ARTICLE: Bill gives tax break to foreign gamblers

[Louis Cypher]

By Robert Schoenberger
rschoenberger@courier-journal.com
The Courier-Journal


Foreign gamblers will escape U.S. taxes when they win on the Kentucky Derby and other American races under the corporate tax bill that President Bush is expected to sign.

The bill is the same legislation that provides a buyout of tobacco farm quotas.

The change clears a roadblock for the expansion of foreign betting on Churchill Downs' simulcast races.

It also adopts sweeping changes to dozens of federal taxes, including the repeal of a 30 percent tax on foreign gamblers' winnings on horse and dog racing. The National Thoroughbred Racing Association has pushed repeal for years, arguing that the tax discourages foreigners from betting on live broadcasts of U.S. races.

The tax applied to gamblers from countries that do not have tax treaties with the United States or had tax treaties that did not address the gambling tax. The treaties typically shield citizens from being taxed both at home and abroad.

For instance, gamblers in Australia, one of the more popular horse racing markets, have been subject to the 30 percent U.S. tax.

"It's a good thing for U.S. racing. It really changes the landscape," said Karl Schmitt, president of Churchill Downs Simulcast Network, which handled more than $2 billion in wagers on races broadcast from Churchill Downs Inc.'s racetracks last year.

Schmitt said the 30 percent tax on winnings has discouraged many gamblers from betting on U.S. races and has helped Hong Kong's racing industry. Schmitt said the company has not projected how much it stands to gain from the tax repeal. The Kentucky Derby day race card in 2003 attracted a 46 percent increase in international bets, but was still just 3 percent of the $140 million handle on Churchill races that day.

Schmitt said Churchill would be able to further expand its efforts to attract wagers from abroad. The company already pushes big event races such as the Derby in foreign markets, but after the repeal, it expects to have an easier time encouraging foreign bettors to wager on more routine races.

Keith Ashdown, vice president for policy at Taxpayers for Common Sense, a tax watchdog group, criticized the repeal, saying while each of the tax changes in the bill may make sense for their industries, the result is a massive reduction of tax revenues.

"It's a matter of priorities. In the final bill, we've prioritized the needs of international gamblers above (National) Guardsmen," Ashdown said in reference to potential budget cuts in the National Guard. "This bill really should have been written to address only specific trade issues."

Taxpayers for Common Sense estimated that the change to the gambling provision would cost the government $27 million a year.

In addition to repealing the gambling tax, the bill calls for suspension of a Civil War-era tax on businesses that produce, distribute or sell alcohol. The annual tax is $1,000 for distillers and brewers, $500 for wholesalers and $250 for retailers.

Brown-Forman spokesman Phil Lynch said the change will save his company a few thousand dollars each year. The National Association of Convenience Stores lobbied for the suspension of the tax.