04/23/2015 11:40AM

Crist: Players need to rally for tax relief


Over the next six weeks, we’ll learn if racing can have its first Triple Crown winner in 37 years. During that same time, horseplayers and the industry have an opportunity to help rectify an even longer drought: the lack of change in antiquated and unfair rules from the early 1970s regarding the taxation of pari-mutuel proceeds at the track.

Between now and June 2, the public has been invited by the Internal Revenue Service and the Department of the Treasury to comment on a proposal to overhaul the federal tax withholding and reporting of so-called gambling winnings. It is an historic opportunity to right a long-standing wrong that not only burdened horseplayers but also cost racing hundreds of million of dollars in lost revenue – money that could be supporting higher purses, improved facilities, and lower takeout throughout the sport.

Between now and June 2, horseplayers can voice their support for the reform through the National Thoroughbred Racing Association’s website. The NTRA, which has led the effort for this change, submitted its official response to the IRS and Treasury this week and will try to rally fans and industry organizations to support the change.

The NTRA’s memorandum, available at the website address above, painstakingly traces the history of the regulations and how they have become punitive and unrealistic in a changing wagering environment.

“[Current policy] does not reflect today’s wagering strategies, in which the vast majority of wagers are multi-horse and multi-race exotic bet types,” the NTRA letter says, “but instead reflects a bygone era when almost all wagers were straight win, place, or show bets that had virtually no chance of exceeding the 300:1 ratio of wagering proceeds to the ‘amount of the wager.’ [This] assumes that a bettor has won more than he or she has actually won based on a calculation of the amount wagered that ignores the actual investment in a single pari-mutuel pool. Due to this outdated and unfair method of calculating the ‘amount of the wager,’ excessive withholding and reporting are taking bettors’ winnings out of circulation – money that otherwise would be repeatedly re-bet.”

The change being proposed is a tiny one with enormous implications. Previous attempts to overhaul the entire system have been difficult to explain and have repeatedly failed – thanks in part to ignorant commentary such as a Wall Street Journal editorial deriding “tax breaks for horseplayers.” So, the strategy this time around is simply to change the definition of one key phrase – the “amount of the wager” – which would eliminate most of the problems.

As it now stands, someone who bets $1,000 into the pick six every day for a week and hits one for $6,000 on Day 7 is treated and taxed as if he made one winning $2 bet at odds of 2,999-1. He has lost $1,000 for the week, but the IRS pretends he has won $5,998 and confiscates a quarter of that. If the definition of “amount of the wager” is changed to reflect that he bet $1,000 and not $2 on the day he hit, the $6,000 in proceeds would not be subject to reporting or withholding because the winning payoff was 5-1 on his actual $1,000 investment, not 2,999-1 on some imaginary $2 investment.

This is not a benefit that applies only to people betting $1,000 a day. Someone who puts $48 into a trifecta or pick four currently has to fill out tax forms if the payoff is over $602 because the payoff theoretically was at least 300-1. Under the redefinition, the threshold in this case would rise to more than $14,000 – 300-1 on the actual $48 investment, not 300-1 on $2.

This small change would vastly reduce the number of transactions subject to unfair reporting and/or withholding, put hundreds of millions of dollars back into circulation, and woo back customers understandably tired of having cash withheld from their gross proceeds rather than their net winnings. Even bettors who rarely stray from win, place, and show should support this change, as it would prompt an immediate spike in the national betting handle that would lift all boats.

Tracks and ADWs should be exhorting their customers to support this change. This is the closest the industry has gotten to this long-overdue reform, and there might not be another chance.