Nevada argues states can regulate prediction markets

Nevada tells Ninth Circuit North Carolina tax proves states can regulate Kalshi

Deputy Nevada Attorney General Abigail Pace filed papers with the Ninth Circuit Court of Appeals in San Francisco arguing that Kalshi's acceptance of North Carolina's 6% trading revenue tax is a concession the company cannot walk back. The argument is narrower than it sounds, and sharper.

North Carolina's Senate Bill 257, signed by Governor John Stein, did something no other state had done: it wrote federal CFTC oversight directly into state law, allowing federally regulated exchanges to operate without a separate gaming license. Kalshi treated this as a win. Pace's filing treats it as an admission.

Her reasoning runs like this. Kalshi has argued that the Commodity Exchange Act occupies the field so completely that states have no room to supplement it. North Carolina then passed a law that operates directly in that same field — requiring Kalshi to identify trading revenue attributable to state residents and pay a percentage of it. Kalshi did not sue. Pace's conclusion is that you cannot claim a field is federally preempted while quietly accepting a tax imposed within that field. One of those positions has to go.

The distinction Kalshi will reach for — that taxing revenue is different from regulating contracts — is the weakest ground available. I have watched that argument fail in other jurisdictions when a regulator is patient enough to let the company make it first. Pace is being patient.

What makes Nevada's position stronger this week than it was last month is not Pace's prose. It is the Illinois comparison sitting one paragraph away in her filing. Illinois imposed a tiered transaction tax on sports-related event contracts and attached a $15 million licensing requirement to it. Kalshi sued. In North Carolina, Kalshi did not. Nevada is asking the Ninth Circuit to read that asymmetry as something other than strategy — to read it as a concession about what states are permitted to do.

The preemption doctrine Nevada is targeting is field preemption, the broader claim that federal law has so thoroughly occupied a space that state law cannot enter it at all. Conflict preemption, the narrower claim that a specific state rule frustrates a specific federal policy, is easier for Kalshi to argue and harder for Nevada to defeat. Pace appears to be betting that the North Carolina episode damages both, by showing that Kalshi's own conduct has already accepted state-specific rules as compatible with federal oversight.

Whether the Ninth Circuit agrees depends on how literally it reads Kalshi's prior filings and how much weight it assigns to a company's litigation choices versus its legal arguments. Courts can be skeptical of estoppel arguments when the underlying conduct is genuinely ambiguous. Accepting a tax that takes effect January 1 is not the same as endorsing the principle behind it.