N.Y. Comp. Codes R. & Regs. tit. 20 § 527.14

Current through Register Vol. 46, No. 43, October 23, 2024

Section 527.14 - Racehorses

Tax Law, §§ 1105(a), 1110, 1111(g), 1115(a)(6), 1118(2), (3), (7), (9) and (10)

(a)Imposition.

(1) General.

(i) A sales tax is imposed on the receipts from the retail sale of a racehorse in this State.

(ii) Use tax may be imposed on the amount paid by a resident of New York State on the purchase of a racehorse which was purchased out of state and subsequently brought into New York State for racing purposes.

(2) Special rules.

The sales and use tax treatment of the receipts from the retail sale or use of a racehorse is unique in certain transactions.

(i) Special rules concerning the imposition and liability for the sales tax in respect to a racehorse purchased at a claiming race within New York State may be applicable (see paragraph [c][2] of this section).

(ii) Exceptions to the imposition of the use tax where a racehorse's use within the state meets certain criteria may be applicable (see clause[d][1][iii][a] of this section).

(iii) A limitation as to the amount of the base receipts upon which the use tax is computed may be applicable (see clause [d][1][iii][b] of this section).

(b)Definitions.

(1) The term racehorse when used in this section shall include thoroughbred, standardbred and quarter horse.

(2) The term resident of New York State and/or local taxing jurisdiction for the purpose of this section means a resident as described in section 526.15 of this Title. A person who carries on any activity preparatory to racing, maintains a stable, or races horses on tracks within New York State is considered to be conducting a business, trade or profession within the State within the meaning and intent of such definition.

(i) Activities preparatory to racing are those acts which enable a person to pursue a racing operation. These activities include but are not limited to:

(a) the entry of horses in races;

(b) the hiring of grooms, trainers, jockeys, or drivers; and

(c) the registration with a jockey club at various New York State tracks.

The mere possession of a license by any person (not otherwise a resident) which is not accompanied by one or more other activities will not result in resident status.

(ii) The possession of a license to race in New York State by any person accompanied by any of the other activities preparatory to racing will result in such person having resident status for purposes of the sales and use taxes for the remainder of the calendar year covered by the license to race in New York State.

(3) The term at the time of purchase when used in this section shall mean, in the case of a sale of a racehorse, the date title has transferred from the seller to the purchaser.

(4) The term claiming race is a race in which every horse is entered at a price and may be claimed for its entered price by an owner registered in good faith for racing at that meeting.

(5) The term racing events includes horse races upon which parimutuel betting is authorized by law and horse races at which prize or purse money is awarded regardless of whether such events are betting events.

(c)Sales tax.

(1) The sales tax due is based on the receipts from the retail sale of a racehorse computed at the combined New York State and local sales tax rate in effect in the jurisdiction where delivery of the racehorse is made.

(i) The purchase of an interest in a horse is a taxable purchase.

(ii) When delivery is made within New York State, the purchase of a racehorse by a resident or nonresident, other than when a horse is purchased exclusively for breeding purposes, is subject to the sales tax.

(iii) The trading of racehorses is a taxable transaction when delivery of either or both of the racehorses takes place in New York State. Sales tax is due based on the consideration given in trade. Thus tax due in respect of a horse accepted in trade and delivered in New York State is based upon the current market value of the horse given in trade plus any other consideration which may have been paid.

(iv) The leasing of a racehorse is considered to be a taxable transaction when delivery of the racehorse occurs in New York State. The sales tax is due on the amounts paid by the lessee to the lessor.

(v) When a horse breeder transfers ownership of a racehorse and later reacquires the same racehorse, the reacquisition is considered a purchase. If the delivery of the racehorse takes place within New York State, a sales tax is due on the price paid upon reacquisition.

(vi) The exemption from the compensating use tax provided for horses purchased outside New York State and not entered into racing events on more than five racing days in New York State in any one calendar year (see subdivision [d] of this section) is not applicable to purchases of racehorses subject to sales tax regardless of whether the seller neglected to collect such tax.

(vii) In general, the syndication of a racehorse is considered a sale of the horse and is subject to the sales tax, except when the horse is purchased exclusively for breeding purposes.

(a) As syndication of a racehorse frequently provides for various contingencies not common to other transactions, taxability cannot be ascertained unless all the facts and the syndication agreement are submitted for review.

(b) When submitting such information, please mail to Central Office Audit Bureau, Casual Sales Unit, Bldg. 9, W.A. Harriman Campus, Albany, NY 12227.

(viii) When remitting payment of the tax due on the purchase of a racehorse, submit a copy of the original invoice showing the total price paid for the racehorse and the computations used in determining the amount of the tax due.

(2) Claiming race.

(i) A sale of a racehorse is deemed to have occurred when a horse is claimed in a claiming race. Title is passed once the race begins and sales tax is due on the purchase price of any racehorse claimed in a claiming race conducted within New York State.

(ii)

(a) On or after July 1, 1985, the purchase of a racehorse made through a claiming race within New York State is subject to the sales tax only on that portion of the total purchase price which exceeds the highest of any prior purchase price paid for the same horse in a claiming race conducted within New York State during the same calendar year.

(b) Where no previous purchase has been made through a claiming race conducted within New York State in the same calendar year, the full purchase price is subject to the sales tax.

(c) The provisions in clauses (a) and (b) of this subparagraph are applicable only to claiming races conducted within New York State; they are not applicable to other purchases of racehorses within or without New York State or to purchases of racehorses in claiming races conducted outside New York State.

Example 1:

On August 2, 1985, a racehorse is purchased at Saratoga Flat Track by placing a claim of $15,000 before the start of the claiming race. This horse had not been sold during 1985 through a claiming race conducted in New York State prior to the second of August. Sales tax is due on the total purchase price.

Example 2:

A claim of $21,000 was placed for the purchase of a racehorse at Belmont Racetrack on June 3, 1985, before the start of a claiming race. The horse had been bought through a claiming race at Belmont Racetrack on April 30, 1985 for the purchase price of $19,000. Sales tax is due on the full purchase price of each transaction, since the amendment to the Tax Law did not take effect until July 1, 1985. If both transactions had taken place after July 1, 1985, sales tax would have been due on $19,000 (the amount of the first purchase) and on $2,000 (the difference between $19,000 and the higher purchase price of $21,000) in respect to the second purchase.

Example 3:

A claim of $14,000 was placed for the purchase of a racehorse at Aqueduct Racetrack on November 30, 1985, before the start of a claiming race. The horse had been purchased through a claiming race at Churchill Downs in Kentucky on July 6, 1985. New York sales tax is due on the full $14,000 purchase price at the New York claiming race without reduction since the previous sale was not at a claiming race held in New York State.

Example 4:

A claim of $17,000 was placed on the purchase of a racehorse entered in a claiming race at Roosevelt Raceway on July 4, 1986. The same horse had been purchased through a claiming race at the Syracuse Fair Grounds on September 11, 1985 for $15,000. Sales tax is due on the full $15,000 purchase price paid in 1985 and on the full $17,000 purchase price paid in 1986, since the two purchases were not within the same calendar year.

Example 5:

During the same calendar year a racehorse was sold in claiming races at Roosevelt Raceway for $10,000 in July, at Saratoga Raceway for $15,000 in August and at Monticello Raceway for $25,000 in September. Tax is due on the full $10,000 purchase price for the Roosevelt Raceway sale. On the Saratoga Raceway sale, tax is due on $5,000, which is the excess of the sales price paid on the Saratoga Raceway sale over the Roosevelt Raceway sale. On the Monticello Raceway sale, tax is due on $10,000 which is the amount the Monticello Raceway sale exceeded the highest price paid in any prior claiming race within New York State during the same calendar year.

Example 6:

During the same calendar year a racehorse was sold in claiming races at Roosevelt Raceway for $27,000 in July, at Saratoga Raceway for $20,000 in August and at Monticello Raceway for $18,200 in September. Tax is due on the full $27,000 purchase price for the Roosevelt Raceway sale. Since the purchase prices of the subsequent sales in the same calendar year did not exceed the first purchase price, no additional tax is due on the subsequent sales.

Example 7:

During the same calendar year a racehorse was sold in claiming races for $25,000 at Saratoga Raceway on the 10th of August, at the Syracuse Fair Grounds for $20,000 on the 31st of August and at Yonkers Raceway for $30,000 in September. Sales tax is due on the full $25,000 purchase price for the Saratoga Raceway sale. No sales tax is due on the purchase price of $20,000 paid at the Syracuse Fair Grounds as the purchase price paid on the second sale did not exceed the first purchase price. Sales tax is due on $5,000 which is the amount the third purchase price ($30,000) exceeds the highest previous purchase price ($25,000) subject to the tax at any claiming race held within New York State during the calendar year.

(d)Compensating use tax.

(1)

(i) General. Except as provided in subparagraph (iii) of this paragraph, the compensating use tax due is computed on the purchase price paid for a racehorse which was purchased out of state (including a racehorse purchased in New York State which was delivered out of state to the purchaser by the seller) if at the time of purchase, the purchaser was a resident of New York State (as resident is described in paragraph [2] of subdivision [b] of this section) and if the racehorse is subsequently brought into New York for racing events.

(ii) The term at the time of purchase is used in conjunction with the term resident in determining the tax status of a racehorse used within New York State at a subsequent date.

(iii) Special rules.

(a) No use tax is due in respect to a horse purchased outside New York State and brought into the State for the purpose of entering racing events or preparing therefor if the horse is not entered into racing events on more than five days in any one calendar year.

(b) The compensating use tax applies to the first $100,000 of the value (purchase price or current market value not to exceed cost) of a racehorse acquired outside New York State. Use tax is not due to the extent that the value of the horse (purchase price or current market value not to exceed cost) exceeds $100,000. Thus when a New York State resident purchases a racehorse outside of New York State and subsequently brings it into New York State for the purpose of entering the horse into racing events, a compensating use tax is due when the horse is entered into racing events on more than five days of racing in any one calendar year. The amount of the purchase price paid in excess of $100,000 is not subject to the use tax.

(c) A credit for sales and use taxes paid to another state or jurisdiction may be allowed against the amount of any use tax due (see subdivision [e] of this section).

(iv) Racehorses purchased out of state by purchasers who were not residents of New York State at the time of purchase are not subject to the compensating use tax regardless of how many racing events such racehorses enter in any calendar year.

(2) The compensating use tax becomes due on the transaction described in paragraph (1)(i) of this subdivision when the racehorse is entered into racing events on more than five days in any one calendar year. The amount subject to tax (which shall not exceed the first $100,000 of the value with respect to any single racehorse) is determined as follows:

(i) if the racehorse was used outside New York State for six months or less from the date of purchase prior to its first use within New York State, the compensating use tax due is based on the purchase price; or

(ii) if the racehorse was used outside of New York State for more than six months from the date of purchase prior to its first use within New York State, the compensating use tax due is based on the current market value, not to exceed cost, at the time of first use within New York State.

Example 8:

A nonresident, Mr. Ajax, who previously was not licensed and did not race or train horses or otherwise engage in business within New York State applies for and receives a license to race in New York State for the current calendar year. The license covers the period of January 1st through December 31st but Mr. Ajax does not participate in any activities preparatory to racing until January 10th of the current year. Mr. Ajax is not considered to be a resident of New York State for racing purposes until January 10th of the current year. Mr. Ajax made out of state purchases of racehorses during the current calendar year. The first purchase was made on the 2nd of January and the second purchase was made on the 23rd of January. Subsequently the two horses were brought into and raced in racing events in New York State on eight days each. Since Mr. Ajax was not a resident of New York State at the time of purchase of the first racehorse on the 2nd of January, Mr. Ajax does not owe any use tax when the first horse is brought into and raced in New York State. As Mr. Ajax was a resident of New York State at the time of purchase of the second horse on the 23rd of January and the horse was entered into racing events in New York State on more than five days in the calendar year, Mr. Ajax owes a compensating use tax on the first $100,000 of the value of the horse (the purchase price or current market value not to exceed cost) when the horse is entered into a racing event on the sixth day.

Example 9:

Mr. Collins, while engaged in racing activities in New York State, made an out of state purchase of a racehorse which was shipped into New York State and entered into racing events within six months of the date of purchase. During a two-month period within the calendar year, the racehorse was entered into racing events on three days and then shipped back out of state for the rest of the calendar year. As the racehorse was not entered into racing events on more than five days in the calendar year, Mr. Collins does not owe a compensating use tax on the value of the racehorse. In the subsequent calendar year the racehorse was brought back into New York State and entered into racing events on 10 days. Upon entering the racehorse in a racing event on the sixth day Mr. Collins owes a compensating use tax on the first $100,000 of the value of the racehorse. As the racehorse was used in New York State within six months of the date of purchase for racing events in the first calendar year, the compensating use tax due is computed on the consideration paid for the purchase of the horse (the tax is not imposed upon the amount of such sum that exceeds $100,000).

Example 10:

Mr. Jones, while engaged in racing activities in Yonkers, New York (8 1/4 percent combined State, MCTD and local tax rate) purchases a racehorse in Maryland. The following week the horse is brought into New York State and entered into racing events at the Saratoga Raceway (7 percent combined State and Saratoga County tax rate). Upon entering the horse in racing events on more than five days in that same calendar year at the Saratoga Raceway, a compensating use tax becomes due only at the 4 percent State tax rate since Mr. Jones was a resident of New York State but not a resident of Saratoga because at the time of purchase Mr. Jones was engaged in business activities within the State but was not engaged in such activities within Saratoga County.

Example 11:

In addition to racing in the events described in Example 10, the racehorse is shipped from Saratoga and entered into one racing event at Roosevelt Raceway (8 percent combined State, MCTD and county tax rate). An additional tax at the 1/4 percent tax rate for the Metropolitan Commuter Transportation District is not due as the horse was not entered in racing events on more than five days at the Roosevelt Raceway. The additional tax at the 3 3/4 tax rate for the County of Nassau is not due (regardless of the number of racing events entered) as Mr. Jones was not a resident of Nassau County at the time of purchase.

Example 12:

In addition to racing in the events described in Examples 10 and 11, the racehorse is shipped from Roosevelt Raceway to be entered in two racing events at Yonkers Raceway (8 1/4 percent combined State, MCTD and county tax rate). Although Mr. Jones was a resident of New York State and Yonkers at the time of purchase, at this time Mr. Jones does not owe an additional compensating use tax since the horse was not entered in racing events on more than five days in this locality. The additional tax at the 1/4 percent rate for the Metropolitan Commuter Transportation District is due after the horse is entered into a racing event at Yonkers Raceway for the fifth day, since the horse having entered one race at Roosevelt Raceway, will have at that time entered into racing events on more than five days within such district. Only after the horse is entered into a racing event at Yonkers Raceway for the sixth day will Mr. Jones owe an additional compensating use tax of 4 percent for the local tax rate in effect in that jurisdiction.

(3) The lease of a racehorse is considered to be a taxable transaction. Thus, where a racehorse leased outside New York State is subsequently entered into racing events in New York State on more than five days in any one calendar year by a resident lessee, a compensating use tax becomes due on the amount of any lease payments required to be paid by the lessee to the lessor in respect of any lease period or portion thereof during which the horse was thereafter present in New York State.

(4) When a horse breeder transfers ownership of a racehorse and later reacquires the same horse, the reacquisition is considered a purchase. If reacquisition and delivery of the racehorse take place outside of New York State and subsequently the horse is entered into racing events in New York State on more than five days in any one calendar year, a compensating use tax is due on the first $100,000 of value of the racehorse if the breeder was a resident at the time of a reacquisition.

(5) The trading of racehorses is a sale transaction potentially subject to the sales and/or compensating use tax for each party in the trade. When the trading of racehorses occurs outside of New York State, a party to the trade will be liable for the compensating use tax based on the current market value of the horse given up plus any other consideration which may have been paid or given (the taxable amount of such sum not to exceed $100,000) if the party was a resident at the time of the trade and if the horse acquired is subsequently entered into racing events in New York State on more than five days in any one calendar year.

(e)Reciprocity.

(1) When a person pays sales and/or use taxes to another state or jurisdiction within such state on the purchase or use of a racehorse and subsequently brings the horse into New York State, the use of which becomes subject to the New York State and/or local compensating use taxes, the purchaser may claim a credit for the other state and/or local tax paid. Such credit may not exceed the New York State and/or local compensating use taxes due.

(2) The credit for the other state and/or local tax paid is allowed only where:

(i) such tax was legally due and paid to the other state or jurisdiction without and right to a refund or credit thereof; and

(ii) a similar credit is allowed by the other state for the New York State and local sales and compensating use taxes paid under similar circumstances.

(3) The credit for the tax is computed based upon the rate of tax paid to the other state and/or locality and the rate of tax to be paid to New York State and/or local jurisdictions within New York State, not on the dollar amount of tax paid. The claim for credit is allowed only to the extent the rate used to determine the tax paid to the other state and/or locality does not exceed the New York State and local compensating use tax rate used to determine the tax due New York State and its local jurisdictions.

Example 13:

A person engaged in racing activities in Saratoga purchases a racehorse in another state and pays sales tax at the rate of five percent to the other state on the purchase price of $200,000 for a total tax paid of $10,000. The other state's law has a reciprocal provision allowing a credit for New York State and/or local taxes paid similar to the credit allowed under New York State law. Subsequently, within six months, the person transports the horse into New York State and enters the horse in racing events at Saratoga which is a taxing jurisdiction that has an effective New York State and local sales and use tax rate of seven percent. Upon the horse being entered in racing events in Saratoga on more than five days in the same calendar year, a compensating use tax becomes due at the tax rate of seven percent on $100,000 (the maximum taxable amount in this transaction) resulting in use tax due in the amount of $7,000. The person is entitled to claim a credit of $5,000 ($100,000 × 5 percent) against the $7,000 use tax due, thereby reducing the amount of use tax owed to $2,000. The remaining $5,000 tax paid to the other state as a result of the higher tax base is not allowed to be used as a credit against the use tax due within New York State.

Example 14:

Assume the same facts as Example 13 except $70,000 was paid for the purchase of the racehorse. In such a case, the person can claim the total $3,500 tax paid to the other state ($70,000 × 5 percent) as a credit against the New York State and local compensating use taxes due of $4,900 ($70,000 × 7 percent), leaving New York State and local use taxes due of $1,400.

Example 15:

A person engaged in racing activities in New York State purchases a racehorse in another state and pays the sales tax at the five percent rate in effect in the other state on a purchase price of $70,000 for a total tax paid of $3,500. The five percent tax rate in that other state includes a three percent state tax rate and a two percent local tax rate. The other state has a reciprocal provision which allows a credit for the New York State sales and use tax but does not allow credit for the sales and use tax imposed in the local taxing jurisdictions in New York State. The New York State and local use tax due is $4,900 ($70,000 × 7 percent) less a credit for the other state tax paid of $2,100 ($70,000 × 3 percent), resulting in a New York State and local use tax owed in the amount of $2,800. No credit is allowed for the local tax paid to the other state since such state does not allow a similar credit for New York's local sales and use taxes.

Cross-reference:

For definition of resident, see paragraph (2) of subdivision (b) of this section.

(f)Nontaxable transactions.

(1) Purchases of racehorses within New York State by residents or nonresidents of New York State are not subject to the sales tax when such horses are delivered to the purchaser outside of New York by the seller prior to the time the purchaser is deemed to have taken possession of the horse.

(2) Receipts from the purchase of a racehorse outside of New York State by a person who was a nonresident of New York State at the time of such purchase are not subject to the compensating use tax when such person subsequently brings the racehorse into New York State for racing purposes or any other use.

Cross-reference:

For definition of resident, see paragraph (2) of subdivision (b) of this section.

(3) A racehorse raced in New York State by its breeder (regardless of whether such person is a resident) is not subject to the sales or compensating use tax, provided the breeder had not transferred ownership of the horse and at a later date reacquired the same horse.

(4) The purchase of a racehorse by a resident of New York State is not subject to the sales or compensating use tax if purchased outside of New York State and never brought into New York State.

(5) The syndication of a racehorse where the horse is purchased exclusively for breeding purposes is exempt from the sales or compensating use tax.

N.Y. Comp. Codes R. & Regs. Tit. 20 § 527.14