Kalshi filed a lawsuit against Illinois on Wednesday, challenging the state's authority to impose a 15% tax on revenue from sports-related prediction market wagers. The lawsuit follows Illinois governor JB Pritzker signing a bill into law last week that establishes a Sports Wagering Fund, set to take effect on July 1, which taxes gross receipts from sports-related prediction market transactions. Kalshi argues the state has no right to tax its sports-related income, asserting that prediction markets are federally-regulated swaps overseen by the Commodity Futures Trading Commission (CFTC) rather than state-regulated gambling. The case represents the latest development in a nationwide jurisdictional conflict between states and the Trump administration over whether prediction markets constitute gambling subject to state regulation or financial instruments under exclusive federal oversight.
Illinois Enacts 15% Tax on Sports Prediction Market Revenue
Last week, Illinois governor JB Pritzker signed legislation creating a Sports Wagering Fund that imposes a 15% tax on gross receipts from sports-related prediction market wagers. The tax is scheduled to take effect on July 1. In establishing this tax, Illinois asserted that sports-related prediction markets constitute a form of state-regulated sports betting rather than federally-overseen swaps under CFTC jurisdiction. The legislation also created a statewide tax on crypto transactions.
Kalshi Challenges State Tax Authority in Federal Court
Kalshi filed its lawsuit in federal court on Wednesday, arguing that Illinois lacks the authority to tax prediction market revenue. According to the complaint, "On July 1, 2026… Kalshi will be subject to criminal penalties in Illinois unless it either ceases to offer Illinois residents sports event contracts that are perfectly lawful in the eyes of Kalshi's exclusive federal regulator or pays Illinois millions of dollars and submits to the state's regulatory regime." The company maintains that its sports-related income does not constitute gambling-related revenue and therefore falls outside state taxation authority.
Trump CFTC Files Injunction Motion Against Illinois Tax
The Trump administration's CFTC amended an existing lawsuit against Illinois last week to protest the state's new tax. The federal regulator also filed a motion for preliminary injunction seeking to prevent Illinois from implementing the law next week. The CFTC's legal actions support the position that prediction markets are federally-regulated financial instruments under its exclusive oversight, not state-regulated gambling activities.
Jurisdictional Disputes Spread Across Federal Courts
Lawsuits concerning the regulatory classification of prediction markets are ongoing in nearly every federal jurisdiction. Both red and blue states have argued that platforms like Kalshi and its rival, Polymarket, offer unregulated gambling to customers as young as 18. The Trump administration has defended the prediction markets sector, asserting federal jurisdiction through the CFTC. The issue is likely to ultimately be decided by the U.S. Supreme Court.
FAQ
What did Kalshi sue Illinois over on Wednesday?
Kalshi filed a lawsuit in federal court challenging Illinois's authority to impose a 15% tax on revenue from sports-related prediction market wagers, arguing the state has no right to tax income from federally-regulated swaps.
When does Illinois's tax on sports prediction markets take effect?
The 15% tax on gross receipts from sports-related prediction market wagers is set to take effect on July 1, following governor JB Pritzker signing the legislation into law last week.
Why is the Trump CFTC involved in the Illinois prediction markets case?
The Trump administration's CFTC amended an existing lawsuit against Illinois last week and filed a motion for preliminary injunction to prevent the state tax from taking effect, asserting that prediction markets are federally-regulated financial instruments under exclusive CFTC oversight rather than state-regulated gambling.
