Sports betting, gray games and bourbon: Here are the key tax bills filed late in Frankfort

FRANKFORT, Ky. — With the deadline to file new legislation passing Wednesday in the state House, several much-anticipated bills for the legislature's 2023 session finally arrived.

Dueling legislation from opponents and supporters of the cash payouts games proliferating in stores across the states was filed, as well as a bill to legalize, regulate and tax sports betting in Kentucky.

A bill also was filed to phase out property taxes on the value of bourbon barrels, an issue pitting the industry against local schools and governments.

More:With tax cuts and medical marijuana to debate, Kentucky lawmakers return to Frankfort

One added caveat — dozens of "shell bills" were also filed, serving as placeholders that can be stuffed with entirely new language, taxes or appropriations, and then advanced into law at the last moments of the session.

Here is a closer look at the new bills:

Sports betting

While Democratic legislators had already filed bills to legalize sports betting in Kentucky — one of 17 states where it is still illegal and unregulated — the anointed bill of the Republican supermajority was filed at the last moment Wednesday by Rep. Michael Meredith, R-Oakland.

House Bill 551 is substantially similar to a bill that cleared the House last session − but not the Senate − allowing horse racing tracks and the Kentucky Speedway to be licensed as sports betting facilities for a $500,000 fee, while also allowing bets on licensed websites and phone apps.

More:These key bills haven't been filed in Kentucky's legislature as deadlines loom

Meredith's bill also has the same tax rate on such wagering — an excise tax of 9.75% on the adjusted gross revenue of sports wagers placed at tracks, and 14.25% on online wagers — though this year's bill excludes online poker and fantasy sports from the regulatory structure.

Senate Majority Leader Damon Thayer, a supporter of the bill, said last week that sports betting has picked up additional votes in the Senate GOP caucus that blocked it last year. However, he also noted it would face a hurdle that may push it to next session — as HB 551 needs a three-fifths vote in each chamber to pass, due to being a revenue-producing bill in an odd-numbered year.

'Gray machines' ban or 'skill games' regulation

The most expensive lobbying battle in Frankfort this session is being waged on the proliferating video games with cash payouts — called "gray machines" by opponents who want the devices resembling casino slots banned, and called "skill games" by the industry who makes the games and wants them regulated and taxed.

Three bills to address the issue were filed Wednesday in the House, with Rep Killian Timoney, R-Lexington, filing two different bills to ban them, while Rep. Steven Doan, R-Erlanger, filed House Bill 525 to regulate and tax them.

Kentuckians Against Illegal Gaming — a coalition backed by the horse racing industry that reported spending  $174,000 on TV and digital ads calling for legislators to ban the games — said it is backing Timoney's House Bill 594 over his companion House Bill 539, both of which codify that the games are illegal.

Under HB 594, the gray games in question would be differentiated from coin-operated amusement games like skee-ball and there would be a $25,000 fine for operating illegal devices. A KAIG statement on the bill said if it is not passed, Kentucky would soon see the largest expansion of gambling in state history.

More:Expensive fight over slots-like 'gray machines' looms in Kentucky legislature

A similar bill to ban the games passed both chambers in the 2022 legislative session, but the two could not come to an agreement on a late Senate amendment and it did not pass into law.

Doan's HB 525 is supported by the Kentucky Merchants and Amusement Coalition, which is made up of bar, restaurant and club owners who rely on the games, and financially backed by Pace-O-Matic, the largest maker of the games in Kentucky.

The group and company were also among the top lobbying spenders in January, putting up nearly $150,000 of ads urging people to contact legislators and support keeping the games legal.

While House Bill 256 of Rep. Tom Smith, R-Corbin, was filed this session to regulate the games and enact a 26% excise tax on their net proceeds, the merchants coalition announced it doesn't support the bill, instead throwing its weight behind HB 525, which instead taxes 6% of gross profits on the games.

A coalition spokesperson said HB 525 was preferable due to it setting up "a reasonable tax framework that allows small businesses to continue to operate as they are." The group's president, Wes Jackson, also said it would help keep Kentucky small businesses afloat, pushing back against the negative image of the industry pushed in KAIG's TV ads.

"Skill game operators are mom-and-pop shops, local restaurants and bars, VFW halls, and American Legion posts," Jackson said. "We are not criminals, predators, and mafia members, as those pushing a ban would imply."

As for which of these bills will move first, Republican House Speaker David Osborne said Thursday he expects that Timoney's HB 594 to ban the games could receive a committee hearing next Wednesday.

Bourbon barrel taxation

The subject of a legislative task force last year, the bourbon industry is seeking to remove a property tax on the value of its stored bourbon barrels — and finally has a bill to throw its support behind.

HB 5 of Rep. Jason Petrie, the Republican chairman of the House budget committee, seeks to phase out this property tax by 2039 by slowly reducing the rate beginning in 2026.

The removal of this tax on the value of bourbon barrels has been opposed by county governments and local school districts in bourbon country, who estimate it will eliminate more than $30 million of annual tax revenue.

The industry counters that the tax is the only one of its kind in the country, forcing distillers to consider moving to other states.

More:Battle over 'gray games' dominating lobbying spending in Kentucky

Kentucky Distillers’ Association President Eric Gregory came out in full support of HB 5, applauding that it is clearly a "priority measure" of the House GOP supermajority that "demonstrates the General Assembly’s willingness to tackle this barrier to entry for new distillers and remove a discriminatory tax that puts Kentucky Bourbon at a competitive disadvantage worldwide."

Also a signal of its support is the fact that the main co-sponsor is House Speaker Osborne, who said Thursday he expects the chamber to take "pretty quick action" to advance HB 5.

Osborne said the current tax on bourbon barrels is "a job-killing tax" and that revenue could disappear even without the bill, noting bourbon maker Sazerac is buying up land in Southern Indiana and other states and counties are attempting to lure the industries away with a more friendly tax environment.

While the Kentucky Association of Counties did not respond to a request for comment, Josh Shoulta, the spokesman for the Kentucky School Boards Association, said the organization has concerns over the proposal.

"This would inevitably force some districts to consider raising tax rates to offset the lost property tax revenue phased out by this legislation," Shoulta said. "We would hope that, if passed, such measures would be appropriately balanced with additional state funding solutions passed in future legislative sessions."

Reach reporter Joe Sonka at jsonka@courierjournal.com and follow him on Twitter at @joesonka.

This article originally appeared on Louisville Courier Journal: Gambling and abortion: Here are key tax bills filed late in Frankfort