North Carolina has approved a new legal framework for prediction markets, placing federally registered platforms under the oversight of the Commodity Futures Trading Commission while imposing a 6% state tax on net trading fee revenue tied to residents of the state.
The measure, signed on July 7 by Governor Josh Stein, recognizes the CFTC as the sole regulator of prediction market platforms that are registered under the federal Commodity Exchange Act. The law allows those operators to serve North Carolina customers without obtaining a separate state gambling or sports wagering license, beginning January 1, 2027.
The move makes North Carolina one of the clearest examples of a state choosing to treat event-based contracts as federally regulated financial products rather than as gambling products controlled by state betting agencies. That approach stands in sharp contrast to several other states, where officials have tried to bring prediction market platforms under gambling statutes or sports wagering rules.
The new law was included in the state’s 2026 budget package and codified through Senate Bill 257. It applies a 6% tax to net trading fee revenue generated from North Carolina residents. That rate is far below the state’s 23% tax on sports wagering revenue, showing that lawmakers are drawing a legal and tax distinction between sports betting and federally supervised prediction markets.
Prediction markets allow users to trade contracts based on the outcome of real-world events. These contracts can be tied to elections, economic data, sports results, court decisions, weather outcomes, entertainment awards, and other measurable events. The price of a contract often reflects the market’s collective view of the probability of an outcome.
Under North Carolina’s law, platforms registered with the CFTC are not subject to additional state licensing requirements or gambling regulations. The state’s position is that if a platform is legally operating under federal commodities law, it can operate in North Carolina under that federal framework, while still paying the new state tax on eligible fee revenue.
Federal model takes shape
The North Carolina law is important because it directly addresses one of the biggest legal questions facing prediction markets: whether states can regulate or block federally registered event-contract platforms by treating them as gambling businesses.
Supporters of the federal model argue that prediction markets approved or registered under the Commodity Exchange Act fall within the CFTC’s jurisdiction. Under that view, state gambling regulators should not be able to impose conflicting licensing rules on platforms already operating under federal commodities law.
North Carolina has now written that interpretation into state law. The result is a framework that grants legal access to CFTC-registered platforms while creating a defined tax obligation for activity from residents.
That does not mean the national debate is settled. Other states have taken a different view, leading to litigation that could shape how prediction markets operate across the country.
The central legal issue is federal preemption. In simple terms, preemption refers to situations where federal law overrides state law. Prediction market operators argue that state gambling laws cannot be used to restrict products regulated by the CFTC. Some state regulators disagree, saying that event contracts may still resemble wagering, especially when tied to sports or other public outcomes traditionally overseen by state gambling authorities.
North Carolina’s new approach gives prediction market operators one of the more favorable state frameworks in the country. It also gives state tax officials a way to collect revenue without forcing federally registered platforms into the same category as sportsbooks.
How the tax differs from sports wagering
The 6% tax on net trading fee revenue is a key part of the law. It applies only to revenue earned from trading fees, not to the full notional value of contracts traded on a platform.
That distinction matters. Prediction markets can generate very large trading volumes, but platform revenue typically comes from fees charged on transactions or settlements. By taxing net trading fee revenue, North Carolina is targeting the platform’s business income rather than the total value of contracts exchanged by users.
The rate also shows that lawmakers did not want to mirror the state’s sports wagering tax structure. North Carolina taxes sports wagering revenue at 23%, a much higher rate. Sportsbook taxes are often designed around gambling revenue models, where operators hold a percentage of wagers over time.
Prediction markets function differently. Users trade against each other, and platforms earn fees for facilitating those transactions. A lower tax rate may reflect that different structure, while still ensuring that the state receives revenue from the activity.
For platforms, the 6% rate may be easier to plan around than a higher sports wagering-style tax. For state officials, it creates a revenue stream from a fast-growing market without forcing a direct fight over whether every event-based contract should be treated as a gambling product.
The law is scheduled to take effect for platform operations on January 1, 2027. That gives operators time to prepare compliance systems, customer classifications, tax reporting, and controls for identifying fee revenue linked to North Carolina residents.
A widening fight with states
North Carolina’s decision comes as legal conflicts over prediction markets intensify in other parts of the United States.
Earlier in the week, a federal court denied Kalshi’s request for a preliminary injunction that would have blocked New York authorities from applying state gambling law to some of its contracts. Kalshi has appealed that ruling to the Second Circuit, keeping the dispute active.
The New York case is being closely watched because it may help define how far state gambling regulators can go when dealing with federally regulated event-contract markets. If courts side with state regulators, platforms may face a patchwork of local restrictions. If courts side with the platforms, CFTC registration may provide broader protection against state-level interference.
Kentucky has also moved into the debate. Lawmakers there approved legislation adding a 14.25% tax on transaction fees from prediction market platforms. That measure prompted the CFTC to bring a complaint against the state, highlighting the tension between federal oversight and state revenue efforts.
Illinois has taken another route by integrating prediction markets into its sports wagering framework. The state established a tiered tax between 1.75% and 3.5% and required platforms to obtain a state license. Kalshi has challenged that approach in court.
Together, these state actions show that the United States is not moving toward a single, uniform model for prediction markets. Instead, states are experimenting with different approaches. Some are trying to tax and license the platforms like gambling businesses. Others, including North Carolina, are accepting federal oversight while creating state-level tax rules.
The result is a fragmented legal environment that may remain unsettled until appellate courts, federal agencies, or Congress provide clearer guidance.
Trading volumes intensify tax debate
The fight over prediction markets is becoming more urgent because trading activity has expanded sharply.
Global trading volume on forecasting platforms reached $24 billion in April 2026, according to figures cited by market participants and policy observers. That level of activity explains why state governments are paying closer attention. Even if platforms earn only a small percentage of trading volume through fees, the potential tax base can be significant.
For tax agencies, prediction markets represent a new source of digital revenue. For regulators, they raise questions about consumer protection, market integrity, insider information, money laundering controls, and the boundary between financial trading and gambling.
High trading volume also increases the stakes for platforms. A state-friendly framework can help attract business, while restrictive rules may push platforms to limit access in certain jurisdictions or spend heavily on litigation.
North Carolina’s model could become influential if other states view it as a practical compromise. It does not ban the activity. It does not force CFTC-registered platforms into full gambling regulation. But it also does not leave the activity untaxed.
That balance may appeal to states that want revenue without taking on a direct confrontation with federal commodities law. However, states with strong gambling regulatory systems may continue to argue that event contracts, especially those tied to sports, should fall within their existing oversight structures.
Compliance pressures are growing
The legal debate is not only about taxes and licensing. Prediction market platforms are also facing growing pressure over compliance, identity checks, and market surveillance.
As event-based trading grows, regulators are paying closer attention to whether traders have access to nonpublic or improperly obtained information. That concern is especially serious for contracts tied to elections, government decisions, corporate events, court rulings, or sports outcomes.
An enforcement official identified as Miller said last week that federal insider trading rules apply to virtual financial bets and event-based contracts. The comment reflects a broader regulatory concern: if event contracts trade like financial instruments, then traders using confidential information may face legal consequences similar to those in traditional markets.
Independent researchers have also raised concerns about suspicious profits on prediction markets. Those researchers traced more than $143 million in allegedly suspicious gains from well-timed wagers between 2024 and 2026. The findings have increased calls for stronger surveillance tools, clearer reporting standards, and broader cooperation between platforms and regulators.
For traders, the practical effect is clear. Platforms are likely to strengthen account verification, transaction monitoring, and recordkeeping. Traders may face tighter identity checks, more detailed tax reporting, and closer scrutiny of unusual activity. Those using digital wallets or tokenized systems may also need to maintain clearer records of deposits, withdrawals, trades, fees, and settlement proceeds.
The growth of decentralized networks adds another layer of complexity. Some event markets or prediction-style products operate through blockchain-based systems rather than traditional centralized platforms. That can make enforcement harder, but it does not remove tax or legal obligations. Regulators are increasingly focused on the people and entities behind transactions, even when the technology is decentralized.
What changes for platforms and traders
The North Carolina law gives federally registered platforms a clearer path to operate in the state, but it also adds a defined tax cost. Platforms serving North Carolina residents will need systems that can identify taxable fee revenue and report it accurately.
That may require changes to customer onboarding, geolocation processes, account documentation, and fee accounting. Platforms will also need to determine how the state’s tax applies to users who move, travel, use multiple addresses, or access accounts through different devices.
For traders, the most immediate change is likely to be greater clarity. If a platform is registered with the CFTC and complies with the North Carolina law, residents should have access under the federal model once the law becomes operative. Still, traders may also see more compliance prompts, identity review requests, tax forms, and platform disclosures.
The law may also influence where companies choose to build infrastructure, hire staff, and locate operations. States that rely on federal rules while imposing manageable tax rates may become more attractive to platforms. States that require gambling licenses or impose uncertain restrictions may be viewed as higher-risk jurisdictions.
However, North Carolina’s approach does not fully shield platforms from national legal uncertainty. A major federal court ruling in favor of state gambling regulators could force changes. A ruling in favor of CFTC-regulated platforms could strengthen the federal model. New federal legislation could also change the landscape.
For now, the law marks a clear policy choice. North Carolina is not treating federally registered prediction markets like traditional sportsbooks. It is recognizing CFTC supervision, applying a lower tax rate than sports wagering, and allowing the industry to operate under a federal commodities framework.
That makes the state an important testing ground for the future of event-based trading in the United States. As other states pursue taxes, licenses, lawsuits, or restrictions, North Carolina has chosen a route that accepts the federal role while preserving a state revenue claim.
The broader outcome will depend on courts, regulators, and lawmakers. But the direction is clear: prediction markets have become too large for governments to ignore, and the fight over who controls them is now moving from policy theory to statutes, lawsuits, tax filings, and compliance systems.
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