Illinois Governor JB Pritzker signed the state’s FY2027 budget bill, which includes a tax on prediction markets.
Key Takeaways
- Illinois became the second state to tax prediction markets.
- The Prairie State is currently being sued by prediction markets’ federal regulator.
- New Jersey is also considering a prediction markets tax.
On Wednesday, Pritzker signed the state’s eighth consecutive balanced budget into law. The good news for Illinois residents is that their tax rates are not going up this year. Prediction markets, however, aren’t as lucky.
SB 3019, which includes a new tax on prediction markets, was approved by the General Assembly earlier in June. Prediction markets are now included in the state’s Sports Wagering Act. Exchange wagers on sporting events will be taxed starting July 1. Wagers will be taxed at 1.75% on the first 5 million placed during a fiscal year and 3.5% thereafter.
“I’m proud to sign Illinois’ eighth consecutive balanced budget - one that lowers costs for everyday Illinoisans, protects our state’s fiscal health, and continues our economic progress,” said Governor Pritzker. “Working families need relief, and this budget delivers by investing in housing, food access, education, our healthcare system, and other necessities that make life more affordable.”
While the Illinois budget is put to bed, the relationship between the state and prediction markets is hardly settled. In April, Illinois issued cease-and-desist orders to Kalshi, Robinhood, and Crypto.com.
The Commodity Futures Trading Commission (CFTC) immediately countered, suing Illinois. The CFTC alleges the state’s order violates the federal agency’s “exclusive jurisdiction” over the regulation of trading exchanges. The CFTC has similarly sued Arizona, Connecticut, and New Mexico.
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Kentucky's tax fight heads to court
Kentucky was the first state to impose a tax on prediction market sites. A coalition of prediction market operators, including Kalshi, Crypto.com, and Polymarket, is now suing the Bluegrass State. While Illinois could face the same legal backlash, the tax issues differ. In Kentucky, prediction market operators are taking particular issue with their 14.25% tax rate, which is higher than the 9.75% tax on horse racing wagers.
Kentucky Attorney General Russell Coleman fired back, filing lawsuits against Kalshi, Polymarket, and sweepstakes operator VGW. In a press release issued Wednesday, Coleman said, “Kalshi and Polymarket are operating illegal sportsbooks in Kentucky and breaking our laws. These multi-billion-dollar corporations and their legal fictions don’t pass the sniff test. As one of our state legislative leaders said it best, ‘If it looks like a duck and quacks like a duck ...”
Lawsuits are dominating prediction market news, as dozens have been filed between state regulators, prediction market operators, and the CFTC. The latest move by Kentucky, Illinois, and potentially New Jersey to tax prediction markets does little to clarify the legality of these exchange platforms. It may, however, provide a path to compromise, with prediction markets taxed at the state level while remaining subject to federal regulation.
