North Carolina Raises Sports Betting Tax, Hits Prediction Markets

⏱ 3 min read

North Carolina Governor Josh Stein signed SB 257, the state's $34 billion fiscal year 2026 budget, into law on July 7, 2026 — raising the sports betting tax rate from 18% to 23% and simultaneously imposing a brand-new 6% levy on prediction market platforms including Kalshi and Polymarket. The bill had been stalled in the Republican-controlled legislature for over a year while lawmakers wrestled with a projected $2.8 billion two-year budget deficit.

The dual move reshapes the gambling landscape in two ways at once. For licensed sportsbooks — seven operators currently active in the state — the higher rate adds immediate margin pressure after North Carolina collected more than $287 million in sports betting taxes since launching online wagering in 2024. For prediction market firms, the 6% net trading fee tax, effective January 1, 2027, marks the first time North Carolina has formally acknowledged — and sought to profit from — a sector it previously only opposed in court.

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The Sports Betting Tax Hike: From 18% to 23%

The 5-percentage-point increase in North Carolina's sports betting tax rate follows a clear national trend. The House passed SB 257 by 88–21; the Senate cleared it 35–10. Beyond the rate change, the budget grants state revenue officials expanded authority to audit individual sports bettors' wagering records — a provision that has received far less attention than the headline number but carries real enforcement weight.

Sportsbooks operating in North Carolina will also face new distribution rules on revenue. For the first time, UNC Chapel Hill and NC State University will receive a share of tax proceeds — up to $5.8 million annually each — joining Appalachian State, Charlotte, and East Carolina. The state is also allowing bettors to deduct gambling losses on state income taxes retroactive to January 1, 2025, a move that partly offsets the tax increase for recreational players but reduces one long-standing frustration with North Carolina's framework.

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North Carolina's Novel Prediction Market Approach

The more consequential policy shift may be the prediction market provision. Rather than treating Kalshi and Polymarket as illegal sportsbooks — the approach taken by Nevada, New Jersey, and over a dozen other states — North Carolina is threading a different needle. Under SB 257, prediction market exchanges that offer sports-related event contracts are permitted to operate without state licensure or regulatory requirements while paying a 6% tax on net trading fee revenue.

Senate leader Phil Berger framed the move as pragmatic: North Carolinians are already using these platforms, so the state might as well capture some revenue. Fiscal projections estimate the levy will generate roughly $2 million in 2027 — modest by any measure, but the precedent it sets for the ongoing federal-state jurisdictional fight is anything but.

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How NC Compares to Other States

State	Sports Betting Tax Rate	Prediction Market Stance	Status
North Carolina	23% (up from 18%)	6% tax on net trading fees — no licensure required	Signed July 7, 2026
Illinois	40%	Pulled into Sports Wagering Act tax framework	Kalshi lawsuit filed June 2026
Kentucky	9.75%	14.25% excise tax on transaction fees (HB 757)	Enacted April 2026; AG enforcement actions filed
New Jersey	13%	Explicit ban; enforcement actions ongoing	Extension filed in federal case, July 2026
Nevada	6.75%	Lawsuit filed (Case 25-7516); marketing claim disputed	Federal appeal active
Michigan	8.4%–23%	Court ordered Kalshi shutdown (July 3, 2026)	CFTC-state clash active

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The Legal Risk: CFTC vs. States

North Carolina's tax-not-regulate approach is deliberately designed to sidestep the central legal dispute: whether the Commodity Futures Trading Commission (CFTC) has preemptive authority over prediction market platforms under federal commodities law, making state gambling rules unenforceable against them. At least 15 states debated prediction market legislation during the 2026 legislative year, according to the National Conference of State Legislatures.

The CFTC has been actively battling states in federal court. A federal judge held a hearing this week in the agency's case against Minnesota. Kalshi sued Illinois last month after that state pulled the platforms into its gambling tax structure — a more aggressive posture than North Carolina's. Whether Kalshi or Polymarket challenge the new North Carolina levy, or simply absorb a 6% cost they might find preferable to endless litigation, is the next question to watch.

• North Carolina collected over $287 million in sports betting taxes since legalizing online wagering in 2024.
• Kalshi and Polymarket combined hit $45 billion in trading volume in June 2026, driven largely by World Cup 2026 contracts.
• Legal experts widely anticipate the federal preemption question will ultimately reach the U.S. Supreme Court.

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What This Means for Bettors

For sports bettors in North Carolina, the immediate practical impact is limited — licensed sportsbooks are unlikely to pass a 5-point tax increase directly to consumers through worse odds overnight, but the longer-term effect on operator investment in promotions and market depth is a real concern, particularly as states like Illinois (at 40%) have already seen operators scale back bonusing aggressively.

The prediction market piece is more immediately positive for users. The explicit authorization — even without a formal licensing regime — means North Carolinians can access Kalshi and Polymarket contracts on sports outcomes with a cleaner legal backdrop than residents of states currently pursuing enforcement actions. The January 1, 2027 effective date for the tax gives platforms several months to prepare compliance structures before they need to cut their first check to Raleigh.

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Sources

Primary sources cited for this article, in order of authority. Regulatory and official documents are listed first.

A lot of it's going on in this state anyway, in terms of the prediction markets, and so it's just time to deal with it.

— Destin Hall, Speaker of the House, North Carolina General Assembly · On authorizing prediction market platforms, July 2026