House Passes International Tax Bill

WASHINGTON (July 1, 2004) -- The House today passed its version of the international tax bill, the American Jobs Creation Act of 2004 (H.R. 4520). Unlike the Senate-passed international tax bill, the House bill does not include two provisions important to the racing industry: (1) the clarification that the 30% alien withholding provision does not apply to nonresident aliens in foreign countries wagering on U.S. races; and (2) the reduction in the holding period for horses to qualify for capitol gains treatment from 24 months to 12 months.

The House bill will now have to be reconciled with the Senate bill, which was passed in mid-May and includes the repeal of the alien withholding tax and the reduction in the holding period for capital gains. The industry’s focus will be to ensure that the House and Senate conferees assigned to work out the differences between the two bills retain these provisions in the final bill brought back to the House and Senate for a vote before it is sent to the President.

The U.S. racing industry has wanted to merge wagering pools for many years with tracks and operators in foreign countries, but has been concerned about the IRS provision that imposes a 30% withholding requirement on U.S. source income paid to nonresident aliens. Final enactment of legislation including the repeal of the 30% alien withholding provision would resolve that issue and eliminate a big hurdle to the industry’s ability to expand internationally.

Both bills repeal the Foreign Sales Corporation/Extraterritorial Income Act, parts of which were ruled illegal by the World Trade Organization last summer. The failure of Congress to repeal these provisions led the European Union to impose tariffs on many U.S. goods on March 1, including horses. While it does not appear that these tariffs have been particularly onerous to U.S. horses, once the international tax bill becomes law the EU has promised to remove the tariffs. This would alleviate any concerns over effect of the temporary tariffs.