More States Turn to Prediction Market Taxes as North Carolina and New Jersey Advance Bills
North Carolina lawmakers moved closer to taxing prediction markets as part of a broader gambling tax package. At the same time, New Jersey advanced a proposal to impose a new surcharge on prediction market operators.
More states are turning to prediction market taxes as a source of revenue, with North Carolina and New Jersey advancing proposals after Illinois recently became the first to impose a tax on the federally regulated platforms.
North Carolina lawmakers approved a conference committee budget report on second reading in both the House and Senate on July 1, which includes a 6% tax on prediction markets. Meanwhile, New Jersey lawmakers advanced companion bills that would impose a standalone 9% surtax on prediction market operators.
The developments come as states continue to look at gambling to generate revenue, while litigation over federal oversight of sports-event contracts continues across the country.
North Carolina Budget Includes Broad Gambling Tax Changes
Among the gambling-related provisions of North Carolina’s conference committee budget report is a new 6% tax on prediction market operators’ net trading fee revenue attributable to transactions conducted within the state.
Unlike Illinois, however, the proposal does not establish a state licensing or regulatory framework for prediction markets. Instead, platforms such as Kalshi would remain under the CFTC’s oversight while paying state taxes.
In addition to taxing prediction markets, the budget also raises North Carolina’s online sports betting tax from 18% to 23%. The state joins several others, including Illinois, Maryland, Louisiana, and New Jersey, that have recently raised sportsbook tax rates.
Lawmakers also included a provision allowing taxpayers to deduct gambling losses on their North Carolina income tax returns. North Carolina is currently one of 10 states that do not allow gamblers to deduct losses.
Additionally, lawmakers recently approved Senate Bill 595. The measure would require sportsbooks to provide the Department of Revenue with information on registered players who received at least $2,000 in winnings during the prior calendar year.
The budget report now requires a third reading in both chambers before it can be sent to Gov. Josh Stein. If enacted, the budget would make North Carolina the second state, after Illinois, to impose a tax on prediction markets.
Update: Lawmakers passed the measure on third reading on July 2.
New Jersey Scales Back Prediction Market Bill
New Jersey lawmakers, meanwhile, narrowed their approach after substantially amending companion bills in both chambers that originally sought to regulate prediction markets similarly to sportsbooks.
On June 28, the Senate Budget and Appropriations Committee adopted a substitute version of Senate Bill 4447, while the Assembly Budget Committee advanced Assembly Bill 5336. The committee substitutes impose a 9% surtax on income derived from operating prediction markets.
The original version of the bills included a regulatory framework for prediction markets similar to that of licensed sportsbooks in the state.
It would have required prediction markets offering sports event contracts to obtain licenses from the New Jersey Division of Gaming Enforcement. Operators such as Kalshi would have had to pay the state’s 19.75% sportsbook tax in addition to a 10% surcharge and comply with responsible gambling requirements.
Other provisions included restrictions on certain event contract categories, such as political elections and death. Those provisions were removed in the committee substitute, leaving a proposal focused primarily on taxation.
The scaled-back proposal comes after Kalshi secured a preliminary injunction against New Jersey regulators in April. The Third Circuit found that the company was likely to succeed on its argument that the Commodity Exchange Act gives the CFTC exclusive jurisdiction over its federally listed event contracts. The litigation remains ongoing.
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