New York Officials Split on Taxing Prediction Markets as Kalshi Lawsuit and CFTC Intervention Continue

The legal clash over prediction markets reached Saratoga Springs last week during the Racing and Gaming Conference, one day before Commodity Futures Trading Commission Chairman Michael Selig invoked emergency authority to protect Kalshi from New York enforcement. The state seeks $36 billion in its lawsuit against the operator, which had offered a 6% tax on trades projected to yield about $10 billion over five years.

Katie Neer, a lawyer at Dickinson & Avella PLLC who previously served as assistant secretary for general government and financial services under then-Gov. Andrew Cuomo, said officials may be avoiding taxation to prevent legitimizing the activity during litigation. “I would get over that. I’d start to capture some tax revenue,” Neer stated, as reported by Gambling Insider.

Chelsea Davis, deputy secretary for gaming, cannabis, and alcohol for New York Gov. Kathy Hochul, rejected the approach. State-licensed sportsbooks pay a 51% tax on revenue, and Davis said the state should not accept funds from illegal activities. She pointed to marijuana legalization as a model where public support aligned with regulation, contrasting it with prediction markets.

“Some of the best with the worst societal consequences, with the least integrity monitoring, is causing a larger backlash,” Davis said. This dynamic risks other regulated gaming revenue, she added.

Market Integrity and Participant Protections

Dan Ullman, a partner at Orrick, said the CFTC is hedging bets while stress testing sports contracts for integrity and fair trading. “My prediction is that the (U.S.) Supreme Court will decide this,” Ullman added. Neer noted that most trading involves full-time super forecasters who move markets, arguing the 20 to 30% of other participants deserve consumer protections.

Potential Benefits and Limits for Horse Racing

William Gotimer, a Saratoga Springs lawyer, suggested prediction markets could aid horse racing via tangential contracts on Eclipse Awards or leading jockeys in a meet. Polymarket briefly listed Kentucky Derby contracts this year but retracted them after a demand from Churchill Downs. Federal law restricts interstate wagering on racing outcomes, limiting direct overlap.

The counterarguments from Davis highlight a core limitation: rushing to tax without public buy-in or integrity safeguards could erode trust in the wider gaming framework. Operators and regulators must track the federal path closely, as CFTC rules and a potential Supreme Court decision will shape viable state approaches.

Reporting: Gambling Insider

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