North Carolina imposes 6% tax on CFTC-regulated prediction markets

North Carolina was the first state to codify the federal jurisdiction over prediction markets into its statutes, allowing Kalshi and Polymarket to operate legally as long as the two prediction market firms are registered with the Commodity Futures Trading Commission (CFTC). This is very important as it provides a model for all the trading platforms that are facing lawsuits from states over such issues since it presents a trade-off between the revenue-sharing arrangements and the hands-off approach in regulation.

The provision is part of Senate Bill 257, formally known as Session Law 2026-41, and is part of the roughly 34 billion budget passed. The provision is based on the Commodity Exchange Act, whereby the CFTC has been given “exclusive federal regulatory authority” of prediction markets by this law. If a prediction market is registered with the CFTC, it has fulfilled all of the requirements imposed upon it by the state and does not need to ask for any special license, cannot be required to register separately, and does not face any special gaming rules.

What it does require is a tax. Beginning January 1, 2027, prediction market operators will owe the government 6% of the net revenue earned on transactions involving residents of North Carolina. By comparison, sports betting operators will be taxed at 23% on gross betting revenue in the same budget, which is an increase from 18% and will apply immediately. Licensed sportsbooks also pay $1 million to the government for the license to operate, a cost prediction markets avoid entirely.

A carve-out, not a crackdown

The 17-point difference is the dividing line. Because a wager on a World Cup result appears the same whether it goes through a sportsbook or a prediction market. Critics interpret the lower rate as partiality. Mick Mulvaney, who used to be the acting chief of staff at the White House in the Trump administration and is currently running the organization Gambling Is Not Investing, was quite frank with Axios: “Prediction markets are unlicensed sports gambling apps — full stop.” He believes that the budget creates incentives for operators who disregard gambling regulations of the state while allowing minors to bet on sports.

Republican leaders argued that it has finally come to terms with reality. “A lot of it’s going on in this state anyway,” said House Speaker Destin Hall, adding that it was simply time to address the problem. Senate leader Phil Berger was more cautious regarding the future of this industry: “Whether it’s something that eventually is going to take over from the sports betting, I don’t know.”

While endorsing the budget, some Democrats expressed concern over this gamble. Senator Julie Mayfield from Buncombe County supported the budget but cautioned that sports betting revenues that North Carolina had been relying on will suffer dramatically if platforms simply turn into prediction markets. The WRAL reports that North Carolina has brought in more than $287 million from sports betting since its legalization in March 2024, with the University of North Carolina and North Carolina State University already eligible to receive up to $5.8 million a year to support their athletics program.

Cutting against the national grain

The way in which North Carolina is handling prediction markets differs from that of other legislatures. According to Dustin Gouker, a gaming analyst, who made this observation in his Next Event Horizon newsletter, North Carolina is the first state to allow the use of CFTC-approved platforms, without requiring its own licensing. He characterized the law as “affirming legislation with a relatively low tax rate” and has predicted that the industry would want other states to follow suit.

The rest of the states have implemented stricter measures. For example, Kentucky introduced an excise tax of 14.25 percent back in April and started enforcing it, which led to a lawsuit filed by the CFTC. Illinois enacted its law in June, which imposes a 1.75% tax on the first five million betting transactions made during the fiscal year, and 3.5%, after that, including state licensing. Kashi sued to block it.

The courts are equally divided. In New Jersey and Tennessee, Kalshi obtained preliminary injunctions which in April were upheld by the Third Circuit Court of Appeals but has suffered losses in other states, including Maryland, Nevada, Arizona, and Ohio, and recently, in the Southern District Court of New York. Judge Analisa Torres did not agree to grant an injunction against the state’s activities, arguing that Kalshi had not shown a likelihood of winning the argument based on federal preemption law.

The company filed an appeal with the Second Circuit Court of Appeals. Daniel Wallach, a Sports Law attorney, agrees that the decision may have a negative impact on Kalshi’s other fights. The CFTC has taken legal action against nine states to defend its position in regard to event contracts, and according to some experts, the case may end up in the Supreme Court. North Carolina is not fully on the side of the industry in this matter.

Attorney General Jeff Jackson co-signed a letter sent in April in an attempt to object to the federal regulation based on Axios information. The budget has a different approach than the legal aspect of the problem, which is tax collection, while legal issues should be resolved in Washington. A spokesperson of Polymarket informed Axios that the company follows the CFTC rules and that “state-level efforts to regulate prediction markets will likely face significant federal preemption challenges.”

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