Rentals, Tax Consequences, and the World Equestrian Games

By Stephen Frazier, Staff Member

In 2004, Governor Ernie Fletcher submitted a bid to host the 2010 World Equestrian Games. The two-week event is expected to bring approximately 250,000 international athletes and tourist to Kentucky. Staff Writer,

Kentucky To Bid For 2010 World Equestrian Games

, July 8, 2004,

available at

http://www.alltechfeigames.com/news/detail.aspx? id=1116. Experts estimate that the games will have a $90 million economic impact on the state of Kentucky.

Id

.

One method that citizens of Kentucky are cashing in on the arrival of the World Equestrian Games is by renting their residence during the weeks before, during, and after the games. Depending on the size of the house and location, homes are generating rental income ranging from a couple hundred dollars a night, up to $30,000 for the full duration of the event.

See generally

World Equestrian Game Housing, http://www.2010weghomes.com/ (last visited Sept. 25, 2010). This seems to be a great method for Kentucky residents to generate additional income; however, homeowners need to be aware of a possible issue with huge tax consequences.

Section 61 of the Federal Taxation Statutes states that “gross income means all income from whatever source derived,” including rents. I.R.S. §61 (West 2008). However, Section 280A of the Federal Taxation Statutes provides a tax loophole of which homeowners must be aware. Section 280A(g) states if a taxpayer uses a dwelling as a residence and the unit is rented for less than 15 days during a taxable year, then the income generated from such use shall not be included in gross income under section 61. I.R.S. §280A (West 2008). The World Equestrian Games start on September 25 and end on October 10. Since the World Games occur for a period of sixteen days, homeowners cannot rent their residence for the entire duration of the event and receive the benefit of section 280A.

Over the next month, citizens of Kentucky will have the opportunity to make thousands of dollars by vacating their homes and renting them to tourists. The World Equestrian Games provide an opportunity for homeowners to generate funds to pay off their mortgage and cover living expenses. However, if homeowners are not aware of section 280A, the World Equestrian Games could result in taxpayers having an increased taxable income and large tax due come April 15th.

Out-of-Competition Drug Testing in Time for Breeders' Cup

By: Laurel Benson, Staff Member

Following recent pushes for more stringent drug testing policies, the Kentucky Horse Racing Commission (“KHRC”) has approved an emergency regulation regarding out-of-competition drug testing for horses. Will Graves,

Kentucky approves random drug testing

, Lexington Herald-Leader, Sept. 7, 2010,

available at

http://www.kentucky.com/2010/09/07/1424227/kentucky-approves-out-of-competition.html. The urgency for such a rule arose when Churchill Downs signed the agreement, which requires more stringent testing, with Breeders’ Cup for the 2010 championship, which will be held at Churchill Downs November 5-6 of this year. Tom LaMarra,

Kentucky Drug-Test Upgrade Needed for BC

, Aug. 11, 2010, http://www.bloodhorse.com/horse-racing/articles/58327/kentucky-drug-test-upgrade-needed-for-bc. Breeders’ Cup has used out-of-competition testing for the last three years, in both California and New Jersey.

Id.

While Churchill Downs could have enacted a house rule, the KHRC wanted a more permanent rule, and with the Breeders’ Cup quickly approaching, the need arose for emergency regulation, which goes into effect almost immediately.

Id.

The new regulations themselves are fairly stringent. The policy will allow the KHRC to test any horse eligible to race in Kentucky regardless of their location at any time for illegal blood-doping agents, growth hormones, and nerve-blocking venoms. Janet Patton,

Proposed equine drug-testing rule questioned

, Lexington Herald-Leader, Aug. 26, 2010,

available at

http://www.kentucky.com/2010/08/26/1406726/proposed-blood-doping-rule-questioned.html. This policy adds to current race-day testing, and is deemed to be necessary because while blood-doping agents are only detectable for a short period of time after being administered, the effects of such agents linger for weeks.

Id.

The new policy grants no more than six hours after notification for an owner or trainer to make a horse available for testing. Graves,

supra.

Refusal to submit to testing in that time makes the horse ineligible to race in Kentucky for six months, and a positive test for some of the drugs would impose a minimum five-year suspension and up to $50,000 in fines on the owner or trainer.

Id.

A second violation will result in a lifetime ban for that handler.

Id.

The regulation will go into effect once signed by Kentucky Governor Steve Beshear and filed with the Legislative Research Commission.

Id.

The filing should occur in plenty of time for the Breeders' Cup, but only time will tell how easily enforced these new regulations will be.

New Year, New Apperance

Welcome Readers,

After the Summer hiatus, the KJEANRL Blog is officially back with a new look and new administration. Kim Coghill and Tanner James will be taking over as the Online Editors, striving to build on the foundation laid by former Production Editor, Mark Rouse. This blog was Mark's vision, and our goal is to grow it with the same passion that he had while constructing it.

Before the regular entries begin in earnest, however, we must take care of the first order of business--welcoming the newest members of the Kentucky Journal of Equine, Agriculture, and Natural Resource Law:

Sarah Baker Roger Battison Bethany Baxter Laurel Benson John Carter Rose Connolly Chris DeAgano Stephen Frazier Erin Fulkerson Rebecca Griffin Kelli Hagan Hugh Derek Hall Bradley Harn

Nathan Harris Ashley Hawk Chris Henderson Nathan Kolb Brad Larkin Steve Neace Ashley Payne Chad Riney Bess Rives Peter Rottgers Ena Viteskic Whitney Waters Litany Webster

Congratulations to all of our new members!

The Fall semester begins Tuesday, August 24th, so expect new entries to follow promptly. We're all looking forward to having another great year and providing you with coverage of the latest legal developments in the equine, agriculture, and natural resource fields.

- KJEANRL Online Editors

Current Issue

[Under Re-Construction ---- Check back soon!]

Blog to observe Summer Break

Dear Readers,
I would like to take this time to thank you for participating in our blog during it's inaugural year. In it's first year the amount of feedback and subscribers has surpassed what we ever imagined. Because of the success of the blog we have added two online editor positions to the editorial blog. Kim Coghill and Tanner James will be taking over the reins from me and lead the blog this upcoming year. Currently the University of Kentucky College of Law is commencing finals and we cannot ask our staff writers to commit to posting while studying for finals. The success of this blog would not be possible without them and I would like to thank all of them as well as the editorial board for allowing me to undertake this project. I believe that the future of law journals lies in the Internet where ongoing dialogues can develop between legal scholars, students and practitioners.

Because school is not in session over the summer it is unlikely that posting will recommence until August. I have no doubt that at that time the blog will be back better than ever. Again, thank you for your time. This is Production Editor Mark Rouse signing off!

Jockey Safety: Mandatory Medical Information Reporting

By: Jennifer Parker, Staff Member

A study of the years 1993 through 1996, reported in The Journal of the American Medical Association, found that 6545 injuries to jockeys occurred during official horse races in those years. Anna E. Waller, et al.,

Jockey Injuries in the United States

, Journal of the Amer. Med. Assoc. 1326, 1327 (2000). To help deal with these injuries more quickly and safely, many racetracks across the nation have requested that jockeys voluntarily submit their medical information to the track before races. Jeffrey McMurray,

Keeneland Mandates Jockey Medical Information

, Bus. Wk., Apr. 15, 2010,

available at

http://www.businessweek.com/ap/financialnews/D9F3HJJO1.htm. This information is compiled in the Jockey Health Information System, in operation since 2008.

Id.

In this way, medical personnel at the track are able to quickly determine any pertinent medical conditions, allergies, etc. in order to safely treat jockeys at the track.

Recently, Keeneland Race Track in Lexington, Kentucky announced that submission of jockey medical information is now mandatory at the track prior to entering a race.

Id.

While numerous tracks make such submissions voluntary, Keeneland is the first track to mandate it.

Id.

However, since Keeneland's track physician, Barry Schumer, estimates that prior to the mandate approximately 95% of jockeys submitted their medical information voluntarily, it seems that making this a requirement will create no significant problems with compliance.

Id.

The most significant concern with such a requirement would likely be privacy issues if some jockeys do not wish to provide certain medical information. Such privacy issues are protected by this system, however. The Jockey Health Information System can only be accessed with an identification code by medical professionals.

Id.

With such a high number of injuries being incurred by jockeys on racetracks and significant compliance already, mandating submission of medical information is a move in the right direction regarding jockey safety. With success stories already arising from access to this reporting system, other tracks are likely to follow Keeneland's lead and make submission of jockey medical information a requirement. But jockeys should be aware that this is a new requirement that may be catching on nationwide. They will need to determine whether reporting their medical information is voluntary or mandatory at a particular track prior to racing there and deal with any problems they might have with this beforehand, so as not to be prevented from racing.

It’s Time for the Lobster Monopoly to End: Maine Needs to Grow Up Like Its Lobsters

Article By: Leslie M. MacRae, JNREL Vol. 18, No. 2

Abstract By: Brandon Wells, Staff Member

Want to go to Maine and catch your own lobster? Well you may find yourself in a lot of trouble. Along with other types of regulation such as limiting quotas, equipment regulation, and seasonal restrictions, Maine has a system of regulation based on state citizenship. In effect, this means that unless you have been a resident of Maine for at least a couple years or so, and in some cases have participated in a type of lobster apprenticeship, you can forget about commercially fishing for lobster legally. While many of the types of regulations used by Maine on its lobster industry are legal and in many cases promote economic well being, regulations based on durational residency requirements are arguably unconstitutional.

Some earlier cases with facts very similar to the issue in Maine have been decided based on the Privileges and Immunities Clause of the United States Constitution. In the earlier case, Hicklin v. Orbeck, 437 U.S. 518 (1978), the court fashioned a two-part test to determine unconstitutionality. The first part of the test was that the state had to demonstrate that non-residents constituted a particular "source of evil." The second part of the test stated that the discrimination had to have a "substantial relationship" to the problem. Being able to prove that non-residents are sources of evil will be hard for Maine, or any other state to do, although it has happened in some cases. See State v. Kemp, 44 N.W. 2d 214 (S.D. 1950).

Over thirty years ago, Maine had implemented a durational residency requirement much like the one they have today. In 1974, the case of Massey v. Appolonio held that the residency requirement violated the Equal Protection Clause. Massey v. Appolonio, 387 F. Supp. 373, (D. Me. 1974). The only problem with the court's decision was that it made clear that it was only discussing the constitutionality of the residency requirement (which was three years at the time) and not whether Maine was able to limit fishing to Maine residents only. In a future suit based on these unresolved matters, it seems likely that Maine will be in a very precarious position, and may very well lose again.

It is anticipated that Maine will argue that nonresidents are a "source of evil" when it comes to protecting their local commercial lobster industry. Maine may say that they are protecting their culture, but it is extremely hard to see how the residency requirements would solve this problem. Even so, there are many other ways to protect this perceived harm, such as regulations based on the type and size of boat.

Maine may additionally argue that non- residential lobstermen will destroy the state's conservation efforts. However, non-residents will be subject to the same regulations and laws as Maine lobstermen. Another potential argument is that lobster is the state's own unique resource. Nevertheless, there are a number of facts to rebut Maine's argument, as lobsters are mobile and are found in many spots far south of Maine on the east coast. Also, the Court has all but out right rejected the idea of ownership over living natural resources.

Along with this shift in thinking by the Court, along with the rigid tests of the Privileges and Immunities Clause and the case law that follows it, Maine will have a very difficult time holding its durational residency requirement up to constitutional muster. Maine has the ability and the knowledge to maintain its beautiful industry and resources without resorting to such illegal statutes and manners. Putting to work its legal and constitutional controls over lobster fishing will see to it that Maine's foothold in the commercial lobster industry continues for many years to come.

Is Cap and Trade Really "Dead"?

By: Brandon Wells, Staff Member

Over the past year, a major hot button issue that has enraged and divided those in the coal industry and those working for environmental protection is the cap-and-trade legislation debate. Cap-and-Trade essentially involves setting the limits at which power plants and other polluters can send emissions into the air, and at the same time creating a trading market for those plants to trade emission limits.

Proponents of cap-and-trade see the bill as an economic solution to the issue of greenhouse gas emissions and pollutants, allowing trading to properly reflect demand and to influence participants to lower their greenhouse gas emissions. The bill will also force participants to invest more in pollution control, enabling them to sell unused credits.

The coal industry basically sees the bill as nothing more than another regulation being imposed on an industry that is already prone to an extreme amount of regulation. Cap-and-trade is a threat to the coal industry because it has the possibility to greatly lower the demand for coal, greatly affecting energy prices, especially in places where coal makes energy costs very low. Since plants must lower their pollution, they will be very cautious and may take less coal and take more costly, cleaner forms of energy. They may also invest more heavily in pollution control. Both of these costs will be passed on to the ultimate consumer, raising energy costs for all.

But as of just last month, Senator Lindsey Graham, a leader in getting cap-and-trade legislation passed has declared the bill "dead." Darren Samuelsohn, G

raham's Cap-And-Trade Pronouncement Reframes Hill Debate,

The New York Times, March 3, 2010

available at

http://www.nytimes.com/gwire/2010/03/03/03greenwire-grahams-cap-and-trade-pronouncement-reframes-h-19532.html

.

Senator Graham claims himself that his statements were only meant to stir debate, and they certainly have. Some are now worried that the United States is moving in a radical direction when it comes to climate change, and are moving away from the cap and trade legislation.

Id.

Others are not necessarily convinced that anything has changed and that cap and trade is cap and trade no matter what you call it.

Id.

It remains to be seen this coming year whether or not cap-and-trade or some other form of climate legislation will make it through Congress. But what do you think? Is Cap-and-trade really "dead?"

Legislature approached with differing slot machine plans for Horse Industry

By: Tara Hester, Staff Member

Disclaimer: The following post reflects the views of the author and not that necessarily of

KJEANRL

.

Governor Beshear's slot plan was not received well by the House or Senate. House Speaker Greg Stub filed a competing plan shortly after receiving Beshear's, which would spend the tax revenue from slots on a massive school construction program, instead of helping to erase the shortfall in the next two years budget, as Beshear had proposed. Janet Patton,

Beshear Slots Plan Gets Tepid Reception

, Lexington- Herald Leader Jan. 21, 2010, available at

http://www.kentucky.com/2010/01/21/1104634/beshear-slots-plan-gets-tepid.html

(last April 2, 2010). House Democrats have caucused to get support for Beshear's proposal, which would allow racetracks to add electronic slots under existing lottery laws.

Id.

However, although no official vote was taken, it appears that there was not much sentiment in favor of Beshear's bill, with one Representative calling the plan "delusional".

Id.

Stumbo said of his own competing bill "over a billion dollars worth of construction… best thing we could do for the budget is create jobs all over the state".

Id.

Stumbo said in his bill anticipates that 400-500 million in state tax revenues will be collected from slots over the next two years when all facilities are fully up and running.

Id.

Beshear said temporary slots could be up and running within six months, and projected 295 million in tax revenues for the first 18 months of slots.

Id.

Beshear's plan also takes into account the new casino's in Ohio, which is estimated to cut revenues at Turfway Park by 40%.

Id.

The horse industry seems to be very supportive of Beshear's and Stumbo's proposals, in a large part because the horse industry is facing significant competitive challenges.

Id.

However, while seemingly supporting both Beshear and Stumbo's bills, many in the horse industry are willing to talk with others proposing plans in an effort to help the struggling industry, and it seems that slots may be the best way to do this.

Id.