered on the correct result.
For example, the amount wagered by a Pick Six player who hits with one of 140 combinations on a $1-minimum wager now will be $140, which is the total amount bet into the Pick Six pool. This more accurate calculation will remove the significant reporting and withholding obligations on horseplayers and the unnecessary paperwork for the IRS that was a result of the prior rule that used only the $1 bet on the single winning combination as the amount wagered.
Senior members of the Department of Treasury met with the NTRA and other industry participants to learn more about the horseplayer withholding issue, outlined in a 2014 letter to Treasury. Also in attendance was Rep. John Yarmuth (D-KY), who has been instrumental in building support for modernizing current withholding rules to better and more fairly represent today’s wagering menu.
Treasury Department officials indicated that action may be forthcoming as part of a review of IRS Form W2-G, used by taxpayers to report gambling winnings and any Federal income tax withheld on those winnings. In March 2015, the Treasury Department and Internal Revenue Service (IRS) issued a Notice of Proposed Rulemaking and Public Hearing (Notice) that opens the door to the possible addition of pari-mutuel gambling winnings to updated reporting and withholding requirements being developed for bingo, keno and slot machine players. NTRA continues to work with the Treasury Department as well as supporters on Capitol Hill to change the definition of a bet or a wager.
Seventeen members of Congress joined in supporting a key initiative of the NTRA, a request that the IRS clarify its definition of the “cost of a wager” in determining whether a winning horse player is subject to IRS reporting and withholding. Horseplayers wagering on pari-mutuel races currently are subject to reporting of winnings of $600 or more and automatic Federal tax withholding on pari-mutuel winnings of $5,000 or more at odds of at least 300-1. The “cost of a wager,” now defined simply as the single winning bet the player makes (versus the total investment made), is at the center of these calculations, which frequently trigger reporting and/or withholding for horseplayers. Withholding reduces players’ liquidity during handicapping and adversely impacts pari-mutuel handle and purses. Withholding levels for pari-mutuel winnings were last changed (from $1,000 to $5,000) in 1992. Reporting levels have not changed since the mid-1970s.
A provision that retroactively extended three-year tax depreciation for all racehorses was passed in December by the United States Senate as part of H.R. 5771, the Tax Increase Prevention Act of 2014. The House of Representatives also overwhelmingly passed H.R. 5771 to extend retroactively through the end of 2014 numerous provisions that expired or were reduced at the end of 2013. With the support of Senator Mitch McConnell (R-KY), the three-year depreciation schedule originally passed into law as part of the 2008 Farm Bill, giving the provision a five-year life span. In anticipation of the bill’s sunset, Rep. Andy Barr (R-KY) in 2013 introduced the provision in a standalone bill, the Race Horse Cost Recovery Act, which became part of H.R. 5771.
Legislation that would eliminate the automatic 25 percent Federal withholding tax on pari-mutuel winnings of $5,000 or more if the odds are at least 300 times the amount wagered was introduced on April 28 by Rep. John Yarmuth (D-KY). The “Pari-Mutuel Conformity and Equality Act of 2009” – or PACE Act (H.R. 2140) would end this unfair taxation of horseplayers.
In May 2008, NTRA secured passage of legislation that was first introduced in the 109th Congress. The Equine Equity Act (EEA), part of the broader Farm Bill, allows for accelerated depreciation of racehorses from seven years (in most cases) to 36 months over four tax years. The EEA was effective January 1, 2009. Its initial application extends through the five-year term of the Farm Bill and may be renewed with the next Farm Bill (2012).
After 10 years of attempts, Congress passed an Internet gaming bill that effectively banned the use of credit or other forms of payment for any type of online gaming except intrastate and tribal gaming and pari-mutuel wagering on horse racing, as authorized by the amended Interstate Horseracing Act (IHA).
Legislation to provide horse owners and breeders significant tax benefits was introduced by Senator Mitch McConnell (R-KY). The Equine Equity Act (EEA), introduced as Senate Bill 1528, was later introduced in the House by Representative Ron Lewis (R-KY) as H.R. 4151. The EEA included changes in the depreciation schedule and capital gains holding period for racehorses, benefiting horse owners and breeders. These two tax components of the legislation failed to move during the 109th Congress; however, accelerated by the devastation of Hurricanes Katrina and Rita, horse breeders became eligible for Federal disaster assistance during droughts and other farm-related emergencies with a provision in the Agriculture Appropriations bill. This legislation was originally included in EEA and put horse breeders on equal terms with producers of most types of livestock with respect to disaster-assistance programs offered by the U.S. Department of Agriculture.
International simulcasting received a boost when the NTRA secured passage of legislation to eliminate a 30% withholding tax on winnings by foreign nationals wagering into U.S. pools. This allowed U.S. tracks to accept wagers from countries such as Canada, which previously had been forced to create their own wagering pools on U.S. racing. As of 2007, all racing jurisdictions are now offering co-pooled wagering with Canada.
To promote and facilitate the accumulation of voluntary contributions from members of the NTRA for the support of political parties and candidates for elective office in the United States, the NTRA activated the Federal Political Action Committee (PAC) now known as Horse PAC. It has become the nation’s largest gaming PAC in terms of annual contributions and is dedicated to the support of candidates who understand horseracing’s issues.
Industry foresight led to an important amendment to the Interstate Horseracing Act (IHA). Along with the American Horse Council, lobbyists and other industry organizations, the NTRA helped secure the IHA amendment that legalized pari-mutuel wagering on horse racing via the Internet. Years later, this move made the IHA a focal point of legislation designed to ban online wagering.
How can Federal lobbying help make our industry more competitive?
Primarily by seeking tax legislation that benefits industry stakeholder groups such as horse owners, breeders, racetracks, advance deposit wagering service providers and players but also by addressing select issues that directly impact the economics of racing, such as Internet wagering, immigration and matters that affect farmers, ranchers and other agricultural producers.
How does the NTRA lobby on Capitol Hill?
NTRA retains Washington, D.C.-based The Alpine Group to lobby on issues specific to pari-mutuel horse racing and breeding. The Alpine Group coordinates its efforts with the NTRA’s in-house legislative team and with the American Horse Council, a national association representing more than 160 equine breeds.
How is the Legislative Action Campaign funded?
The Legislative Action Campaign raises funds through three programs: the ¼% Sales Check-off, NTRA Foal Program and Horseplayers’ Coalition membership. For the former, buyers, sellers and consignors may support the Campaign by pledging ¼ of one percent on the price of their horses sold at Keeneland, Fasig-Tipton, Ocala Breeders’ Sales Company, Barretts, Breeders’ Sales Company of Louisiana and the Washington Thoroughbred Breeders and Owners Association. Every $1,000 in a horse’s sale price equals $2.50 to the Campaign. Individuals who choose not to participate in auction sales may pledge contributions through the NTRA Foal Program. Others may support the Campaign by joining the Horseplayers’ Coalition, a group whose objective is to seek legislative and regulatory solutions to tax and business issues that impact pari-mutuel racetracks and their customers.
How do I participate?
Sellers, consignors and designated agents may “pre-commit” their pledge on sales entry forms. Buyers, and sellers who miss the deadline for pre-commitments, can pledge until the close of the sale billing. Owners and breeders may contribute through the Foal Program by regular mail. Horseplayers and other individuals may become members of the Horseplayers’ Coalition by joining the National Horseplayers Championship (NHC) Tour.
Who is eligible to participate?
The Campaign’s supporting programs are open to participation by individuals, corporate entities (partnerships, farms, etc.), U.S. citizens and foreign nationals.
How much can I contribute?
There is no limit on the amount that can be contributed.
Use the links below to access current bills and legislation affecting the horse racing industry and to contact your Federal representatives in Congress.
Ask your representative to join the Congressional Horse Caucus. This bipartisan group was formed to educate members of the House of Representatives and their staffs about the importance of the horse industry in the economic, agricultural, sporting, gaming and recreational life of the nation.
Contact your U.S. Congressperson
Contact your U.S. Senator
Coronavirus Preparedness Response and Supplemental Appropriations Act (H.R. 6074) – https://www.govtrack.us/congress/bills/116/hr6074
Allows $1 billion in loan subsidies to be made available to help small businesses, small agricultural cooperatives and non-profit organizations which have been impacted by financial losses as a result of the coronavirus. Contact your local small business administration office for more details on how to access this new loan program.
Families First Coronavirus Response Act (H.R. 6201) – https://www.govtrack.us/congress/bills/116/hr6201
Provides paid leave, establishes free testing, protects public health workers and provides important benefits to children and families for those impacted by the coronavirus. Protections for the employers of affected workers also are included in the legislation in the form of tax credits to offset the costs of providing emergency sick leave.
Animal and Human Welfare
Horse Racing Integrity Act of 2019
Introduced by: Rep. Andy Barr (R-KY) and Rep. Paul Tonko (D-NY)
Legislative Action: This bill establishes the Horseracing Anti-Doping and Medication Control Authority as an independent, private non-profit corporation with responsibility for developing and administering an anti-doping and medication control program for (1) Thoroughbred, Quarter, and Standardbred horses that participate in horse races; and (2) the personnel engaged in the care, training, or racing of such horses.
The term “Authority” means the independent Horseracing Anti-Doping and Medication Control Authority.
The Federal Trade Commission (FTC) shall have oversight over the Authority. An interstate compact may be established after five years to take over the Authority’s duties.
Effective upon the effective date of the anti-doping and medication control program as set forth in section 10 of this Act, the Authority shall exercise authority over all horseracing anti-doping and medication control matters consistent with the provisions of this Act.
The Authority shall be established as a private, independent, self-regulatory, nonprofit corporation with responsibility for developing and administering an anti-doping and medication control program for covered horses, covered persons, and covered horseraces consistent with the provisions of this Act.
There is established the Horseracing Anti-doping and Medication Control Authority, a private, independent, self-regulatory, nonprofit corporation with responsibility for developing and administering an anti-doping and medication control program for covered horses, covered persons, and covered horseraces.
The Authority shall be governed by a board comprised of the following:
- The chief executive officer of the United States Anti-doping Agency,
- six individuals, selected by the United States Anti-Doping Agency from among members of the board of the United States Anti-Doping Agency,
- six individuals selected by the United States Anti-Doping Agency, from among individuals who represent different equine constituencies.
Program elements shall include:
- anti-doping and medication control rules,
- lists of permitted and prohibited substances and methods,
- a prohibition on the administration of any such substance within 24 hours of a horse’s next racing start,
- a process for sample collection,
- testing and laboratory standards,
- the undertaking of investigations,
- procedures for investigating, charging and adjudicating violations and for the enforcement of sanctions for violations,
- a schedule of sanctions for violations,
- disciplinary hearings,
- management of violation results, and
- programs for related research and education.
Initial funding to establish the Authority and underwrite its operations prior to the effective date shall be provided by loans obtained by and donations made to the Authority. For subsequent funding, the Authority shall determine and provide to each State racing commission the estimated amount required per racing starter to fund the horseracing anti-doping and medication control program for the coming year.
Bill Referral: Referred to the House Committee on Energy and Commerce
Companion Bill: S. 1820