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Kalshi has filed a federal lawsuit against Illinois over the state’s new tax and licensing requirements for prediction markets, escalating the broader legal fight between state regulators and federally regulated event-contract platforms.
The lawsuit, filed in the US District Court for the Northern District of Illinois, seeks to block Illinois from enforcing what would become the nation’s first state tax specifically targeting prediction markets.
According to the complaint, Illinois’ law conflicts with federal authority granted to the Commodity Futures Trading Commission, or CFTC.
Illinois introduces first state tax on prediction markets
Illinois enacted the measure as part of its fiscal 2027 budget package. The law imposes a 1.75% tax on the first 5 million event contracts traded annually and a 3.5% tax on contracts exceeding that threshold. Operators would also be required to obtain a state sports wagering license costing $15 million, along with $1 million annual renewal fees.
According to news by the Chicago Sun-Times, the law was scheduled to take effect July 1, although enforcement could be delayed depending on the outcome of the litigation. Lawmakers reportedly did not include projected revenue from the tax in the state budget because they anticipated legal challenges.
Kalshi and CFTC argue federal law preempts state rules
Kalshi argues that federally regulated prediction markets cannot be subjected to state gambling laws because the Commodity Exchange Act grants exclusive oversight authority to the CFTC.
“Kalshi is fundamentally different from state-regulated sportsbooks and casinos,” spokesperson Jacki McGavick said in a statement. “Courts have already recognized our status as a federally regulated exchange.”
The CFTC has increasingly backed that position. In recent months, the agency filed lawsuits or legal briefs opposing state enforcement efforts in Illinois, Wisconsin, New Mexico, Arizona, Connecticut, Kentucky and New York.
Illinois officials maintain that sports-related event contracts function similarly to traditional sports betting and therefore should fall under state gaming oversight. Gov. J.B. Pritzker’s administration has argued that prediction market operators should comply with the same licensing and consumer protection standards required of sportsbooks.
Earlier this year, Illinois Gaming Board Administrator Marcus Fruchter issued cease-and-desist letters to several prediction market platforms, alleging they were operating illegally under state law.
Prediction markets face increasing national scrutiny
The Illinois dispute is part of a rapidly expanding national battle over prediction markets. Several states have attempted to restrict or regulate sports-related event contracts, while the CFTC continues asserting federal preemption.
The issue has also drawn broader scrutiny from lawmakers and regulators. Recent investigations and court filings have raised concerns about consumer protections, insider trading risks and misleading advertising practices tied to prediction market platforms.
To users, prediction markets can resemble sportsbooks because participants speculate on outcomes of sporting events, elections and other real-world developments. However, operators argue the platforms differ structurally because users trade event contracts against one another rather than betting directly against a house operator.
The outcome of the Illinois case could significantly influence how prediction markets are regulated nationwide and whether states can impose gambling-style rules on federally approved event contracts.
