Working for Players in Washington

By Alex Waldrop, President and CEO of the NTRA

Last week, the NTRA’s lobbying team secured introduction of important federal legislation to protect our $1.3 billion market for advance deposit wagering.
The bill, H.R. 5599, clarifies the relationship between the Wire Act, a 1961 federal criminal statute aimed at illegal bookmaking, the Interstate Horseracing Act (IHA), a civil statue passed in 1978 and amended in 2000 to permit online pari-mutuel wagering on horse races, and the 2006 Unlawful Internet Gambling Enforcement Act (UIGEA), designed to stop the use of credit cards for illegal online gambling but not our lawful, IHA-governed transactions.

It has long been settled that we are authorized to engage in interstate wagering via the IHA and that Congress, in its own words, passed the IHA to “further the horseracing and off-track betting industries in the U.S.”

But sometimes, Congress’s messages are ignored. Case in point: the Justice Department, which champions the Wire Act and UIGEA, continues to ignore the clear message that Congress sent when it passed the IHA, amended it in 2000 and exempted it from UIGEA in 2006.

Ongoing efforts by the Justice Department to confuse and obfuscate the clear authorization for our industry to conduct interstate wagering under the IHA, coupled with implementation of UIGEA regulations on June 1, have made a few credit card companies more skittish about accepting wagers from our players – hence, the introduction of H.R. 5599.

H.R. 5599 simply restates what we already know – that online wagering on horse racing is legal under the IHA, and that laws like the Wire Act and UIGEA only apply to illegal activities.

While this issue seems simple to the horseracing industry, which has operated under the IHA for more than 30 years, members of the financial services industry are still in a period of adjustment under the UIGEA regulations. H.R. 5599 is designed simply to give credit card companies as much comfort as possible so that they will continue to process our wagers.

As players increasingly place their wagers online making account wagering the most important growth area for wagering on horse racing, we have to stay alert to every potential obstacle to keeping that channel as open as possible.  That’s part of what we do at the NTRA.

And that’s not all we are attempting to do for the benefit of horseplayers.  Earlier this week, we quietly filed a letter with the IRS that may for the first time put an important issue on the list of priorities for the IRS – withholding on winning pari-mutuel wagers.  We have been approaching this from a legislative standpoint for the past two Congresses. So we are taking a belt-and-suspenders approach and tackling the issue through regulatory channels, too.

The current rules that apply to winnings from wagering on horse racing have been in place for many years. However, they do not reflect appropriate or equitable withholding and reporting for the way most wagering is done today.  Tax laws require withholding when the wagering proceeds are more than $5,000 if the amount of such proceeds is at least 300 times as large as the “amount wagered.”   This basically limits withholding to winnings on exotic bets.

The IRS has long taken the position that the “amount wagered” means that no matter how many combinations a patron bets into a pool in an attempt to have a winning ticket, only the cost of the one winning combination is considered as the amount wagered for withholding purposes.  They do not take into account other wagers involving other combinations placed in that same pool which did not produce any winnings.  The net effect of this position is to artificially force many payoffs above the 300/1 payoff threshold for withholding purposes.

For example, if you spent $100 to win $10,000 on the Pick-4, that’s a payoff of 100/1, which is under the withholding threshold.  But the IRS says that you actually spent only $1 (assuming a minimum wager of $1 on the Pick-4) to win that $10,000 which is 10,000/1 odds.  Their interpretation gives the government the right to take 25% of your winning bet, or $2,500, and hold that amount until you file your taxes after the end of the year.

No one bets a Pick-6 in one single ticket of only six picks.  Players spend hundreds, if not thousands of dollars, on multiple combinations trying to win an exotic wager.  Limiting the amount wagered to the single combination that happens to be the winning ticket is a legal fiction only the IRS can love.

We have asked the IRS to change the way it calculates the “amount wagered” to include the total amount wagered by the player into the pari-mutuel pool from which the proceeds of the winning wager are paid.   This will have the effect of radically reducing the number of tickets subject to IRS withholding – perhaps by as much as 80%.
Players tell us they don’t object to paying taxes on their winnings, but withholding unnecessarily punishes them by forcing them to file tax returns seeking refunds even when they lost money for the year.  Adding insult to injury, many players never get the withheld amount back due to quirks in the tax filing rules including alternative minimum tax which gives the IRS license to tax income and ignore certain expenses including gambling losses.

Lately, it’s been hard to get some people in the industry to see the need for a national strategy for horse racing.  We get so focused on individual or organizational challenges that we forget about the larger picture where we all can benefit from acting with a common purpose.   The NTRA's federal legislative efforts are one clear example of the benefits we all can derive from collective action.

But other opportunities for bettering our business through national cooperation and collaboration abound.  Identifying and developing those opportunities - like the NHC, the Safety & Integrity Alliance and the Advantage group purchasing plan - are jobs we know well at the NTRA.  Your support and ideas for further collaboration are valued and appreciated.

What are some other local problems for horsemen, tracks and fans that can best be addressed at the national level?  Send me your ideas.

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