Michael Bologna (Bloomberg Law): Prediction Market Tax Proposals Gain Momentum in State Houses
Initiatives to regulate and tax prediction markets are accelerating in the closing weeks of state legislative sessions, with many lawmakers denouncing the fast-growing trading platforms as a form of unlicensed and unregulated gambling.
State lawmakers contend the markets resemble sports wagering that has been regulated and taxed in 38 states since 2018, when the US Supreme Court struck down the Professional and Amateur Sports Protection Act. Kentucky acted first, passing legislation last week regulating prediction markets and imposing an excise tax on transaction fees. Similar bills are gaining momentum in Illinois, Iowa, and New Jersey.
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The states and the markets are already trading punches in more than 20 lawsuits, including a criminal complaint filed by the Arizona attorney general against Kalshi. The key question in the litigation is whether the markets operate as online betting parlors regulated under state law or financial derivatives exchanges regulated under federal law.
The federal Commodity Futures Trading Commission joined the fray last week, suing Arizona, Connecticut, and Illinois. The CFTC asserted it maintains “exclusive regulatory authority” over the markets.
Michael Bologna (Bloomberg Law): Kentucky Set to Tax Event Prediction Markets in First for States
Kentucky would become the first state in the country to tax prediction markets such as Kalshi and Polymarket under a broad tax bill headed to the desk of Gov. Andy Beshear (D).
HB 757 would levy a tax on the operators of prediction markets at a rate of 17.25% of each platform’s transaction fees. The program would be expected to raise $2.1 million in 2028, according to a fiscal analysis.
A separate feature of the bill would impose a tax on fantasy sports platforms at a rate of 12% of entry fees.
The news and research platform Gambling Insider recently reported total prediction markets trading volume reached $44 billion in 2025. Nearly 90% of the trading was transacted on just two platforms, Kalshi and Polymarket.
In a statement, Kalshi warned Kentucky risks litigation from the federal government, because the state lacks clear authority to regulate prediction markets.
Related Coverage:
Matthew Knittel & Robyn Toth, Do Sports Wager Tax Rates Affect Betting Volume?, 120 Tax Notes State 91 (Apr. 13, 2026)
Legalized sports wagering has expanded rapidly across states. Thirty-four states offer legal sports wagering, and most (30) allow wagers to be made using a mobile device. State tax rates range from 6.75 percent of gross gambling revenue (bets retained by operators) in Nevada and Iowa to 50 percent (Delaware, Illinois) and 51 percent (New York, Rhode Island, Oregon, and New Hampshire). Given the wide variation in state tax rates, does the Laffer curve concept apply to this revenue source, and if so, is there a revenue-maximizing tax rate?
