Ninth Circuit hears Nevada use Kalshi's own tax deal as preemption test

In a filing submitted to the Ninth Circuit Court of Appeals in San Francisco, Nevada Deputy Attorney General Abigail Pace made an argument that has been sitting in plain sight since North Carolina's governor signed the state budget into law: Kalshi accepted a six percent tax on trading fee revenue attributable to state residents, and in doing so, the company implicitly acknowledged that states can reach into its operations.

Pace's argument is not subtle. North Carolina's Senate Bill 257 was widely celebrated inside the prediction market industry as the model for federal-state coexistence — a state that codified CFTC oversight rather than fighting it, imposed a tax well below the twenty-three percent levied on sports-betting gross revenue, and asked for no separate gaming license. Kalshi embraced it. Nevada is now using that embrace as the argument Kalshi cannot answer cleanly.

The logic runs like this: Kalshi has argued in the Ninth Circuit that the Commodity Exchange Act creates a federal regulatory regime so complete that states have no room to supplement it. North Carolina, Pace writes, enacted legislation that operates directly in that same field — requiring Kalshi to identify activity attributable to state residents and pay taxes on it. If field preemption means what Kalshi says it means, North Carolina's law would be invalid too. Kalshi cannot hold both positions.

The company will try to distinguish taxation from regulation, and the distinction is not frivolous. Tax law and licensing law do different things, and courts have sometimes treated them differently. But Pace anticipated the move and called it formalism in the filing itself. A requirement to track revenue by state residency, calculate a percentage, and remit it to a state treasury is a form of state-specific regulatory burden. The mechanism differs from Nevada's gaming license requirement. The structural imposition does not differ much.

What makes this filing more than a clever piece of brief-writing is the timing. The Ninth Circuit is hearing a case that could define whether states like Nevada, Michigan, and Washington retain any power over federally licensed prediction markets. The court was always going to weigh conflict preemption and field preemption on the merits. Pace has now given it a factual hook — Kalshi's own conduct in another state — that is harder to dismiss than a statutory argument alone.

The reporting on prediction market regulation has treated the North Carolina deal as the industry's political win. Nevada has turned it into the industry's legal liability. Whether the Ninth Circuit reads the argument as decisive or merely interesting will determine whether the state-by-state patchwork that has been developing since last autumn hardens into something permanent.

Kalshi is simultaneously fighting Illinois in a separate tax dispute, which means it is litigating on two fronts the question it hoped North Carolina had settled in its favor. In a previous position, working on questions where agencies coordinated imperfectly across jurisdictions, the pattern was familiar: the agreement you signed to reduce friction in one place becomes the evidence used against you in another. Kalshi may have signed the wrong deal for the wrong reasons, or the right deal for the right reasons at the wrong moment. The Ninth Circuit will not care about the intent.