Kalshi draws federal line as New York betting case heads to court

North Carolina's budget office did not intend to become a weapon in federal preemption litigation. But when Governor Josh Stein signed SB 257 last month, imposing a six percent tax on prediction market net trading fee revenue from state customers, Nevada's deputy attorney general saw something Kalshi had not anticipated: a concession dressed as a compromise.

Abigail Pace filed the argument with the Ninth Circuit last week. Kalshi's support for North Carolina's tax regime, she wrote, amounts to an admission that states retain meaningful authority over prediction market operations. If Kalshi accepts a state's power to tax revenue derived from event contracts, the wall between federal jurisdiction and state oversight begins to look like a door.

Kalshi's position has always been carefully constructed. CFTC jurisdiction is exclusive, the company argues, which means states cannot require it to obtain gaming licenses or comply with state gaming regulations. But taxation is different — states have always taxed federally regulated activity, and accepting a tax is not the same as accepting a regulator. The distinction is real in administrative law. The question is whether the Ninth Circuit will treat it as real in the context of prediction markets, where the underlying political pressure is anything but abstract.

Pace called it "purely a formalism." That framing will appeal to judges who are skeptical of regulatory arbitrage. It will appeal less to judges who take seriously the settled doctrine that federal regulatory preemption and state taxing authority operate on separate tracks.

I've watched similar arguments collapse under their own logic in other contexts, where a party's acceptance of one form of state authority was used to relitigate a different form entirely. The two are not equivalent. But Kalshi made a tactical choice when it endorsed North Carolina's structure — distinguishing regulation from taxation publicly, on the record — and Nevada has now made that choice part of the case. Whether that framing survives Ninth Circuit scrutiny is the real exposure here.

The broader pattern matters more than the specific filing. Nevada is not the only state treating Kalshi's legal positions as provisional. The prediction market that positioned itself as a federally regulated derivatives exchange now faces a coordinated argument that its own commercial decisions undermine the jurisdictional wall it is trying to build. North Carolina taxes it at six percent of net trading fee revenue. Licensed sportsbooks in the same state pay twenty-three percent of gross wagering revenue. The disparity is the industry's structural advantage, and it is also the thing that makes state regulators most determined to close the gap through whichever legal theory survives.

A contract market that wins the preemption argument keeps that six percent rate. One that loses it faces a patchwork of state licensing regimes, each with its own fee structure and its own definition of what a prediction market contract actually is. That asymmetry is what makes the Ninth Circuit case consequential well beyond Nevada's border — and what makes Pace's filing, whatever its eventual fate, worth reading slowly.