Kalshi Sues Illinois Over New Prediction Market Tax

• Kalshi filed a lawsuit again in District Court to halt a new Illinois prediction market tax
• The lawsuit challenges the new Illinois budget that includes a tiered prediction market tax rate
• Kalshi joins the Commodity Futures Trading Commission in challenging the new law in court

Kalshi has launched a legal fight challenging the new Illinois budget that includes the nation’s first tiered prediction market tax rate.

Counsel for Kalshi this week filed a lawsuit in U.S. District Court for the Northern District of Illinois Eastern Division, seeking injunctive and declaratory relief to prevent the state from enforcing its recently approved tiered tax rate for prediction market operators and sports event contracts traded in the state.

“Kalshi is fundamentally different from stage-regulated sportsbooks and casinos. Courts have already recognized our status as a federally regulated exchange. Illinois is wasting its time and taxpayers’ dollars,” a Kalshi spokesperson told Sports Betting Dime.

New Rate Going Into Effect Soon

Kalshi asserts in its filed lawsuit that states do not have the regulatory authority to implement a tax on the prediction markets. The Commodity Exchange Act (CEA) granted the Commodity Futures Trading Commission exclusive regulatory authority over the markets.

“SB 3019 contravenes all of these Congressional commands by asserting state jurisdiction over event contracts traded on DCMs, subjecting sports event contracts to state regulatory requirements that squarely conflict with the federal ones, and redefining exchange-traded event contracts as ‘exchange wager[s]’,” counsel for Kalshi wrote in the lawsuit.

The new sports event tax is slated to go into effect on Wednesday, July 1, but may be delayed due to an influx of lawsuits challenging the state budget.

The approved 2027 budget includes a new tiered tax rate for “exchange wagers,” which are defined in the budget document as “an agreement, contracts, transaction, or swap that is offered, traded, or executed on a prediction market or exchange tied to a sporting contest or sporting event.”

Prediction market operators will be required to pay a transaction tax equal to 1.75% for each exchange wager. After the first five million exchange wagers conducted by a prediction market operator during a fiscal year, the transaction tax will increase to 3.5%.

CFTC Also Targeting New Rate

The CFTC also recently amended a lawsuit against Illinois regarding prediction markets and the trading of sports event contracts. The commission amended its lawsuit to also challenge the new prediction market tax rate just one day after Gov. J.B. Pritzker (D) signed the state’s $56 billion 2027 budget into law.

In its original filed lawsuit in Illinois, CFTC counsel claimed the state “misapprehend both the nature of these contracts and the federal regulatory framework.”

“Event contracts, including sports-related event contracts that are listed on DCMs, are covered by the CEA, and the CEA prohibits States from invading the CFTC’s exclusive jurisdiction over event contract transactions offered by and executed on federally regulated DCMs. By prohibiting these DCMs from operating in Illinois without an Illinois license or by conditioning their operation on compliance with Illinois laws and regulations, Defendants directly interfere with Plaintiffs’ authority pursuant to the federal scheme imposed by Congress through the CEA.”

The lawsuit stemmed from the Illinois Gaming Board levying cease-and-desist notices to Kalshi, Crypto.com, and Robinhood in April 2025. The board ordered the prediction market companies to stop offering their sports event prediction contracts to Illinois residents.