Racehorse owners sue national organization over tax assessments in Iowa

Two racehorse owners at an Iowa racetrack are suing a national nonprofit over taxes it collects from owners. (Photo by David Madison/Getty Images)

Two racehorse owners at Polk County’s Prairie Meadows Racetrack and Casino are suing the national nonprofit horseracing organization that collects taxes and fees from owners.

Joseph A. Kelly of Des Moines, a thoroughbred racehorse owner who owns three horses that race at Prairie Meadows, and Douglas L. Anderson of Hot Springs, Arkansas, who owns two horses that race at Prairie Meadows, are suing the Horseracing Integrity and Safety Authority in U.S. District Court for the Southern District of Iowa.

HISA is a nonprofit corporation based in Lexington, Kentucky, to which the federal government has delegated the power to assess taxes and fees against all trainers, owners, breeders, jockeys, racetracks, veterinarians, and other people by a state racing commission.

The lawsuit has its origins in one element of an omnibus budget bill approved by Congress in December 2020 and which, according to the lawsuit, provided for a “takeover of the thoroughbred horseracing industry by a private organization.”

The legislation, known as the Horseracing Safety and Integrity Act, took authority from state regulatory bodies, such as the Iowa Racing and Gaming Commission, and transferred it to the privately operated, self-regulating, nonprofit HISA.

“Despite wielding the power of the federal government, HISA is not funded by it,” the lawsuit notes. “Instead, this private, independent corporation — whose board of directors is not appointed by the president or any elected official — is funded entirely by ‘assessments’ on either the states or on the thoroughbred horseracing industry.”

The assessments, which take the shape of fees or taxes, are used to cover HISA’s budgetary expenses. HISA is charged with developing and implementing a national horseracing anti-doping program and a racetrack-safety program.

In 2022, HISA notified the Iowa Racing and Gaming Commission that it was imposing fees on Iowa totaling $953,400. The Iowa Racing and Gaming Commission opted not to provide HISA with that funding, in part because its budget doesn’t provide for such an expense. HISA then turned to Prairie Meadows, Iowa’s only horseracing track, and informed the administrators there that the burden of paying the fee would be shared equally by “the track and the horsemen” there – although no definition of “horsemen” was provided.

It was expected that the Iowa Horsemen’s Benevolent and Protective Association would pay the horsemen’s half of the fee.

In 2023, HISA told the Iowa Racing and Gaming Commission the state’s second round of fees would total $1,187,942. Again, the commission opted not to make that payment, so the obligation fell to Prairie Meadows and its horsemen.

By then, the Iowa Horsemen’s Benevolent and Protective Association had already offered to “assist” Prairie Meadows with the payment of such fees but only after what it called the exhaustion of all legal options to “fully stop the outright unconstitutional takeover of horseracing in Iowa.”

With the benevolent association still withholding payment of the 2023 and 2024 horsemen’s share of the assessments, HISA wrote to Prairie Meadows representatives and said they were “frustrated and angry” with the stalemate. HISA allegedly stated that if the benevolent association did not pay the horsemen’s share, HISA would force Prairie Meadows to impose a “starter’s fee” on all owners as a condition of having their horses run at the track, with the revenue passed on to HISA.

On July 3, 2024, HISA informed Prairie Meadows that because the issue remained unresolved, it would begin imposing the starter fee. As part of their petition to the court, Anderson and Kelly say they are “now forced to bring this lawsuit” to stop HISA from imposing that fee and collecting the revenue.

The two owners note that in a letter to Iowa officials, HISA reported that the proposed fee is intended to cover the cost of defending the lawsuits that have been filed challenging the constitutionality of HISA’s actions. To date, HISA has spent more than $2 million on such litigation.

HISA, Anderson and Kelly argue, is now passing its legal costs “onto the very people” who filed the lawsuits against HISA. The two men are asking the court to “stop the unconstitutional assessments and bring HISA’s unlawful reign to an end.”

The United States Court of Appeals for the Fifth Circuit has twice declared that portions of the Horseracing Safety and Integrity Act are unconstitutional, while the Court of Appeals for the Sixth Circuit has upheld the law in the face of broad constitutional challenges. The Court of Appeals for the Eighth Circuit, where Iowa is located, currently has the issue under consideration.

However, none of those cases has resulted in rulings that directly address the law’s granting of authority to HISA to assess taxes or fees on industry players. The new lawsuit filed by Kelly and Anderson focuses almost exclusively on that issue.

The two owners are asking the court to declare the Act’s funding mechanisms to be unconstitutional and to permanently enjoin HISA from enforcing it. In addition to HISA, the lawsuit names the Federal Trade Commission as a defendant, citing the agency’s power to approve or disapprove some of HISA’s regulations.

HISA and the FTC have yet to file a response to the lawsuit, but in other cases they have argued that, under the Constitution, Congress has the authority to delegate certain powers to HISA and similar entities.

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