Nevada has countered Kalshi's claims regarding North Carolina's new tax on prediction markets, arguing that state taxation can indeed coexist with federal oversight. The state contends that Kalshi's reliance on North Carolina's Senate Bill 257 undermines its broader case for federal preemption.
In a recent court filing, Nevada responded to Kalshi's assertion that the North Carolina law supports its preemption arguments. This legislation imposes a 6% tax on the net trading fee revenue of prediction market operators for transactions conducted within the state.
Importantly, Senate Bill 257 does not establish a state licensing or regulatory framework for prediction markets. It permits those registered with the Commodity Futures Trading Commission (CFTC) to operate in North Carolina, provided they comply with federal regulations under the Commodity Exchange Act (CEA). The law also acknowledges the CFTC's exclusive federal regulatory authority over prediction markets.
Kalshi argues that this situation illustrates the CEA's allowance for significant state authority while still preempting state regulation of trading on Designated Contract Markets (DCMs). According to Kalshi, states retain the right to regulate transactions outside of DCMs and exercise other powers that do not interfere with federally regulated exchanges.
Furthermore, Kalshi utilized the North Carolina law to counter Nevada's claims that unlicensed prediction markets could evade state gambling taxes, asserting that while the CFTC holds exclusive jurisdiction over on-DCM trading, states can still impose lawful taxes on revenues from such trading.
Nevada has dismissed Kalshi's argument, labeling it a 'stunning about-face.' The state argues that the distinction Kalshi draws between taxing prediction markets and regulating their contracts is merely a formalism, as both actions constitute forms of state regulation.
By accepting Senate Bill 257, Nevada claims Kalshi is conceding that states have the authority to regulate its operations, which they view as a significant reversal of Kalshi's previous stance. As a result, Nevada asserts that Kalshi cannot evade its own tax provisions.
Additionally, Nevada has rejected North Carolina's assertion of exclusive CFTC authority, arguing that a state legislature's interpretation of federal law does not bind the Ninth Circuit.
The ongoing legal battle is particularly significant as the Ninth Circuit reviews consolidated appeals involving Kalshi, Crypto.com, and Robinhood concerning Nevada's attempts to apply its gambling laws to sports event contracts. The outcome of this case could have far-reaching implications for the future of prediction markets.