Prediction market operators face Illinois tax rules split by contract type

Illinois tax structure splits prediction market operators by contract type

When Illinois Governor J.B. Pritzker signed Senate Bill 3019 into law, he created something the prediction market industry had not faced before: a state tax that distinguishes not by who is operating, but by what is being traded. Sports-related exchange wagers placed on prediction markets now face a tiered transaction levy — 1.75% on the first five million wagers, 3.5% on everything above that — plus a $15 million, four-year licensing requirement. Kalshi has sued to overturn it.

That lawsuit matters less for its outcome than for what it forced Kalshi to say. To challenge Illinois, Kalshi must argue that federal oversight of designated contract markets leaves no room for state-level intervention. The same argument is now being used against Kalshi in the Ninth Circuit, where Nevada Deputy Attorney General Abigail Pace has pointed to Kalshi's conduct in North Carolina as evidence that the company knows this position is hollow.

The North Carolina situation deserves a close reading. Under a state budget signed by Governor John Stein, prediction market operators face a 6% tax on trading fee revenue attributable to state residents, effective January 1. North Carolina also became the first state to write CFTC oversight directly into statute, meaning Kalshi can operate there without a separate gaming license. Kalshi accepted this arrangement. Pace's argument to the Ninth Circuit is simple: you cannot accept a state's power to tax your revenue from federally regulated contracts and simultaneously claim states have no power to regulate those contracts. She is correct that accepting one while contesting the other requires a distinction the law does not obviously support.

I have seen this pattern before in cross-jurisdictional disputes — a party that accepts favorable state action to gain market access, then contests unfavorable state action as preempted. Courts tend to find this asymmetry unconvincing, and they should. The mechanism Kalshi used to gain entry into North Carolina is the same mechanism Nevada says gives it authority to tax and license. That Kalshi's North Carolina tax rate is 6% against Nevada's higher burden does not change the constitutional logic; it just changes the dollar amount.

What makes the Illinois structure distinctly difficult is the contract-type specificity. Sports-related wagers are taxed and licensed; other contracts apparently are not, at least not under this bill. That creates an incentive for platforms to characterize contracts in ways that minimize sports exposure, which is exactly the kind of definitional arbitrage that generates years of litigation. I would expect that fight to arrive before the tiered rate becomes economically significant for any major operator.

The broader question now running through every state-level proceeding is whether North Carolina's model — CFTC deference codified in statute, modest revenue tax, no gaming license — becomes the template other states adopt, or whether Illinois and Nevada's more aggressive postures hold. The Ninth Circuit's read of the North Carolina tax concession may answer that before any legislature does.