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North Carolina has broken new ground in gambling policy by becoming the first state to impose a dedicated tax on prediction markets, marking a significant shift in how governments are responding to platforms such as Kalshi and Polymarket.
The measure is part of the state’s newly approved budget, signed by Governor Josh Stein earlier this month. Alongside the new 6% tax on prediction market net trading fees, lawmakers also increased the tax on mobile sports betting operators from 18% to 23%.
Both changes are expected to generate additional funding for public programs, with college athletics emerging as one of the biggest beneficiaries.
A Different Approach to Prediction Markets
Prediction markets have expanded rapidly in recent years, allowing users to trade on the outcome of events ranging from sports and elections to entertainment and geopolitical developments. Their legal status, though, remains unsettled.
Unlike traditional sportsbooks, these platforms argue they operate under federal commodities law and fall within the oversight of the Commodity Futures Trading Commission rather than state gambling regulators. That position has already sparked legal disputes across the country, with states including Illinois and Kentucky challenging the platforms in court, while Minnesota moved to ban them entirely before facing its own legal challenge over federal authority.
North Carolina has chosen another path.
Rather than attempting to prohibit or license prediction markets, lawmakers opted to recognize them as a taxable activity. The new levy applies only to net trading fees and does not introduce licensing requirements or other regulatory obligations typically imposed on gambling operators.
Bloomberg Tax estimates the measure will generate roughly $1 million during the 2026-27 fiscal year.
Sports Betting Still Drives the Revenue
Prediction markets may have captured attention, but sports betting remains the state’s far larger source of gambling income.
North Carolina expects sports betting taxes to produce about $206 million in the coming fiscal year, helped by the higher 23% rate. Around $126 million will flow into the state’s general fund, while 20% of tax revenue will continue to support athletics across public universities.
UNC system schools have already received substantial funding since mobile sports betting launched in 2024. By 2025, universities collectively reported receiving more than $41 million, with each athletic department collecting approximately $3.1 million. Public reporting has shown some of that funding has already been used for major facility upgrades, although several universities have yet to publicly detail how future increases will be spent.
The budget also expands tax relief for gamblers by allowing deductions for up to 90% of gambling losses, bringing state rules into line with the current federal limit.
While North Carolina has become the first state to tax prediction markets, the broader question of who ultimately regulates the industry remains unresolved. Congress has yet to establish a clear legal framework, leaving the boundary between federally regulated event contracts and state-controlled gambling an increasingly important issue as more jurisdictions decide how to respond.
Sources: portcitydaily.com
