North Carolina Governor Signs Budget Hiking Sports Betting Tax to 23%, Adds 6% Levy on Prediction Markets

North Carolina Gov. Josh Stein signed a $34 billion fiscal year 2026 budget bill on Tuesday that raises the state’s sports betting tax from 18% to 23% while imposing a new 6% levy on prediction market platforms’ net trading fee revenue. The move makes North Carolina the latest state to bring event-contract trading firms like Kalshi and Polymarket into its tax structure, joining Kentucky and Illinois.

The budget bill, SB 257, had been stuck in negotiations for more than a year as the Republican-controlled legislature worked to close a stalemate over the state’s finances. Lawmakers ultimately reached a deal last week that combined the tax increases with new audit powers, giving state revenue officials the authority to examine individual sports bettors’ wagering records.

Sports Betting Operators Face a Steeper Cut

The jump from 18% to 23% puts North Carolina’s sports betting tax rate closer to the upper end of states that have legalized mobile wagering, following a broader national trend of states revisiting tax rates upward after seeing early sportsbook adoption numbers. North Carolina legalized online sports betting in March 2024, and the market has grown steadily since, with major operators including DraftKings, FanDuel, BetMGM and Caesars all live in the state.

Higher tax rates on sportsbook promotions squeeze operator margins directly, and North Carolina’s five-percentage-point increase is significant enough that sportsbooks may look to adjust promotional spending or odds pricing in the state to offset the difference. States like Illinois and New York have already tested similar tax hikes, with mixed results on how much of the cost gets passed to bettors through worse lines or reduced bonus offers.

Prediction Markets Now Squarely in the Tax Net

The inclusion of a 6% levy on prediction market trading fee revenue is arguably the more novel piece of the legislation. Platforms like Kalshi and Polymarket have expanded aggressively into sports-related event contracts over the past year, drawing fire from state gaming regulators who argue the products are functionally identical to sports betting but operating without state licenses or state-level taxation.

By taxing net trading fee revenue rather than treating the platforms as licensed sportsbooks, North Carolina appears to be threading a middle path — extracting tax revenue from the prediction market boom without wading directly into the ongoing legal fight over whether the Commodity Futures Trading Commission (CFTC) preempts state gambling law for these products. That fight is currently working its way through federal courts, with some legal experts predicting it will ultimately land before the Supreme Court.

Part of a Broader State-Level Pattern

North Carolina joining Kentucky and Illinois in taxing prediction markets adds momentum to a growing bloc of states asserting some form of financial claim over the sector, even as the underlying legal question of who regulates event contracts remains unsettled. Whether platforms like Kalshi and Polymarket comply with the new North Carolina levy — or challenge it as another instance of improper state interference — will be worth watching in the months ahead as the broader national fight over prediction markets continues to play out.