North Carolina Could Become First State to Approve and Tax Prediction Markets

North Carolina could soon make history. A new section in the state’s budget bill would make it the first state to officially allow prediction market companies to operate and pay taxes.

The proposal passed both chambers of the legislature in just two days and is now waiting for Gov. Josh Stein to decide whether to sign it into law.

What the Budget Proposal Would Do, and Lower Tax Rate Raises Concerns

The budget would officially recognize prediction market companies, including Kalshi and Polymarket, as regulated businesses in North Carolina. These platforms let users make predictions on real-world events, such as World Cup matches, interest rate decisions, or where an athlete might sign next.

Under federal law, prediction markets are treated as futures markets instead of traditional gambling. Because of that, states have not clearly regulated them. North Carolina’s proposal would change that by creating a 6% tax on their net revenue.

Unlike sportsbooks, prediction market companies would not have to pay licensing fees or follow the same detailed state regulations.

Many lawmakers are worried about the difference between the tax rates.

Regulated sportsbooks currently pay an 18% tax in North Carolina, and that rate would increase to 23% under the same budget bill. They also pay a $1 million licensing fee.

Prediction market companies, however, would pay only a 6% tax and no licensing fee.

Critics fear sportsbooks could change their business model to qualify as prediction market companies, allowing them to pay far less in taxes.

Sen. Julie Mayfield warned that the state’s sports betting revenue could drop sharply. Since legal sports betting launched in March 2024, North Carolina has collected more than $287 million in tax revenue from sportsbooks.

Universities Could Lose Funding

A drop in sports betting tax revenue could also affect public universities.

North Carolina currently uses sports betting taxes to support college athletic programs. Under the new budget, both the University of North Carolina and NC State could each receive up to $5.8 million every year.

If bettors move to prediction markets or sportsbooks find ways to pay the lower tax rate, that funding could shrink.

Rep. Pricey Harrison criticized the proposal, saying lawmakers moved too quickly without fully studying the long-term effects. The measure became public and passed both chambers within two days, leaving little time for public discussion.

Industry Pushback and Regulatory Questions

The proposal has also drawn criticism from outside the legislature.

Mick Mulvaney, President Trump’s former chief of staff and now director of the advocacy group Gambling Is Not Investing, said the state should not give prediction market companies better treatment than regulated sportsbooks.

Opponents also argue that the proposal includes very few consumer protections or operating rules. They say prediction markets could create opportunities for people with inside information to profit unfairly. While companies such as Kalshi and Polymarket have policies against that behavior, some critics question how those rules would be enforced.

Neither company commented on the proposal.

What’s Next

The budget bill is now on Gov. Josh Stein’s desk. He can sign it into law, veto it, or allow it to become law without his signature.

If the proposal takes effect, North Carolina would become the first state to officially authorize and tax prediction market companies. The decision could shape how other states handle prediction markets in the future and influence the growing debate over how these platforms should be regulated.