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Ky. legislators mulling tax bump for ‘historical racing’ slots

A rendering of what Churchill Downs' new Derby City Downtown will look like after construction.
Provided by Churchill Downs
A rendering of what Churchill Downs' new Derby City Downtown will look like after construction.

Kentucky lawmakers are mulling whether to increase the tax rate on “historical horse racing,” the slot machine-like form of gambling that bases results on already-run races.

Though historical racing machines have been allowed to operate in the state for more than a decade, the legislature didn’t officially sanction them earlier this year afteryears oflegalchallenges.

Debate over the issue has been acrimonious anddivided Republicans in the state legislature in 2021, with some conservatives opposing gambling on religious grounds.

The bill finally passed the GOP-led statehouse with the help of Democrats (only 36 Republicans in the 100-member House voted in favor of it), many of whom called for the industry to be taxed at a higher rate to bring in more money for the state’s ailing coffers.

But during a legislative hearing on Monday, a University of Louisville professor said bumping up the tax on historical racing machines wouldn’t be the financial windfall some have hoped for.

Thomas Lambert, a professor at the UofL College of Business, said a tax increase would lead to a decline in patrons.

“Because the establishments have to decrease the payout to patrons, and the patrons end up going somewhere else—across the river to Cincinnati or Indiana, what have you,” Lambert said.

Lambert said gambling follows the economic concept of “elasticity”—when a price increase for a product leads to a more-than-proportional decline in demand.

Legislators have been studying whether to increase the tax on historical racing this year in a special committee called thePari-Mutuel Wagering Taxation Task Force.

But Sen. Damon Thayer, a Republican from Georgetown and co-chair of the panel, isn’t interested in raising taxes on the industry.

“The general fund is going to be getting more revenue regardless of whether we do something or do nothing in the next session or future sessions,” Thayer said.

“It’s called growth. It’s called jobs, economic opportunity. Every one of these places opens up, creates new jobs, those people are paying taxes.”

The historical racing industry is largely an outcropping of—and owned by—the state’s major racetracks: Churchill Downs, Keeneland and the Red Mile. Five of the so-called “racinos” have popped up across the state, including a planned venue in downtown Louisville,announced last week.

According to a WDRB analysis, Kentucky taxes its historical racing machines at a fraction of the rate (18%) Indiana and Ohio tax casino revenues (27% and 34%, respectively).

Kentucky generated about $15 million from taxes on historic racing in 2020, an amount critics say is too low when compared to the $3 billion handle for the industry.

During this year’s legislative session, a group of 17 organizations, including the Kentucky Education Association, the Kentucky Mental Health Coalition and the Kentucky Coalition Against Domestic Violence, sent a letter to lawmakers urging them to raise taxes on the machines.

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