Sales Tax Slice: Some States Jockey for Equine Sales Tax

KD American Pharaoh

And they’re off! This weekend thousands of spectators will gather at Churchill Downs for the 144th Kentucky Derby races. Dating back to 1875, the Kentucky Derby is the longest continuously run sporting event in the United States and the first of three racing events within the Triple Crown of thoroughbred horse racing. The Derby is known for celebrities, mint juleps, big hats, and big bets. The sales of Derby accoutrements can only be outmatched by the sales of thoroughbred horses and the services they require, which can mean big sales tax revenue for Kentucky.

Kentucky takes advantage of its booming equine industry by levying taxes on most equine related sales. First and foremost, the state taxes the sale of horses, only providing an exemption for horses used in farming operations. Considering some thoroughbred horses sell for tens of millions of dollars, Kentucky’s 6 percent sales tax rate could mean hundreds of thousands in state revenue. The same sales tax rate applies to stud fees, which also command a handsome price for Derby winners and descendants of proven thoroughbred lineages.

Various services for horses not used in agricultural production, such as race horses, may also be subject to sales tax. These include services like boarding, grooming, and training. However, Kentucky does allow an exemption for medical and veterinary services for horses, even if they’re not used in agricultural operations. This exemption does not extend to drugs, even when provided with veterinary care. Other animal products like feed and grooming supplies are also taxable in Kentucky.

Other states where equine activities are common treat the taxability of such activities differently. Virginia is one of those states and has produced four Kentucky Derby winners, according to the Louisville Courier Journal. The state taxes sales of horses generally, including horses for racing, but allows for an exemption when horses are sold for breeding purposes. Virginia considers the production of horses for sale as “agricultural production,” and thus sales of reproductive products, semen, breeding fees, and commercial feed are exempt from sales tax. Veterinary services and drugs provided in the course of treatment for horses are also exempt from sales tax in Virginia.

Whether you travel to Churchill Downs for the festivities or enjoy the race from the comfort of your couch, the 144th Kentucky Derby should prove to be “the most exciting two minutes in sports.”

Continue the discussion on Bloomberg Tax’s State Tax Group on LinkedIn: How does your state tax equine activities?

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