North Carolina enacted Senate Bill 257 on July 7, with Governor Josh Stein signing the legislation as part of the state's 2026 budget bill. The bill explicitly recognizes the Commodity Futures Trading Commission's exclusive federal regulatory authority over prediction markets, allowing CFTC-registered platforms such as Polymarket and Kalshi to operate lawfully in the state. North Carolina's approach contrasts with several other states that are subjecting prediction markets to state gambling regulations and licensing requirements, sparking legal challenges from the CFTC and prediction market platforms.
North Carolina Recognizes CFTC Federal Authority Over Prediction Markets
Senate Bill 257 states that registration with the Commodity Futures Trading Commission will allow prediction markets to operate lawfully in North Carolina. The legislation explicitly stipulates that the Commodity Exchange Act establishes "exclusive federal regulatory authority" of the CFTC over prediction markets. This approach differs from several other states that are pushing to subject prediction markets to state gambling regulations and licensing. These states focus primarily on sports-related event contracts, which they allege violate state gaming regulations.
North Carolina Imposes 6% Tax on Prediction Market Net Trading Fee Revenue
North Carolina's new law taxes prediction market platforms at 6% of their net trading fee revenue that is attributable to North Carolina residents, effective Jan. 1, 2027. In contrast, the state increased its tax on sports betting operators from 18% to 23% on gross wagering revenue. The 6% tax on net fee revenue is softer than the tax approach that other states seek to impose on prediction markets.
Kentucky and Illinois Impose Higher Taxes and Face Legal Challenges
Kentucky's legislature passed a bill requiring platforms to pay 14.25% of transaction fees, prompting the CFTC to file a complaint against the state. Illinois folded prediction markets into its sports wagering regulatory and tax framework, imposing a tiered transaction tax on exchange wagers --- 1.75% on the first 5 million wagers in the fiscal year and 3.5% thereafter --- and subjecting platforms to state licensing requirements. Kalshi promptly challenged Illinois's approach in court.
Federal Judge Denies Kalshi Preliminary Injunction Against New York
Earlier this week, a federal judge denied Kalshi's preliminary injunction to block New York regulators from enforcing its gambling laws against the prediction market platform. Kalshi has since appealed the decision to the Second Circuit. Sports law attorney Daniel Wallach said that the ruling will likely negatively affect Kalshi's ongoing legal battle with other states.
FAQ
What did North Carolina do on July 7 regarding prediction markets?
On July 7, Governor Josh Stein signed Senate Bill 257 as part of the state's 2026 budget bill. The legislation explicitly recognizes the Commodity Futures Trading Commission's exclusive federal regulatory authority over prediction markets, allowing CFTC-registered platforms such as Polymarket and Kalshi to operate lawfully in North Carolina.
How does North Carolina's tax on prediction markets compare to its tax on sports betting?
North Carolina taxes prediction market platforms at 6% of their net trading fee revenue from North Carolina residents, effective Jan. 1, 2027. In contrast, the state increased its tax on sports betting operators from 18% to 23% on gross wagering revenue.
What happened in Kalshi's legal case against New York regulators?
Earlier this week, a federal judge denied Kalshi's preliminary injunction to block New York regulators from enforcing its gambling laws against the prediction market platform. Kalshi has since appealed the decision to the Second Circuit.
