Predictions Market Sue Kentucky Over Tax Proposal
Mike Goodpaster Published 16/06/2026
A coalition of prediction market sites, including Crypto.com, Kalshi, and Polymarket, has filed a lawsuit against the state of Kentucky. The suit is challenging Kentucky's proposal to place a 14.25% excise tax on all prediction market sites operating in the Bluegrass State. In April, the Kentucky General Assembly instituted a 14.25% tax on prediction market operators’ transaction fees. Lawyers for the prediction market sites argue in their lawsuit that this levy is discriminatory, unconstitutional, and preempted by federal law.
Prediction market sites are federally regulated by the Commodities Futures Trading Commission (CFTC). They argue, and have the backing of the CFTC on this issue, that state regulators can't tax a federally-regulated operation.
This Kentucky prediction market tax would be historic
In the state-vs-federal debate over who gets to regulate prediction market sites, Kentucky is breaking new ground. The state's proposed tax on prediction markets would be the first of its kind in the USA.
Lawyers from the Coalition for Fair Markets, which represents prediction market companies like Kalshi, Polymarket, Crypto.com, and Robinhood, noted that the proposed state levy is significantly higher than taxes on some other forms of gaming in the state. Horse racing pays taxes at a 9.75% rate. However, online sportsbooks in Kentucky are taxed at the same 14.25% rate.
The suit also argues against the precedent that Kentucky would be setting by implementing this tax.
“No State currently levies a State-specific excise tax of any kind on derivatives transactions that take place on a federally designated exchange, let alone the sort of specifically targeted and discriminatory tax that Kentucky has imposed here,” reads the lawsuit, according to reporting from the Associated Press.
Kalshi went on to further argue that taxing federally regulated markets is only going to encourage players to switch to illegal, unregulated offshore sites.
"The people who get hurt by this tax are Kentuckians," Kalshi said in a statement. "Taxing federally regulated markets doesn't make anyone safer. It just pushes people toward illegal platforms with no oversight and no protections.
"Kalshi is an American company, regulated here at home, and we're joining the fight for Kentuckians' access to safe, legal markets."
Kentucky AG is ready for a fight
If it's a fight that the prediction market sites want, then Kentucky Attorney General Russell Coleman is preparing to don the gloves and step into the legal ring.
“You can bet our Office will defend these statutes and the people of our Commonwealth from out-of-state companies that seek to cancel Kentucky’s sports betting laws,” Coleman said. “In any courtroom, the attorneys with the AG’s Office are the odds-on favorite to win.”
This lawsuit could prove to be groundbreaking
State lawmakers and federal regulators are watching this lawsuit closely. It will be the first real test of whether a state regulator has the power to enact laws against federally-regulated entities.
If the prediction market sites are losing this suit, it would be forcing them to pay the 14.25% state excise tax. The only other alternative would be to geofence prediction market sites on a state-by-state basis. Certainly, other states currently in court with prediction market sites, such as Wisconsin, Minnesota, and Rhode Island, will be hoping for a precedent-setting ruling that would enable them to follow suit.
On the other hand, a win by the prediction market sites could put a halt to any state attempt to tax their product.