WASHINGTON — When Lowe's Motor Speedway upgrades 10,000 grandstand seats on the front stretch next year, its operators are hoping that the $4 million improvement doesn't cost them more than they expected.
The operators of the Charlotte, N.C., racetrack are concerned that a federal tax policy that allows them to quickly depreciate the kinds of investments that NASCAR drivers and fans expect - repaved tracks, renovated infields and nicer concession stands and restrooms - is scheduled to expire at year's end.
"Our fan base would start voting with their feet and go someplace else" if the speedway didn't continually improve its amenities, said Lauri Wilks, vice president of communications for Speedway Motorsports, which owns the Charlotte track and others in Fort Worth, Texas, Sonoma, Calif., and elsewhere.
Businesses that make capital investments count on being able to deduct certain costs on their taxes to recoup some money over a specified period of time. Motor sports facilities, which weren't specifically addressed in tax law, had long chosen to define themselves as entertainment complexes so they could depreciate their improvements over a seven-year period.
A few years ago, track owners learned that the Internal Revenue Service had begun questioning whether they ought to be treated the same as amusement parks and other entertainment complexes for purposes of that tax law.
Concerned that the IRS would insist on a longer depreciation schedule, which would prevent tracks from deducting millions of dollars in investments in the short term, Congress in 2004 pushed through a three-year fix to make sure that motor-sports facilities were defined as entertainment complexes.
As the expiration nears for that three-year extension, track representatives are lobbying Congress to make the depreciation rate permanent so they can continue to get the same return on investment they have now.
Legislation sponsored by Rep. Mike Thompson, D-Calif., would do that, giving track owners the ability to budget ahead without the threat of another expiration date.
The measure might be incorporated in a broader budget or tax bill up for consideration later this summer or in the fall. A similar version passed the House last year, but died in the Senate.
With about 900 racing facilities nationwide, operators say they are competing not only with each other but with other sporting and entertainment facilities that continue to add new features to lure and please both teams and fans. Upgrading facilities, they say, isn't a luxury but a necessity.
"The motor-sports facilities need to continually upgrade to attract fans and events," said Andy Papathanassiou, executive director of the North Carolina Motorsports Association. "It's pretty capital-intensive stuff. The shorter depreciation runs allow for those continual upgrades to be done in a timely manner."
Tracks are difficult to replace instead of upgrade because they can be miles long - Lowe's speedway is a 1.5-mile "quad oval," and the complex includes a 2.25-mile road course. And unlike stadiums, they can't rely on public financing, said Kathy Milthorpe, managing director of community and governmental affairs for the International Speedway Corp. The ISC is a motor-sports promoter that owns 13 facilities, including Daytona International and Homestead-Miami speedways in Florida, Darlington Raceway in South Carolina, and Kansas Speedway in Kansas City.
Although the IRS hadn't come to any conclusions, motor sports might have had to deal with a blended depreciation rate that could have been as high as 30 years for some types of assets, she said.
"The IRS is still getting their money," Milthorpe said. "These depreciation categories are supposed to match the useful life of a facility. I can't build a bathroom and leave it there for 30 years - it will not be what the fan expects."
For owners of smaller tracks like Steve Earwood of the Rockingham Dragway, all he has to do is look at the shuttered raceway across the street to know where he doesn't want to end up.
"For a track like myself, I'm not Lowe's or Daytona, I'm a one-man band down here," he said of his Richmond County, N.C., dragway known as The Rock. "To make improvements to my facility, I have to do that continuously to keep my national events. There are nicer tracks in bigger markets trying to get those events."
Earwood said he recently spent $150,000 on lights for the safety of the competitors.
"If I couldn't write that expenditure off" over seven years, he said, "it would make no sense for me to do for a guy who's 58 years old."
"You get to the point of no return," Earwood said. "I'm dedicated to this industry, been in it all my life. But at some point my accountant is going to say, `What are you doing here? This doesn't make any sense.'"