Trial to Focus on Tax Value of Racehorses

Nestled deep in the blue-ribbon horse country of southern Ventura County, wrapped softly in a late-morning haze, the ranch of millionaire developer David H. Murdock is a quiet bustle of activity.

Under a cool canopy spread by towering oaks, expensive Arabian stallions trot lazily across a pasture. A sleek mare circles a hot-walker machine, cooling down after a run. Inside a carefully maintained brick barn, a blue-jeaned young woman sweeps her way past the stalls of top-quality fillies and geldings.

Sprawled over 1,500 acres in the wealthy Lake Sherwood area just south of Thousand Oaks, the ranch--called Ventura Farms and home to 200 Arabians--has produced national champions of the United States, Canada and Brazil. In a slick booklet, the ranch advertises itself as “one of the most significant Arabian breeding farms in the world today.”

But as his horses peacefully graze, Murdock’s lawyers are busily preparing for a court battle Monday with Ventura County that is being closely watched by racehorse breeders statewide. At issue is how much the county can tax such horses--a question that owners claim could have a major impact on the future of racehorse breeding in Ventura and other counties.

The case involves conflicting interpretations of a 1971 state law that gives tax breaks to owners of five racing breeds: Arabians, appaloosas, thoroughbreds, Standardbreds and quarter horses. The statute was intended to help build up California’s horse-racing industry, boosting race-track betting and putting more money in state tax coffers.

The county assessor’s office contends that to qualify for the tax break, a horse must be entered in races, be registered with the state as a racehorse and its ranch include a training track and race trainer. Otherwise, horses are subject to taxation at 1% of market value, the same rate as boats, airplanes or other personal property.

In a lawsuit filed last year, however, Murdock argued that a horse should be classified as a racer if it is merely eligible to race or produces a foal eligible to race, said Richard Craigo, one of his attorneys. Murdock claimed that his stock, even if some hadn’t actually raced, were still racehorses under the law, qualifying them for a far lower flat tax rate of $200 to $1,000 a head, Craigo said.

For breeders with as much stock as Murdock, the difference in tax rates could mean saving tens of thousands of dollars a year.

If Murdock wins his lawsuit in Ventura County Superior Court, the county may ultimately have to give back up to $500,000 in taxes already paid by Murdock from 1981 through 1986, said County Assessor Jerry Sanford.

Sanford acknowledged that Ventura evidently is the only county in California that still taxes some horses as personal property, a policy that some breeders claim may encourage other counties to apply the higher tax rate to racehorses, driving some owners out of the state and hurting state race-track tax revenue.

“It takes years to develop a good racing string. If you’re going to be taxed as though they’re not for racing, it’s going to be very expensive to keep horses in California,” said Michael Sypolt, treasurer of the Arabian Racing Assn. of California.

“We have 65,000 Arabians in California and 24,000 owners,” he said. “This case could be very important.”

But Sanford dismissed that argument, saying that breeders who are in compliance with the state racehorse law have nothing to fear from the tax man--in Ventura or elsewhere--since they will receive a racehorse exemption.

The dispute can be traced to 1985, when then-Assessor Jack Waterman conducted a routine audit of horse ranches, including Murdock’s, Sanford said. The audit came at a time when such ranches were proliferating in Ventura and racehorse prices were escalating rapidly, he said.

Although in previous years most Ventura horses had so little value that county tax appraisers largely ignored them, Sanford said, the 1985 audit revealed “$30 million to $40 million worth of value out there,” and the county decided to step up collection of taxes on ranch stock.

Many horse owners, Sanford said, were shocked when their new tax bills arrived.

“One horse I think we had appraised for $13 million. And a week later, the horse died. I’m not sure if the owners showed the horse the bill or not,” he said, laughing.

County officials, Sanford said, were caught in “kind of a Catch-22,” because they were assessing some racehorses at a time when their prices had reached all-time highs, some zooming up 500% in a single year. But the following year, prices plunged as a speculative boom in Arabians slowed sharply.

Attorney Craigo criticized the county’s position as “a little selfish,” charging that if its tax policies do drive breeders away, the county may be fattening its own tax coffers in the short term at the expense of long-term state revenues.

Sanford said that at the time his office began applying the personal property rates to horses, many of Murdock’s animals didn’t qualify for the racehorse exemption. Since then, however, Murdock has built a race-training track, registered some of his horses as racers and put more of his stock into races.

As a result, county officials reappraised Ventura Farms and in July agreed to lower Murdock’s assessment for the 1987-88 and 1988-89 fiscal years, to $1.6 million from $25.2 million, Sanford said. The cut meant the county had to give back $237,000 in taxes already paid by Murdock, he said.

Sanford said that although the $500,000 in tax money at stake in the lawsuit is a tiny percentage of the $400 million the county annually generates in tax revenue, it is still a significant sum that is split between local schools, county government and special districts.

Scott Zimmerman, another attorney for Murdock, said the developer is pursuing his expensive litigation with the county not to save money but to prove that his reading of the state racehorse law is correct, and to help other breeders.

“This case only applies to Murdock, but it probably has ramifications throughout the state,” Zimmerman said.

“Murdock can afford the taxes, but a lot of other people have smaller operations and the tax can be a significant extra burden for them,” he said.