Pari-Mutuel Wagering Task Force Receives Tax Overview

Kentucky’s signature horse racing industry became the focus of the first Pari-Mutuel Wagering Taxation Task Force meeting on Friday. The task force will study the dollars tied to betting on horses as it looks to revamp how the state taxes facilities, companies, and owners. Unlike other businesses that operate with the jurisdiction of cities, tracks are exempt from paying local occupational taxes on net profits or gross receipts.

Friday’s meeting was the first of a monthly series that may lead to proposed changes during the 2022 Regular Session of the Kentucky General Assembly. Lawmakers heard from Waqas Ahmed, director of pari-mutuel wagering and compliance for the Horse Racing Commission, and Jon Roeneker and Jennifer Hays from the Legislative Research Commission (LRC).

Hays, the LRC Appropriations and Revenue Committee staff advisor, explained the taxation process. She said that besides standard income, property, and sales taxes, the racing industry pays license fees, an admission tax, and a pari-mutuel tax. Pari-mutuel tax rates vary depending on the type of racing, with live racing taxed from 1.5% to 3.5%, historical horse racing taxed at 1.5%, simulcast racing taxed at 3%, and advance deposit wagering taxed at 0.5%.

Eight tracks operate in Kentucky: Churchill Downs, Ellis Park, Keenland, Kentucky Downs, Turfway Park, Oak Grove, Red Mile, and Corbin Harness Racetrack.

Senate Floor Majority Leader Damon Thayer (R-Georgetown) co-chairs the task force. Thayer said that while the state requires tracks to charge an admission tax, there are no turnstiles at tracks, and only Churchill Downs and Keenland collect the fee. He pointed out that the Kentucky Derby and Kentucky Oaks would be the largest generators of that tax.

While the task force will look at the full economic impact of the racing industry, LRC provided some insight into how much bettors wager.

According to data from the Kentucky Horseracing Commission, bettors placed $46.1 million on live horse racing from July 2020 through May 2021. They bet $4.1 billion on historic racing.

Senator Thayer quickly pointed out that pari-mutuel wagering means that one is betting against others who bet, so a large portion of the money goes to others who wager and not the tracks. “That is not revenue,” he said. “Eighty percent (80%) to 90%, and we’ll get into that breakdown in future meetings, pays winning bettors, and then the remainder is where the taxes come from, where the purses come from, where the track operating costs come from, and where their profit comes from.”

According to the Kentucky Horse Racing Commission, 81.6% of all money wagered is bet on historic horse racing; 9.5% is bet on simulcast; live racing accounts for 5.5%, and advanced deposit account wagering totals 3.4%.

LRC broke down payments to live and historic horse racing. Of a $2 bet placed on live racing, the track pays $1.61 to the winner, $0.34 is net commission, $0.03 is Kentucky Excise Tax. The track also gives $0.01 to the Backside Improvement Fund. Historic horse racing pays $1.83 of a $2 bet to winners while $0.14 is collected as net commission, and $0.03 is the Kentucky Excise Tax.

Senator Julie Raque Adams (R-Louisville) asked how much of the proceeds went to prevent problem gambling. Co-Chair Representative Adam Koenig (R-Erlanger) said the task force would discuss that topic at a future meeting.

The task force meets again on August 9 at 3:00 p.m. EDT.