New Jersey legislators are set to revisit a proposal aimed at taxing prediction markets when they reconvene in the fall, following its failure to secure votes before the summer break.
The proposed legislation seeks to implement a 9% surtax on the net income generated by prediction markets, with the goal of increasing state revenue. Although the bills received approval from budget committees in both legislative chambers along party lines, they ultimately stalled.
Assembly Speaker Craig Coughlin, who is the primary sponsor of the bill in the Assembly, indicated that lawmakers will continue to examine the proposal throughout the summer. This comes after amendments made in the Senate raised concerns regarding the bill's implications.
“We plan to review this over the summer and into the fall. I believe there’s a strong possibility we’ll pass something. We want to ensure it’s done correctly,” Coughlin stated.
He expressed concerns that the revised language from the Senate could unintentionally impact markets beyond just prediction markets. “There was a concern that we might inadvertently affect other sectors, such as the stock market. That was never our intention,” he clarified.
Initially, the proposal suggested a 10% surcharge on nearly all prediction market contracts, with sports-related contracts also subjected to New Jersey's 19.75% internet sports betting tax.
This proposal arises amid ongoing legal scrutiny faced by prediction market operators like Kalshi and Polymarket, especially regarding sports-related contracts. In April, a split decision from the U.S. 3rd Circuit Court of Appeals determined that Kalshi's sports betting contracts are classified as futures trades, which are regulated solely by the Commodity Futures Trading Commission.
Polymarket has cautioned that state efforts to regulate prediction markets may encounter legal challenges under federal law. “Polymarket operates as a CFTC-regulated designated contract market under the exclusive jurisdiction of the Commodity Exchange Act, and state-level regulations will likely face significant federal preemption challenges,” stated Olivia Chalos, Polymarket's deputy chief legal officer.
The New Jersey Office of Legislative Services projected that the proposed surtax could yield between $10.3 million and $15.3 million in the current fiscal year, but warned that future revenue remains uncertain due to the nascent nature of prediction markets.
The analysis also highlighted that the upcoming 2026 FIFA World Cup could temporarily increase market activity, while also cautioning that prediction markets might detract from revenue generated by casinos and sportsbooks, which could impact existing state tax collections.
Opposition has emerged from UNITE HERE Local 54, a union representing casino workers in Atlantic City. The union argues that prediction markets pose a threat to casino jobs, allow participation from individuals as young as 18 despite New Jersey's legal gambling age of 21, and that imposing taxes on these platforms could inadvertently legitimize them.
“If the state imposes taxes on prediction markets, it seems to legitimize their existence. Jobs in New Jersey have already been lost and will continue to be lost as a result,” stated Donna DeCaprio, President of UNITE HERE Local 54. “While we understand the sponsors are attempting to create a fair environment and generate tax revenue, prediction markets represent a fundamental threat to our jobs. This bill is not the answer,” she added.