TechFlow News, June 14: The Coalition for Fair Markets—a group comprising Kalshi, Polymarket, and other organizations—has filed a lawsuit in Kentucky state court challenging the state’s recently enacted 14.25% excise tax on prediction markets.
The complaint states that this tax rate is significantly higher than the 9.75% rate applied to Kentucky’s horse racing betting industry, constituting discriminatory treatment of the prediction markets sector. Plaintiffs further argue that prediction markets fall under the category of federally regulated financial markets, and thus state-level tax measures may be preempted by federal law under the doctrine of federal preemption.
The industry coalition contends that the excessive tax burden will erode the competitiveness of regulated prediction market platforms, stifle industry innovation and market growth, and potentially drive users toward unregulated offshore platforms or illegal markets.
In recent years, the prediction markets industry has expanded rapidly across the United States, with trading volumes for contracts tied to elections, economic data, sporting events, and policy developments continuing to rise. At the same time, disputes between state regulators and prediction market platforms over regulatory authority, classification as gambling, and taxation policies have intensified.
Kentucky officials stated they will vigorously defend the relevant laws to uphold the state’s authority to tax commercial activities within its jurisdiction. The outcome of this litigation could also significantly influence how other U.S. states regulate and tax the prediction markets industry in the future.
