North Carolina has become the latest state to tax prediction market operators. Governor Josh Stein signed a $34 billion fiscal year 2026 budget that slaps a 6% levy on net trading fee revenue from platforms like Kalshi and Polymarket. The move reflects mounting pressure on state finances, with North Carolina facing a projected $2.8 billion shortfall over the next two years.

Budget Approved with Comfortable Margins

The House voted 88-21 in favour of the legislation. The Senate followed suit 35-10. Stein acknowledged the budget delays additional tax cuts beyond this fiscal year, though it preserves corporate rate reductions he had previously opposed. The governor framed it as a necessary balancing act between fiscal responsibility and protecting corporate interests.

Prediction Markets Face Growing Regulatory Headwinds

The 6% tax puts North Carolina ahead of larger markets like Massachusetts, Ohio, and New Jersey on prediction market taxation. And it’s not an isolated move either. Kentucky and Illinois have already implemented similar levies, though not without controversy. In Illinois, Kalshi filed suit over its exclusion from the state’s Sports Wagering Act, whilst Kentucky has taken legal action against both Kalshi and Polymarket, alleging they operate as unlicensed sportsbooks.

The fundamental question underpinning these conflicts remains unresolved: whether prediction market providers constitute gambling in the traditional sense. Until federal and state regulators settle this definitively, expect ongoing friction between operators and lawmakers seeking revenue.

Why This Matters for the Industry

North Carolina’s decision comes barely 18 months after legalising sports betting in March 2024. That market has already generated over $300 million in tax revenue under the existing 18% rate. Adding a separate tax on prediction markets signals state legislatures are willing to extend their revenue reach into newer, less familiar corners of the online wagering space.

Operators like FanDuel and DraftKings have already opposed North Carolina’s broadened tax approach. Prediction market firms haven’t yet publicly commented, but the template is clear enough: legal uncertainty combined with escalating tax rates typically prompts litigation or market exit.

For now, North Carolina has prioritised plugging its deficit over regulatory clarity. Whether that strategy holds depends largely on how prediction market platforms respond and whether courts ultimately side with operators challenging state jurisdiction.