Kalshi sues Illinois over 15% sports prediction market tax
In brief
- Kalshi sued Illinois in federal court, contesting the state's authority to tax prediction markets
- Illinois' Sports Wagering Fund launches July 1 with 15% tax on sports-related wagers
- Trump's CFTC amended its own lawsuit supporting prediction market platforms against Illinois
- Federal and state regulators clash over prediction market regulatory jurisdiction
The conflict
Kalshi stated it will face criminal penalties in Illinois on July 1, 2026 unless it ceases offering sports event contracts or pays the state millions of dollars. The company argues that its sports-related income does not constitute gambling-related revenue and therefore falls outside Illinois's taxing authority.
Illinois, meanwhile, has asserted that sports-related prediction markets are a form of state-regulated sports betting rather than swaps overseen by the CFTC at the federal level. This framing is the crux of the dispute. Kalshi operates under federal regulatory oversight and contends the state cannot unilaterally tax instruments it doesn't regulate.
Federal backing
The Trump CFTC amended an existing lawsuit against Illinois last week to protest the new tax and filed a motion for preliminary injunction. The move signals aggressive federal support for prediction market platforms.
The Trump administration has aggressively come to the defense of the booming sector, according to reporting on the dispute. This contrasts sharply with state-level resistance.
Broader jurisdictional war
States argue that platforms like Kalshi and Polymarket are offering unregulated gambling to customers as young as 18. Red and blue states alike have raised these concerns, creating a patchwork of enforcement efforts.
Lawsuits on prediction markets are ongoing in nearly every federal jurisdiction. The issue is likely to ultimately be decided by the U.S. Supreme Court. Until then, companies like Kalshi face pressure from state regulators even as federal agencies defend their right to operate.
