Summary
- North Carolina has enacted a law affirming the CFTC's jurisdiction over prediction markets like Kalshi and Polymarket, diverging from states that classify them as gambling.
- Signed by Governor Josh Stein on July 7, the law imposes a 6% tax on these platforms' net trading fees from North Carolina, significantly lower than the 23% rate on sports betting.
- This development follows a major legal defeat for Kalshi in New York, highlighting a growing divide that could escalate to higher courts.
North Carolina has positioned itself among a select group of states endorsing federal oversight in the ongoing dispute over prediction markets, through legislation that acknowledges the CFTC's regulatory power over platforms such as Kalshi and Polymarket.
On July 7, Governor Josh Stein enacted this measure as part of the state's 2026 budget, specifically Senate Bill 257. The law allows prediction markets that are registered and licensed by the Commodity Futures Trading Commission to operate legally within the state, based on the Commodity Exchange Act, which grants the CFTC "exclusive federal regulatory authority" over these platforms.
Taxation of Prediction Markets
This new law delegates the oversight of prediction markets to federal authorities while imposing a tax. Starting January 1, 2027, it will levy a 6% tax on the net trading fee revenue from North Carolina residents, but it clarifies that this tax does not impose any licensing, registration, or additional regulatory requirements.
This approach is notably less stringent than the state's treatment of bookmakers; North Carolina recently increased its tax on sports betting operators from 18% to 23% of their gross wagering revenue. Additionally, it is more lenient than measures taken by other states. For instance, Kentucky enacted a 14.25% tax on transaction fees, leading to a CFTC complaint, while Illinois integrated prediction markets into its sports betting system, resulting in a tiered transaction tax and licensing rules that Kalshi has challenged in court.
Defying State Restrictions
North Carolina's position stands out amidst a trend where over a dozen states have opted to classify prediction markets as unlicensed forms of sports betting, prompting numerous legal disputes. The CFTC has filed lawsuits against at least nine states to assert what it claims is its exclusive jurisdiction, with Kentucky's lawsuit against Kalshi and Polymarket marking the latest development. Court rulings have been inconsistent, with platforms securing injunctions in New Jersey and Tennessee but facing losses in Maryland, Nevada, and Arizona.
The North Carolina law emerges shortly after Kalshi's significant legal setback, as a federal judge in New York denied Kalshi's attempt to halt state gambling regulators, ruling that the Commodity Exchange Act does not override New York's gambling regulations concerning its sports contracts.
Given the conflicting judicial decisions, this matter increasingly appears destined for the U.S. Supreme Court. Meanwhile, the CFTC is in the process of finalizing national regulations for event contracts, which could help resolve the current state-by-state inconsistencies, with the public comment period concluding on July 27.