North Carolina raises betting tax, adds prediction market levy
North Carolina Governor Josh Stein has signed Senate Bill 257 into law, increasing North Carolina’s online sports betting tax rate from 18 per cent to 23 per cent. The legislation also establishes a tax framework for prediction market platforms, without requiring them to obtain state gambling licences.
Governor Josh Stein signed the bill, confirming North Carolina’s choice to raise gambling tax revenue while experimenting with a new approach to prediction markets. Unlike states that banned or licensed these platforms, North Carolina chose to tax them, acknowledging their presence but leaving regulation to federal authorities.
The new law revises the distribution of gambling tax revenue by allocating additional funding to higher education and other public programmes. North Carolina joins Kentucky and Illinois in adopting tax measures targeting prediction market platforms.
Newly signed state budget
North Carolina’s new budget, Senate Bill 257, goes beyond taxes and introduces changes to the gambling industry. Since online sports betting became legal in March 2024, policymakers have monitored its growth and determined that the industry was stable enough to increase operator taxes. After months of debate, they agreed on a 23 per cent rate. The plan also handles prediction markets, taxing them rather than outright regulating them, which some analysts believe might serve as a precedent for other jurisdictions.
The earlier proposal was far more severe, raising the tax to 36 per cent. Those in favour argued that bookmakers could easily manage higher tax rates. Those opposed to the proposal claimed that it would reduce competitiveness and promotional budgets, leading consumers to use unlicensed websites. Lawmakers chose a moderate increase to help strike a balance between revenue growth and stability.
New approach to prediction markets
Prediction markets differ from traditional sportsbooks by allowing participants to buy and sell contracts tied to future events, such as elections, economic indicators, or sports outcomes. Many platforms argue they fall under federal commodities law, regulated by the Commodity Futures Trading Commission (CFTC), rather than state gambling law. This distinction has sparked disputes across the country, with some states attempting to restrict or challenge their operations.
North Carolina has adopted a different approach, with prediction markets exempt from state gambling licences and gaming rules. This is because, under Senate Bill 257, they will only pay a 6 per cent tax on net trading fee income beginning 1 January 2027. This acknowledges their presence in the state while delegating regulatory authority to the federal government. Proponents of this legislation argue that there is no duplication of regulation, whilst opponents contend that it creates an unbalanced competitive environment for the sportsbook industry.
Legal and regulatory questions ahead
Several legal questions remain, despite the fact that Senate Bill 257 has been signed. The main concern is whether North Carolina can levy taxes on prediction market operators without interfering with federal authority. Because many of these platforms are regulated by the CFTC, they may argue that federal law takes precedence over certain state measures. Similar arguments have arisen in other states attempting to prohibit event-based contracts.
The legal community is expected to conduct a thorough examination of the North Carolina system prior to the tax’s implementation in 2027. If businesses believe the state has overstepped its power, legal conflicts are likely to ensue. If overlapping jurisdiction becomes an issue, federal agencies may interfere, generating constitutional debates about interstate commerce, federal preemption, and the balance of state and federal responsibilities.
For now, the delayed start date gives both the state and the industry time to clarify procedures, negotiate compliance, and address unresolved concerns before taxes are collected.
State universities added as beneficiaries
North Carolina’s updated budget now names the University of North Carolina at Chapel Hill and North Carolina State University as recipients of sports betting tax revenue. Both universities are well known for their considerable contributions to research, sport, and workforce development, among other areas, and their inclusion expands the reach of gambling revenue within the UNC system. Funds will be distributed based on the legislation and each university’s priorities, subject to an annual cap.
The budget will once again allocate gambling revenue to activities that benefit the wider public. Youth sporting associations continue to receive support, including funding to ensure children’s access to sporting facilities and recreational programmes.
Responsible gambling programmes also receive funding. As legal betting grows in popularity, prevention, education, and treatment become increasingly important. The fact that these programmes will grow alongside the market demonstrates that policymakers recognise this need.
Future of sports betting and prediction markets
North Carolina’s latest budget places the state in the middle of ongoing national debates about gambling, financial markets, and regulation. By raising the sportsbook tax to 23 per cent while creating a separate 6 per cent tax for prediction markets, lawmakers have taken a path different from most states.
Whether this approach works will depend on industry growth, tax collections, legal challenges, and future federal guidance. Because the prediction market tax does not take effect until 2027, regulators, operators, and policymakers have time to clarify how the law will be applied.
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