Kentucky House Passes Bill Taxing Online and Phone Horse Racing Wagers

Despite an ongoing court battle to rid the state of 141 internet gambling sites, Kentucky’s House passed a bill taxing online and phone “advanced deposit wagers” on horse racing by an 85-8 margin. Now, the measure will be discussed in the Kentucky Senate.

Sites like TwinSpires.com, which is owned by the parent company of the Churchill Downs racetrack, operate legally in the state and allow residents to wager on the ponies online and over the phone. On Friday, Kentucky House Bill 368 passed by a 10:1 margin after Democratic Speaker Pro Tem Larry Clark brought the legislation to life. According to an article that appeared on Friday in the Louisville Courier-Journal newspaper, Clark asserts that up to $400,000 per year could be pulled down as a result of taxing online and phone bets just 0.5%.

One-third of the tax would go to the Kentucky Horse Racing Commission, one-third would go to the track the bet was placed with, and the final portion would supplement the track’s cash prizes. Clark told the Louisville media outlet, “I think that it’s a way for us to advance the tracks as far as adding more purse money… so I think it’s something the Senate would look at. They talked about last session, when they did not want to do slots, finding more revenue for (tracks). This is one avenue that would find more revenue for them.”

The Commonwealth of Kentucky is two months away from hosting the annual Kentucky Derby at Churchill Downs in Louisville. The “Fastest Two Minutes in Sports” plays out on the first Saturday in May every year and attracts celebrities and high rollers from around the world. In the past, online poker rooms like UB.com have held promotions in conjunction with the gala.

TwinSpires.com caps online and phone bets at $2,500 per transaction and a minimum deposit of $25 is required. The site has a mailing address in Kentucky, but is licensed in Oregon. Last year, the Kentucky legislature ultimately failed to approve a similar measure, which would have taxed internet and phone bets at a rate of 3.5%, or seven times the amount of the current version of the bill.

The Kentucky Justice and Public Safety Cabinet, led by J. Michael Brown, has been on an 18-month witch hunt against the owners of 141 internet gambling domain names, including those belonging to industry giants PokerStars and Full Tilt Poker. In September 2008, the State seized the rights to the domain names and sought their forfeiture before members of the internet gambling industry stepped in. The Interactive Media Entertainment and Gaming Association (iMEGA) has led the charge on behalf of the 141 sites in jeopardy.

In October 2009, lawyers representing iMEGA, the Interactive Gaming Council (IGC), and several of the sites at risk pleaded their case in front of the Kentucky Supreme Court. A ruling cannot be handed down until March 18th at the earliest. Other possible release dates for the Supreme Court’s verdict are April 22nd, May 20th, June 17th, August 26th, September 23rd, October 21st, November 18th, and December 16th.

The Commonwealth charged that the 141 domains constituted “gambling devices,” a term that is traditionally reserved for physical objects like slot machines and roulette wheels that you’d find in an illegal underground casino. Judge Thomas Wingate upheld the State’s actions in an October 2008 ruling before the Kentucky Court of Appeals overturned it by a two-to-one margin in January 2009. During October’s Supreme Court hearing, State officials repeatedly noted that Kentucky’s legislature had not yet acted on the legality of internet gambling outside of horse racing.

The Courier-Journal added that Illinois and Virginia had taken similar approaches to taxing online wagers on horse racing.

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