01/17/2008 12:00AM

Tracks need to support tax-reform push


NEW YORK - The announcement Thursday that the qualifying contests for the DRF/NTRA National Handicapping Championship are being linked as a yearlong NHC Tour is good news for tournament enthusiasts. There will be separate prize pools beyond each contest for the Tour leaders at year's end, additional incentive for players who have qualified early in the year to keep entering subsequent tournaments, and a $2 million bonus if the Tour winner goes on to capture the main event.

Players who register for the NHC Tour for $125 (Daily Racing Form is a title sponsor for the NHC but receives no revenue from it) will get some other perks and goodies, the most interesting of which is automatic enrollment in the new NTRA Players' Coalition, which will be formally launched later this spring. The coalition, according to the NTRA, will "focus on seeking legislative and regulatory solutions to tax and business issues that impact pari-mutuel racetracks and their customers and provide grass roots support for the NTRA's lobbying efforts on Capitol Hill."

The first issue on the agenda will be to press for reform of the outdated and punitive Internal Revenue Service rules on the reporting and withholding of parimutuel wagering proceeds and the treatment of them on individuals' tax returns. NTRA lobbyists on Capitol Hill made some progress on the issue this year, finding a handful of sympathetic legislators and getting the attention of the House Ways and Means Committee, but were ultimately unsuccessful in getting reform legislation passed.

This was a blow to horseplayers who had any gambling winnings reported or withheld in 2007. The already unfair system, where occasional winning proceeds are reported and/or taxed without regard to total investment or offsetting losses, has grown worse because of Congressional inaction on the Alternative Minimum Tax crisis. Originally designed as a safeguard to ensure that the very wealthy did not escape income tax altogether through shelters and subterfuge, the AMT is swallowing more taxpayers each year because it was never indexed to inflation. As many as 5 million additional taxpayers are expected to be subject to the AMT this year.

The reason it's particularly brutal when it comes to gambling winnings is that reportable proceeds have to be added to one's gross income, while offsetting losses, rather than being cleanly netted out against those winnings, can only be claimed as itemized deductions. The losses do not count against the income thresholds at which the AMT kicks in. So a horseplayer who hits one $10,000 pick four or superfecta during the year may find himself subject to the AMT and facing a higher tax bill because of it, even if he lost $15,000 trying to hit another one over the rest of the year.

Gambling tax liabilities were once viewed, by both industry officials and many casual players, as a nice problem to have and one that affected only a handful of high-level professional players. Actually, those pros can usually make out somewhat better taxwise by declaring gambling as their primary business and demonstrating they operate it as such. A bigger burden falls on the weekend player who has a different source of primary income. One of the purposes of the coalition is to demonstrate that this is a broad-based issue in a game where exotic wagers with potentially taxable payoffs command a higher share of the total handle each year.

Yet the segment of the industry that really needs to step up and flex its muscle on this issue is not the customers but the track operators, who have been astoundingly silent about it even though it increasingly affects their own profitability. Money unnecessarily withheld from payoffs is taken directly out of circulation, reducing churn and handle. One of the first things the industry needs to do is undertake a study of payoffs, withholdings, and tax liabilities to figure out just how much it is costing itself by continuing inattention to this issue. The results could be staggering, and tax reform could lead to a significant and immediate spike in handle, which in turn would boost purses and revenue to tracks.

It's encouraging that the NTRA has identified tax reform as a high priority, and a formal organization of aggrieved taxpayers can only help their efforts. Yet a major commitment from the tracks is needed to correct this longstanding injustice, which is hurting them, their customers, and the economic health of the game more than ever.