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State of Play’s TL;DR
- Kalshi’s acceptance of North Carolina’s tax on prediction markets shows states can regulate them, Nevada’s AG’s office told a federal appeals court.
- Kalshi has argued that it is entirely regulated by the CFTC.
Nevada’s attorney general’s office told a federal appeals court that Kalshi’s acceptance of North Carolina’s new 6% tax on prediction market trading fee revenue shows states can regulate the exchange’s in-state operations.
The filing, submitted last week to the Ninth Circuit Court of Appeals in San Francisco by Nevada Deputy Attorney General Abigail Pace, is the latest move in Nevada’s dispute with Kalshi over whether state regulators can police or tax the company’s event-contract business.
The argument goes directly to Kalshi’s broader claim that federal oversight by the Commodity Futures Trading Commission pre-empts state action.
Nevada points to North Carolina law
According to the filing, North Carolina’s newly enacted Senate Bill 257 cuts against Kalshi’s position by expressly allowing federally regulated exchanges to operate legally in the state without a separate gaming license while still imposing a state tax.
That law, signed as part of North Carolina’s budget by Gov. John Stein, imposes a 6% tax on trading fee revenue attributable to state residents for prediction market operators such as Kalshi. The tax takes effect Jan. 1.
Pace told the court that Kalshi’s acceptance of that framework amounts to an acknowledgment that states can regulate its business. In the filing, she called it “a stunning about-face, which would mean that (at a minimum) Kalshi cannot evade Nevada’s taxing provisions.”
Pace also argued that Kalshi’s attempt to separate state taxation from state regulation is “purely a formalism,” writing that both are forms of state regulation. She said North Carolina’s law requires Kalshi to identify gaming activity tied to North Carolina and pay taxes on it.
Other states are taking different approaches
Nevada’s filing also highlighted how states are handling sports-event contracts and related exchange wagering in different ways.
In North Carolina, the prediction market tax contrasts with the state’s 23% tax on sports betting operators’ gross wagering revenue.
Illinois, meanwhile, imposed a tiered transaction tax on sports-related exchange wagers effective July 1. Under Senate Bill 3019, the first five million exchange wagers are taxed at 1.75%, with subsequent wagers taxed at 3.5%. Illinois also requires operators to obtain a state sports betting license, which would cost $15 million for four years.
Kalshi has sued Illinois to overturn that tax.
Based on reporting by Chris Sieroty for CDC Gaming.
