North Carolina Advances Tax on Prediction Markets Without Adding State Regulation
North Carolina lawmakers have quietly advanced a budget that taxes prediction markets at 6% while explicitly avoiding new state oversight. The provision sits near the bottom of a 600-plus page bill that also raises the online sports betting tax from 18% to 23%.
This approach treats CFTC-regulated platforms differently from traditional sportsbooks. It creates a lighter regulatory touch for operators like Kalshi and Polymarket. After eighteen years across iGaming and sportsbook operations I see this as a pragmatic carve-out that could influence how other states balance revenue and federal preemption.
Illinois Set the Initial Precedent
Illinois became the first state to pass a tax on prediction markets in June. That law brings platforms under state regulation unlike the North Carolina model. The Illinois bill went into effect Wednesday and Kalshi has sued the state to stop it.
North Carolina would tax the operator’s net trading fee revenue apportionable to the State. The bill defines apportionable as revenue from a trade made anywhere within the state’s borders. This captures activity without layering on know-your-customer or responsible gaming mandates.
The sports betting tax hike could bring North Carolina an additional $40 million or more in tax revenue. Operators have stayed relatively quiet because the jump is far less aggressive than an 18 percentage point increase floated in 2025.
Unique Lighter-Touch Framework for CFTC Platforms
What stands out in the North Carolina proposal is the decision to let companies continue operating under the Commodity Futures Trading Commission. Platforms avoid the state’s regulatory requirements while paying a lower rate than the 23% sports betting tax. This creates a clear distinction between federally supervised prediction products and state-licensed sportsbooks.
The budget also tweaks how gambling losses are deducted on state tax returns. Democratic lawmakers in both chambers complained about the language which references section 165(d) of the Code but omits a clear standard deduction path in the visible text. Debate overall stayed partisan with complaints about review time and consultation.
The Senate passed the budget on second reading 37-19. The House followed with 92-22. The bill now heads to third reading before potentially landing on Gov. Josh Stein’s desk.
Universities stand to gain from the sports betting side. Beginning July 1, 2027 the University of North Carolina and North Carolina State would receive up to $400,000 each from 2.2% of betting revenue shared among D-1 schools. D-2 schools could share in 19.5% up to $2.9 million per school. Five state universities with D-1 football would split 5.7% of wagering tax revenue up to $2.5 million per school.
Risks Around Preemption and Enforcement
Allowing CFTC platforms to operate without state licenses raises real questions about federal preemption. If North Carolina collects tax without imposing its own rules does that invite challenges similar to Kalshi’s lawsuit in Illinois. Enforcement becomes murkier when the state claims revenue from trades inside its borders but cedes oversight to Washington.
Critics on social media called the setup a sweetheart deal that treats functionally similar products differently. One post noted that prediction markets and sports gambling apps overlap yet face separate lower tax treatment in this proposal. From the supplier side this kind of split can stall uniform commercial integration across platforms.
A separate tax revenue bill passed last week resembles IRS rules on reporting winnings of $2,000 or more. It would let the state request bettor information including annual winnings. That measure eliminates promotional deductions for sportsbooks and was sent to Gov. Josh Stein on June 26 with a 10-day window to act.
Democrats highlighted that the flat income tax cut delivers between $3-$13 monthly for most residents. The gambling provisions drew limited floor time compared to teacher raises and overall budget fights.
Operational and Competitive Implications
Sports betting operators now face a higher tax burden while prediction platforms get a lighter path. DraftKings, FanDuel, and Fanatics Betting & Gaming offer both product types so the split affects internal pricing and compliance strategies. The 6% rate on net trading fee revenue could encourage more CFTC-aligned offerings in the state.
This model sidesteps the heavier responsible gaming and consumer protection rules that apply to sportsbooks. It may appeal to operators wary of layered state mandates but it also creates uneven playing fields. In my experience across European regulated markets operators price in regulatory overhead quickly yet uneven rules add friction to product roadmaps.
The universities’ earmarks tie wagering revenue to education and athletics. That framing helped the provisions advance with minimal debate on the prediction tax itself.
The Bottom Line is that North Carolina has built a tax-without-regulation template for CFTC platforms that stands in contrast to Illinois. Other states watching the outcome may see an easier revenue path that dodges full licensing fights. The real test will come in how cleanly this holds up against preemption challenges and whether enforcement of apportionable revenue proves straightforward once trades start flowing. Operators and platforms should track the third reading and any gubernatorial response because this structure could accelerate similar carve-outs elsewhere before the next legislative sessions.
