BMS official says track expects tax provision to be a boost

Speed is everything in the motorsports world, from the race car driver burning up the track to the industry executives who pay for its upkeep.
It was this second, corporate class that clocked a victory earlier this month before Congress; a quiet victory on a complicated tax provision that will substantially impact tracks here and across the nation.
The race? How fast operators of race tracks can depreciate their assets.
The stakes? A tax break that – depending on your philosophical bent – incentivizes investment and stimulates local economies, or one that diverts millions of tax dollars from federal government coffers.
As legislators rushed to pass bailout legislation with the onset of the current economic crisis, the motorsports lobbyists and their legislative allies successfully jumped in on the action, extending a tax provision that effectively enables their race track operators to maintain more cash on hand earlier in the depreciation cycle.
The tax break for race track facilities had expired on Dec. 31, 2007, but a provision in the bailout package revived it through Dec. 31, 2009. Industry representatives and a legislator interviewed for this story said they believe the benefit will apply during the period in which it lapsed.
The tax language applies to race tracks and ancillary facilities – ranging from sidewalks and parking lots to vendor and ticket booths – that are placed in service before the end of 2009.
The speed with which the tax extension was folded into the bailout bill caught Bristol Motor Speedway officials unaware. When first contacted about the legislation days after it passed, spokesman Kevin Triplett had not yet seen the bill, and wrongly believed the tax break had been made permanent.
Nevertheless, he said, BMS expects to benefit from the two-year extension, which could help offset the costs of reconstructing the infield.
“A large part of the facility sits out in the weather,” Triplett said. Without being able to deduct at an accelerated rate, “you might be paying more than the investment was worth – there’s no motivation to reinvest,” he said.
Local projects aside, there is little doubt that Speedway Motorsports Inc. – owner of BMS – will reap tax benefits from the extension.
In the last 13 months, SMI has purchased two race tracks and built a drag strip, Triplett said.
Concretely, the tax break means the difference between deducting on a seven-year basis and on a 15-year basis; between deducting 14.29 percent of the cost of an asset in its first year of use and deducting just 5 percent.
It also means the federal government loses more than $100 million in tax revenues next year, according to a congressional estimate.
Proponents of the tax break argue that it creates critical incentives for owners to invest, and that such investments have a positive spillover effect on surrounding local economies.
That is the view of U.S. Rep. Rick Boucher, D-9th, one of nearly 100 legislators from both parties that has signed on to legislation that would make the provision permanent for motorsports facilities.
“Race tracks that host popular races ... benefit the economy of where the tracks are located,” he said in an interview last week. “We want to encourage expansions to take place. Oftentimes, owners will not find those expansions to be economical.”
The two-year extension gives the industry “breathing room,” as one representative put it, to regroup and continue its drive to make the tax break permanent.
The industry has lobbied aggressively to strike the sunset clause from the tax code, promoting twin bills to that effect in the Senate and the House of Representatives. They have spent in excess of $1 million in lobbying fees – possibly much more –  since 2005, and upward of six figures so far this year on persuading lawmakers to support the legislation. Bills introduced in each chamber in 2007 did not make it out of congressional committees.
The Motorsports Legislative Action Network, an advocacy coalition of motorsports associations and sanctioning bodies that includes Speedway Motorsports, called the extension of the tax break a victory, while vowing to pursue its permanence.
“We will be prepared to reintroduce permanency bills during the 111th Congress in 2009 – and we will work tirelessly on a permanency solution while at the same time, prepare for another round of ‘extenders’ like we faced this year,” the group released in a statement on its Web site.
The history
In practice, lawmakers have granted accelerated depreciation to motorsports corporations on a renewal basis since the 1980s, according to interviews with industry representatives and lawmakers. The industry hit a snag sometime between 2000 and 2004 – the exact timeline varies among knowledgeable sources – when the Internal Revenue Service opined that a motorsports complex did not properly fall under the category of “Theme and Amusement Parks;” enterprises entitled to the seven-year accelerated depreciation. At least one motorsports corporation remains locked in an audit dispute with the IRS.
In a March 10, 2005, memo provided to the Herald Courier by the IRS, the agency considered the case of an operator – whose identifiers were redacted – of “motorsports entertainment facilities ... covering hundreds of acres.”
The IRS ruled that the taxpayer’s properties “used in connection with racetrack operations are not includible in MACRS [Modified Accelerated Cost Recovery System] ... for depreciation purposes.”
The IRS’s new posture surprised motorsports corporations, which for years had claimed the accelerated depreciation status, and galvanized them into a concerted lobbying effort.
“That was the trigger,” said Nicholas Craw, president of the Automobile Competition Committee for the United States, who also coordinates lobbying efforts for the National Motorsports Council.
“Our tracks had been filing tax returns for years. The IRS decided to challenge that, even though they had audited our returns,” Craw said in a telephone interview Friday.
From the end of 2004 and onwards, the IRS opinion was rendered moot by the American Jobs Creation Act of 2004, which became law on Oct. 22 of that year. That legislation amended the Internal Revenue Code to include “motorsports entertainment complex” under the Theme and Amusement Parks classification through 2007. Both Boucher and then-U.S. Rep. William L. Jenkins, a Republican from Tennessee’s first district, voted in favor.
An IRS attorney refused to discuss the memo beyond saying it reflected the “facts and circumstances of a particular taxpayer,” and that the case arose before legislators amended the tax code in late 2004.
But amending the code has not settled all disputes.
The International Speedway Corp. is “in the middle of an audit dispute with the IRS,” said Wes Harris, a spokesman for the Daytona Beach, Fla.-based group. The dispute is over accelerated depreciation, Harris said, adding that ISC is appealing within the agency, and has not filed a lawsuit.
The money
ISC has pushed to make the accelerated depreciation permanent, what Harris called “an educational process for Congress.”
It has not been cheap. The corporation has spent $1.2 million in lobbying fees since 2005, according to federal disclosure statements collected by the Center for Responsive Politics (CRP), an independent nonprofit that tracks money in politics. ISC steadily increased its spending through 2007, peaking at $460,000. So far this year, the corporation has hired two lobbying firms and spent $160,000. The 2008 disclosure forms explicitly reference the House and Senate bills offered in 2007 to make accelerated depreciation permanent, though forms from previous years do not list specific issues.
The lion’s share of ISC’s expenditures has gone to Williams & Jensen, an elite Washington, D.C., lobbying firm that ranks among the top five in the country by gross fees, according to the CRP. The firm claims on its Web site to “have been in the trenches on every major tax bill in the last thirty-five years.”
Nine Williams & Jensen employees are registered as lobbyists on behalf of ISC.
It was not immediately clear whether ISC – which owns 13 race tracks – is footing the entire lobbying bill. Harris said that a consortium of motorsports corporations are involved in the effort, including BMS owner Speedway Motorsports Inc.
Triplett, the BMS spokesman,  deferred to Lauri Wilks, spokeswoman for Lowe’s Motor Speedway, when asked about SMI’s involvement in the coalition. Wilks did not return repeated phone calls seeking comment last week.
Craw, of the National Motorsports Council, said his organization has led lobbying efforts on the tax-extender issue, retaining both Williams & Jensen and Ogilvy Government Relations – the same firms working for ISC. ISC is a member of the National Motorsports Coalition, but not of the council – which consists of eight sanctioning bodies whose subscriptions pay for Craw’s lobbying budget.
Craw said his budget allots $180,000 a year to lobbying efforts, and expenditures will top $200,000 this year with administrative costs.
“We have lobbyists we keep quite busy on Capitol Hill,” he said.
The National Motorsports Council does not appear in CRP’s lobbying database, and efforts to confirm its expenditures were not immediately successful.
Obstacles
The gathering financial storm clouds that precipitated the bailout legislation raise arguments both for and against a tax break for motorsports corporations.
Budgetary constraints have impeded Congress from granting them the permanent status to deduct on the seven-year basis, say those involved in lobbying efforts. As the country injects billions into the financial system to support faltering banks, forgoing millions of tax dollars may become increasingly unpalatable to legislators.
For example, extending accelerated depreciation to motorsports complexes will dock $109 million from federal tax coffers for financial year 2009, according to an analysis by the Joint Committee on Taxation, a nonpartisan congressional committee.
That discount made the “Top Ten Tax Sweeteners” in the bailout bill ranked by Taxpayers for Common Sense, a nonpartisan budget watchdog.
“Auto track owners are simply trying to get out of paying more taxes – which they’d have to do if they deducted less every year,” the group announced on its Web site. “These owners have gotten plenty of tax breaks over the years from states and localities eager to get speedways.”
Taxpayers for Common Sense Vice President Steve Ellis said the JCT cost analysis can be deceptive. That analysis calculates that the tax revenue lost from race tracks’ depreciating their assets would fall off steeply – to losses of just $18 million in the second year and $3 million in the third year, and that it would actually generate $2 million by 2015.
“You can play games with stuff to make it look cheaper,” Ellis warned.
Extending the tax break beyond 2009 would mean “another significant tax hit,” Ellis said, for which the JCT does not account.
“One reason why extenders exist is that it is too expensive to make these things permanent,” Ellis said. “We create a mental fiction that these extenders are not permanent.”
Proponents of the tax break, like Craw, acknowledge that part of the difficulty of making it permanent is altering the perception that it shortchanges the federal government.
“What hung it up was the absence of ‘pay-fors,’ ” Craw said, referring to an alternative source of income that would make up for lost tax revenue. Craw and his allies, however, see the tax break as basically cost-neutral.
“There is no pay-for,” Craw said, offering the industry’s take. “This is not something that needed to be paid for. As a job creator, it would pay for itself.”
Boucher agrees, and the economic downturn has not changed his mind about supporting the tax break.
“I’m hoping we can make this permanent,” he said.
Even with the onset of a deep recession, Boucher said, “The need for it is the same. The merits are, in my mind, compelling.”
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