North Carolina Sides With Federal Preemption, Taxing Prediction Markets 6% While Sportsbooks Pay 23%

An exclusion to avoid a fight

On July 7, Governor Josh Stein signed North Carolina’s $34 billion annual budget, signing into law Senate Bill 257 – now Session Bill 2026-41 – after more than a year of negotiations. The budget’s two main gambling provisions move in opposite directions: the first increases the tax on licensed online sports betting from 18% to 23% of gross betting revenue, effective immediately. The second, which came into force on January 1, 2027, imposes a tax of 6% on prediction market net income from operators’ trading commissions – and, above all, without subjecting these operators to national gaming regulations.

According to video game analyst Dustin Gouker, writing in his Next Event Horizon newsletter, the measure appears to mark the first time one state sought to explicitly recognize CFTC-registered companies prediction markets as lawful under federal authority while refusing to impose its own licensing, registration, or other regulatory requirements. Gouker described it as “relatively low tax rate legislation” that prediction markets would probably want other states to copy it.

Elsewhere, Kentucky passed a 14.25% excise tax in April and coupled it with enforcement measures, leading to a CFTC lawsuit. Illinois passed a tax in June that will be canceled prediction markets in its national sports betting regulatory system – and Kalshi quickly sued to block it. Where those states asserted jurisdiction and faced legal challenges, North Carolina chose to claw back revenue while ceding the regulatory issue to Washington.

The legal angle is hotly contested in the United States, and federal courts are divided. Kalshi won preliminary injunctions in New Jersey – upheld by the Third Circuit in April – and Tennessee, but lost in Maryland, Nevada, Arizona, Ohio and, this week, in the Southern District of New York, where Judge Analisa Torres refused his offer to block state enforcement, finding that the platform had not demonstrated that it was likely to succeed on its federal preemption argument. The CFTC has separately sued at least nine states — including Kentucky, Rhode Island and Minnesota, where a federal judge heard arguments this month — to defend its jurisdiction over event contracts. Many observers expect the issue to reach the Supreme Court.

Because prediction markets and that sports betting offers functionally similar products to consumers, opponents argue that the 17 percentage point tax gap amounts to a sweetheart deal that disadvantages state-licensed and regulated operators and the responsible gaming and consumer protection rules they must follow. Supporters counter that the structure allows North Carolina to capture revenue from a rapidly growing sector without duplicating the role of a federal regulator or getting into a volatile legal battle.