The Kentucky Horse Racing Commission (KHRC) recently approved a controversial proposal to allow racetracks in the Commonwealth to card races where the competing horses would not be allowed to be administered furosemide on race day. Furosemide, an anti-bleeding medication commonly known as Lasix, is intended to decrease the effects of exercise-induced pulmonary hemorrhage (EIPH). While some initially thought the vote could have an impact at the 2015 Breeders’ Cup World Championships, which is scheduled to be run at Keeneland on October 30-31, Keeneland President and CEO Bill Thomason said he does not expect Keeneland to schedule any Lasix-free races until 2016.
Wagers and W-2GS
The 141st running of the Kentucky Derby is upon us. Although most taxpayers have filed their 2014 returns with the IRS, cashing a winning ticket on May 2nd could come with a price. Racetrack winnings, like other gambling income, are subject to federal income tax. Currently, the Internal Revenue Service permits taxpayers to deduct gambling losses against winnings. The tax-code’s treatment of racetrack gambling proceeds has not changed much over the years, but many handicappers were relieved to see that the exemption escaped the new limits on itemized deductions that Congress enacted in 2013.
A Promise of Protection: The Right of First Refusal for Recreational Horse Owners
One feature of many equine transactions is that the seller often conditions the sale of a horse on the buyer’s promise to notify the seller when the buyer wishes to sell the horses and give the original seller a chance to repurchase the horse. This is known as the Right of First Refusal (“RFR”). RFR provisions can often be found in sophisticated equine transactions involving race and show horses.
Breeders’ Cup Tax Exemption to Win
By: Kara Beer, Staff Member
Kentucky just passed a bill that will reinstate a tax break for Breeders’ Cup. In October 2015 Keeneland, in Lexington, Kentucky, will host the Breeders’ Cup.[i] This bill, House Bill 134, will reinstate the pari-mutuel tax exemption that was enacted in 2010, when Churchill Downs in Louisville, Kentucky hosted the Breeders’ Cup.
Racetracks that conduct pari-mutuel wagering on live horse races are required to pay between 1.5 and 3.5% of all money wagered.[ii] However, in 2010, Kentucky enacted KRS 138.510 (which has since been amended), which created tax exemptions on pari-mutuel wagering.[iii] The 2010 bill provided a tax exemption for racetracks that hosted an “international horse racing event in 2010” that distributed $15 million or more in purses during the event.[iv] In addition, the bill required the organization responsible for selecting the location to “contractually agree to conduct the international horse racing event” in Kentucky in 2011 or 2012. [v] Breeders’ Cup signed a contract with Churchill Downs and subsequently the track hosted the event in both 2010 and 2011.[vi] Due to this contract, Breeders’ Cup qualified for the pari-mutuel tax exemption and enjoyed this exemption in both 2010 and 2011.
Prior to the Senate’s approval of the bill, this tax exemption was no longer in effect. The 2010 bill had a caveat in place. The bill stated that after 2013, the tax exemption would remain in effect for the international horse race only if “the event returns within three years of a previously-held international horse racing event.” In order to qualify for this exemption, Kentucky would have to have hosted Breeders’ Cup by the year 2014; however, Santa Anita Park in Arcadia, California hosted it instead in 2014.[vii] The current version of KRS 138.510 mentions nothing about tax exemptions for international horse racing events in the state (in fact, the only tax exemption is for “live harness wagering at a county fair”).[viii]
House Representative David Osborne said this tax exemption will help to put Kentucky on par with other racing states, because Kentucky charges a greater wagering tax than any other state.[ix] Although this tax exemption will cost the state about $1 million,[x] Breeders’ Cup brought an estimated $53.3 million in revenues across the state in 2010 and thus the enormous economic potential offsets this loss.[xi] However, it is interesting that Governor Beshear approved this bill despite being unable to require Breeders’ Cup to return in the following year, as he did in 2011, because Breeder’s Cup has already announced Santa Anita Park will host the event again in 2016.[xii]
[i] Breeders’ Cup Announces Keeneland as the Host of 2015 Breeder’s Cup (June 24, 2014), breederscup.com, http://www.breederscup.com/media-center/press-releases/2014-06-24-2.
[ii] KRS § 138.510.
[iii] KRS § 138.510 (amended 2013) available at, http://www.lrc.ky.gov/Statutes/statute.aspx?id=28762.
[iv] Id.
[v] Id.
[vi] Breeders’ Cup Selects Churchill Downs to Host 2011 World Championships, churchilldowns.com (June, 5, 2010), http://www.churchilldowns.com/news/archives/breeders-cup-selects-churchill-downs-to-host-2011-world-championships.
[vii] 2014 Breeders’ Cup World Championship to Be Held At Santa Anita Park, breederscup.com (June 10, 2013), http://www.breederscup.com/article/2014-breeders-cup-world-championships-be-held-santa-anita-park.
[viii] Id. § 138.510(1)(d)
[ix] Gregory Hall, Breeders’ Cup Tax Break Nears Finish, The Courier Journal (Mar. 9, 2015), http://www.courier-journal.com/story/news/politics/ky-legislature/2015/03/09/breeders-cup-tax-break-nears-finish/24668413/.
[x] Bill Offering Tax Break for Keeneland Advances, kentucky.com (Mar. 9, 2015), http://www.kentucky.com/2015/03/09/3736532_bill-offering-tax-break-for-keeneland.html?rh=1.
[xi] Gregory Hall, Keeneland Race Course to Host 2015 Breeders’ Cup, usatoday.com (June 17, 2014), http://www.usatoday.com/story/sports/horseracing/2014/06/17/keeneland-host-2015-breeders-cup/10665599/.
[xii]Braden Lammers, Its Official: Keeneland to Host 2015 Breeders’ Cup Championship, Louisville Business First (June 24, 2014), http://www.bizjournals.com/louisville/news/2014/06/24/its-official-keeneland-to-host-2015-breeders-cup.html.
Attack of the Clones?: Fifth Circuit Court of Appeals Allows AQHA to Deny Registration of Cloned Horses
By: Zack Mattioni, Staff Member
The cloning of elite horses may seem like the plot of Hollywood’s latest science fiction film, but in reality it is a legitimate, viable operation, albeit one that now faces a major setback.[i] On January 14, 2015, the United States Court of Appeals for the Fifth Circuit reversed a lower court decision that required the American Quarter Horse Association (AQHA), the largest equine membership organization in the world[ii], to include cloned horses in its breed registry.[iii] The AQHA is now free to enforce “Rule 227(a),” originally enacted by its membership in 2004, which categorically denies registration for all clones and their offspring.[iv]
The current legal battle demonstrates that, in the twelve years since the first successful cloning of a horse[v], the legitimacy of clones remains stubbornly debated. Proponents of cloning argue that it offers a chance to preserve the DNA of champion horses that are deceased or are otherwise unable to reproduce.[vi] This seemingly addresses the fact that many top competitors are geldings, which are often castrated before their exceptional potential is known.[vii]
The plaintiffs that filed suit against the AQHA also contend that its policy against cloned horses is motivated by a self-serving economic interest.[viii] Their assertion is that some of the most prominent cloning opponents are their potential business rivals, who are solely interested in keeping prices for their own horses high by avoiding competition with other elite animals.[ix] The end result, the plaintiffs claim, is the perpetuation of a monopoly supported only by greed and sham studies.[x]
The AQHA, unsurprisingly, sees things differently. It stresses that cloning frustrates the DNA testing process employed by the breed registry, making it impossible to discern a horse’s lineage.[xi] The AQHA furthermore firmly insists that breeding, not cloning, is the only way to improve each generation of horses.[xii] It warns that the high price of cloning (on average over $150,000) will ensure that only the most elite horses are included in the process.[xiii] Potentially, the continued cloning of these animals would eventually narrow the existing gene pool and result in the exacerbation of known genetic defects, as well as the creation of new ones.[xiv]
It cannot be ignored that cloning entails serious potential harm. Frequently, cloned animals suffer from diseases and developmental abnormalities that prematurely end their lives.[xv] But supporters of the practice believe the benefits outweigh the risks. The International Federation for Equestrian Sports (Fédération Équestre Internationale, or FEI), the international governing body for equestrian sports, recently reversed its 2007 ban on cloned horses, citing the value of keeping superior genetics in the gene pool and the dropping cost of cloning eventually leveling the playing field.[xvi] However, with the AQHA remaining steadfastly devoted to its anti-cloning policy, and its opponents set on appealing the verdict in its favor[xvii], it is clear that an amicable resolution is unlikely in the near future.
[i] Pat Raia, Appeals Court Rules AQHA Can Reject Clones, The Horse (Jan. 15, 2015), http://www.thehorse.com/articles/35185/appeals-court-rules-aqha-can-reject-clones.
[ii] Mary W. Craig, Mirror, Mirror in the Stall: Animal Cloning and Its Legal Implications for Equine Registry Associations, 5 Ky. J. Equine, Agric. & Nat. Resources L. 273, 281 (2013).
[iii] Id.; AQHA Prevails in Cloning Lawsuit, American Quarter Horse Association (Jan. 14, 2015), http://www.aqha.com/News/News-Articles/2015/January/01142015-Cloning-Lawsuit-Update.aspx.
[iv] Abraham & Veneklasen Joint Venture v. Am. Quarter Horse Ass'n, No. 2:12-CV-103-J, 2013 WL 2297104, at *1 (N.D. Tex. May 24, 2013).
[v] Craig, supra note ii, at 274.
[vi] Mike Brunker, Judge Orders Quarter Horse Association to Register Clones, CNBC (Aug. 13, 2013, 12:53 PM), http://www.cnbc.com/id/100959513#.
[vii] Ollie Williams, Battle of the Clones: When Will a Replica Horse Win Olympic Gold?, CNN (Feb. 20, 2015), http://edition.cnn.com/2015/02/20/equestrian/horse-cloning-olympics/.
[viii] Abraham & Veneklasen Joint Venture, 2013 WL 2297104, at *1.
[ix] Id.
[x] Id. at *1-2.
[xi] American Quarter Horse Association Position Regarding: Abraham & Veneklasen Joint Venture v. American Quarter Horse Association, American Quarter Horse Association (Jan. 14, 2015), http://www.aqha.com/AQHA-Cloning-Lawsuit-Resources/AQHA-Cloning-Position.aspx.
[xii] Id.
[xiii] Id.
[xiv] Id.
[xv] Craig, supra note ii, at 275-76.
[xvi] Bill Chappell, Equestrian Group Clears Way for Cloned Horses to Compete in the Olympics, NPR (Aug. 7, 2012, 3:09 PM), http://www.npr.org/blogs/thetorch/2012/08/07/158373631/equestrian-group-clears-way-for-cloned-horses-to-compete-in-the-olympics.
[xvii] Jim McBride, Pro-Cloning Plaintiffs Want AQHA Win Overturned, Amarillo Globe News (Jan. 14, 2015, 3:45 PM), http://amarillo.com/news/local-news/2015-01-14/appeals-court-rules-aqha-horse-cloning-appeal.
A Horse! A Horse! My Fourth Amendment Right for a Horse!
In the recent case of State v. Fessenden, the Supreme Court of Oregon held that a police officer did not violate a person’s Fourth Amendment right to be free from unreasonable search and seizure when the officer entered private property, without a warrant, in order to seize an emaciated horse and take it to a veterinarian for treatment. In upholding the two defendants’ convictions for animal abuse and animal neglect, the court concluded that the officer acted lawfully because he had probable cause to believe the crime of animal neglect was occurring and he reasonably believed immediate action was necessary to prevent further harm to the horse. Acting on a call from the two defendants’ neighbor, the officer had observed the horse on the defendant’s property from the driveway, noticing that “the horse's backbone protruded, her withers stood up, her neck was thin, all of her ribs were visible, she had no visible fatty tissue in her shoulders, and she was ‘swaying a little bit.’” Observance of the horse’s condition, partnered with the belief that acquisition of a warrant to enter the defendants’ property would take between four to eight hours, led the officer to exercise no hesitation in entering the property.
No Horsing Around: Brits Announce Zero-Tolerance Steroid Policy
In the Bluegrass State, the fall season is yet another reason to celebrate Kentucky’s title as the horse capital of the world. Most notably, Keeneland’s September horse sale is the world’s largest yearling sale, attracting both domestic and international buyers. However, a new regulation set forth by the British Horseracing Authority limiting the use of anabolic steroids in horses poses a potential threat to future horse sales worldwide.
Bill to Give Soring the Last "Big Lick": Representative Whitfield’s New Legislation to Amend the Horse Protection Act
The close of the summer term has sparked renewed discussion of the Prevent All Soring Tactics Act (PAST Act) HR, 1518, sponsored by Rep. Ed Whitfield, R-Ky., and 303 other House members. It was referred to the Subcommittee on Commerce, Manufacturing, and Trade, where it has remained stalled since April 12, 2013. With nearly 70 percent of the House in support of this Bill, outcries from supporters challenge legislators to pass the legislation before the end of this session.
A ‘Vicious’ Animal Named Scuppy
The horse industry in Connecticut was thrown into turmoil in May of 2006 at the hooves of a horse named Scuppy. In Vendrella v. Astriab Family Limited Partnership, the Supreme Court of Connecticut recently released its 6-0 decision in April, affirming the Appellate Court’s ruling that a horse belongs to “a species naturally inclined to do mischief or be vicious.”