North Carolina has taken a significant step by becoming one of the initial states to impose taxes on prediction markets without establishing a regulatory framework. This decision may lead to further disputes regarding the balance of power between federal and state authorities.
Governor Josh Stein has enacted the state's $34 billion budget, which includes a new tax targeting prediction market operators like Kalshi, alongside an increase in taxes for sports betting companies. This legislation could ignite a legal confrontation concerning the extent of state control over federally regulated prediction markets.
The budget introduces a 6% tax on the net trading revenue generated by prediction market operators within North Carolina. Additionally, it raises the tax on gross wagering revenue from sports betting from 18% to 23%. These tax changes will come into effect on January 1, 2027.
It is important to note that this legislation does not establish a licensing or regulatory framework for prediction markets, setting North Carolina apart from states like Kentucky and Illinois, which implemented additional regulatory measures alongside their tax laws.
The new tax on prediction markets may lead North Carolina into potential legal disputes. The Commodity Futures Trading Commission has already initiated lawsuits against Kentucky and Illinois regarding their prediction market tax laws, claiming these regulations improperly attempt to control federally regulated derivatives markets. Furthermore, Kalshi has contested Illinois’ tax structure in federal court.
In contrast to Kentucky and Illinois, which have sought to limit or ban sports-event contracts, North Carolina has recognized the legality of federally regulated prediction markets while aiming to collect tax revenue from their operations.
The increase in the sports betting tax to 23% occurs amidst a broader trend of tax hikes in the U.S. sports betting sector in recent years. Illinois has been particularly proactive, consistently raising its sports betting tax structure by implementing a progressive tax system in 2024 and adding a per-wager tax in 2025. Similarly, New Jersey raised its online sports wagering and iGaming taxes to 19.75% from 13% and 15%, respectively, in 2025. Maryland and Louisiana also increased their sports betting taxes from 15% to 20% and 21.5%, respectively.
This year, governors from Illinois, Arizona, and Michigan have proposed raising taxes on sports betting or casino operations in their budget plans, highlighting a growing trend among states to seek additional revenue from the expanding gambling industry.