North Carolina Governor Josh Stein signed a $34 billion fiscal year 2026 budget bill that introduces a 6% tax on the net trading fee revenue earned by prediction market operators like Kalshi and Polymarket.
Governor Approves New Tax Increase
Before signing the budget, Stein said that although it delays additional tax cuts beyond this year, it still preserves what he described as reckless, pre-scheduled tax cuts that primarily benefit corporate shareholders and wealthy individuals. This comes after lawmakers in the state advanced a broad tax reform package aimed at raising taxes on online sportsbooks by 5%.
The House of Representatives approved the budget by an 88-21 vote, followed hours later by the Senate, which passed the measure 35-10. The legislation marks the first tax increase since the launch of legal sports betting in North Carolina in March 2024, raising the state’s rate above those in larger markets, such as Massachusetts, Ohio, and New Jersey.
The debate over the legislation stretched on for more than a year. However, Republican legislative leaders announced a budget agreement last week, ending the prolonged debate. State leaders are seeking additional revenue as North Carolina faces a projected $2.8 billion budget shortfall over the next two years, which has prompted them to propose the legislation.
Ongoing reductions in personal and corporate income tax rates have contributed heavily to the budget deficit. While the budget agreement scales back some planned tax cuts, it preserves corporate tax reductions that Stein had opposed.
Prediction Market Platforms’ Status Might Complicate Things
While legislators voted on the new policy, sports betting operators, including FanDuel and DraftKings, opposed North Carolina’s decision. Lawmakers, however, still view the measure as a way to fix the state’s deficit. Since legal sports betting launched, North Carolina bettors have generated more than $300 million in tax revenue under the state’s 18% tax rate.
While prediction market operators haven’t yet publicly addressed the new policy, chances are they might react the same way as with other states that have accepted similar policies. North Carolina isn’t the only state that has increased taxes on prediction market operators, as Kentucky and Illinois have also done so. In Illinois’ case, however, Kalshi filed a lawsuit against the state for pulling it in its Sports Wagering Act. Meanwhile, Kentucky pushed back by also filing a lawsuit against Kalshi and Polymarket, alleging that the companies are running illegal sportsbooks in the state.
The issue is further complicated by the debate over whether prediction market providers like Kalsi and Polymarket are considered a form of gambling. The conclusions from it would decide if these companies should be regulated by the central government or by individual state regulators.