Coalition Sues Kentucky Over New 14.25% Prediction Market Tax
Posted on: June 15, 2026, 04:47h.
Last updated on: June 15, 2026, 04:53h.
- Kalshi, Crypto.com and Polymarket join forces to challenge Kentucky tax
- Kentucky General Assembly in April enacted a 14.25% tax on prediction market transaction fees
- Sports betting has been legal in Kentucky since 2023
A coalition that includes Kalshi, Crypto.com and Polymarket filed a lawsuit Friday (June 12) against Kentucky, after the state became the first in the nation to specifically tax prediction markets.
Sports Betting Regulated in Kentucky
In a broader gambling bill passed in April (House Bill 904), Kentucky enacted a 14.25% tax on prediction market operator transaction fees, rather than betting handle or operator revenue. That makes Kentucky the first state to move beyond challenging prediction markets, instead imposing a tax regime similar to other gambling operators.
Sports betting is fully regulated in Kentucky.
The coalition of prediction market operators argued the law is discriminatory, unconstitutional and preempted by federal commodities law. The companies argue they are federally regulated derivative exchanges overseen by the Commodity Futures Trading Commission (CFTC), not gambling operators.
14.25% Tax on Transaction Fees
Customers on prediction markets buy, trade or sell event contracts, a form of derivative that allows customers to place trades based on real-world events, including sports. Sportsbook operators have argued that prediction markets compete directly with them while operating under a different set of rules.
“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,” the lawsuit said, quoted in Associated Press.
The lawsuit sets up a potential landmark battle that could determine whether states can regulate and tax prediction market platforms.
“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,” said Kentucky Attorney General Russell Coleman in a statement. “In any courtroom, the attorneys with the AG’s Office are the odds-on favorite to win.”
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