New North Carolina tax could create a strategic precedent for prediction markets
In addition to the legal disputes involving several states and platforms such as Kalshi, North Carolina is emerging as a potential new battleground as it considers a specific tax on prediction market operators. At the same time, the US Congress continues to introduce legislative proposals aimed at defining the industry’s boundaries, strengthening ethics rules and expanding consumer protections.
If North Carolina Governor Josh Stein approves the state budget by 12 July, the state could become the second in the country, after Illinois, to introduce a tax specifically targeting prediction market operators. Meanwhile, lawmakers in Washington continue to introduce bills related to the sector at a rapid pace.
North Carolina could introduce a new regulatory strategy
The budget approved by the North Carolina General Assembly includes a provision establishing a 6 per cent tax on the net revenue generated from fees charged by prediction market operators on transactions conducted by users located in the state. According to the proposal, the tax would take effect on 1 January 2027 if the measure is signed into law.
The proposal takes a different approach from that adopted by other states that have attempted to restrict these platforms. Instead of requiring state licensing or prohibiting the offering of event contracts, the budget provides only for the taxation of economic activity conducted within the state.
This means the state is not directly challenging the Commodity Futures Trading Commission (CFTC) authority to supervise prediction markets, but is instead seeking to collect taxes on transactions conducted by its residents. According to analyses published by Deadspin, this could become the first state initiative to recognise, at least indirectly, the CFTC’s federal oversight while creating a sector-specific tax.
Governor’s decision could trigger new legal disputes
Josh Stein has until 12 July to decide whether to sign the budget, veto it in its entirety or allow it to become law without his signature, in accordance with the state’s legislative calendar. Regardless of the outcome, industry experts are closely monitoring the potential for new legal disputes. Kalshi and other operators have consistently argued in court that their contracts are financial instruments regulated exclusively under the Commodity Exchange Act, the federal law administered by the CFTC.
The company has already relied on this argument in lawsuits against states such as Illinois, Nevada, Arizona, Maryland, New Jersey, Ohio and Montana, all of which have taken steps to restrict or challenge the offering of these contracts. In those cases, Kalshi maintains that states lack the authority to impose rules that interfere with markets supervised by the federal regulator.
North Carolina’s proposal, however, introduces a new element. Because it focuses specifically on taxation rather than licensing or banning the activity, legal experts believe it could open a new debate over the limits between state taxing authority and federal regulatory jurisdiction.
On one side, the state may argue that imposing taxes does not alter the CFTC’s supervisory authority and simply reflects the state’s taxing authority. On the other side, operators may contend that a tax directed exclusively at prediction markets creates indirect regulatory effects that conflict with the exclusive authority granted under the Commodity Exchange Act. To date, this issue has not yet been examined by US courts.
Before North Carolina, Illinois became the first US state to introduce a tax specifically targeting prediction market operators. That measure also sparked debate over a potential conflict between state laws and the federal legislation governing financial derivatives supervised by the CFTC.
Congress steps up legislative activity on prediction markets
While states pursue their own approaches, the US Congress has also increased the number of legislative proposals related to prediction markets. In recent months, lawmakers have introduced bills covering different aspects of the industry, including transparency rules, consumer protection, the prevention of insider trading and restrictions on certain types of event contracts. The pace of new proposals has become almost weekly throughout 2026.
The initiatives follow different approaches. Some seek to establish clearer regulation for event contracts, while others propose restricting trading related to sports, politics or government decisions. Among the latest proposals is the No Profiting from Public Service Act, introduced in the House of Representatives last week.
The bill seeks to prevent federal officials and political candidates from trading prediction market contracts related to government or political events. The measure would apply to members of Congress, federal judges, Supreme Court justices, senior federal officials and candidates for national public office. Its objective is to reduce potential conflicts of interest and prevent public officials from obtaining financial benefits using privileged information acquired while performing their official duties.
Other bills introduced throughout the year follow a similar approach, proposing additional transparency measures, mandatory disclosure of transactions and restrictions on the use of confidential information when trading in prediction markets.
Alongside the legislative debate, the federal regulator has also begun reviewing the rules applicable to event contracts. The CFTC has launched a public consultation to evaluate potential changes to the criteria for determining when an event contract may be considered contrary to the public interest. Among the issues under review are the definition of the term “gaming,” the limits applicable to certain categories of contracts and the criteria that may guide future approvals or prohibitions.
The public consultation period remains open until the end of July 2026, and its outcome could directly influence the operations of prediction market operators across the United States.
This article was first published on the Portuguese SiGMA News page on 7 July 2026.
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