North Carolina has become the first state to formally recognize the federal government’s authority over prediction markets, carving out a new approach as states across the country grapple with the rapidly expanding industry.
A provision tucked into the state’s budget, signed into law Tuesday, imposes a 6% tax on the net trading revenue of federally regulated prediction market operators. The budget also explicitly acknowledges that companies registered with the federal Commodity Futures Trading Commission may legally operate in North Carolina under the Commodity Exchange Act. The language states that the CFTC has “exclusive” regulatory authority over prediction markets, marking the first time a state has codified that position into law.
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The move comes as lawmakers nationwide debate how to regulate platforms such as Kalshi and Polymarket, which allow users to trade contracts on the outcomes of events ranging from elections to sporting events. Some states argue that the platforms should be subject to state gambling laws, while federal regulators maintain that the platforms should be regulated as financial markets.
“It’s pretty clear that it’s something that seems to be growing both in popularity and in terms of just recognition that it’s out there,” North Carolina Senate leader Phil Berger (D-NC) told reporters last week. “Whether it’s something that eventually is going to take over from the sports betting, I don’t know.”
The budget also raises North Carolina’s tax on sports betting operators from 18% to 23% of gross wagering revenue, meaning prediction markets will face a significantly lower tax rate than traditional sportsbooks.
House Speaker Destin Hall (R-NC) said lawmakers believed it was time to address prediction markets as the platforms have grown in popularity.
“A lot of it’s going on in this state anyway, in terms of the prediction markets, and so [it’s] just time to deal with it,” he told reporters last week.
Not everyone welcomed the change.
“I don’t know who their lobbyists are, but congratulations. That’s just rich,” State Sen. Julie Mayfield (D-NC) said last week ahead of the budget vote.
Prediction market lawsuits set stage for major court battles
North Carolina’s approach contrasts with other states. Kentucky enacted a 14.25% excise tax on prediction market transaction fees earlier this year, while Kentucky Attorney General Russell Coleman has pursued enforcement actions against prediction market companies, prompting litigation involving the CFTC. Illinois recently folded prediction markets into its sports wagering tax framework, leading Kalshi to sue the state. Meanwhile, Utah Gov. Spencer Cox (R-UT) has vowed to fight the CFTC in court, calling prediction markets “gambling — pure and simple.”
The growing legal battle over whether states or the federal government has primary authority to regulate prediction markets could ultimately be settled by the courts. Gaming law attorney Daniel Wallach told the Washington Examiner that if lower court rulings begin to conflict, the issue could reach the Supreme Court as early as 2027, with a decision possibly arriving by the middle of 2028.
