North Carolina backs federal oversight for prediction markets

North Carolina has taken a different path in the state-by-state fight over prediction markets, choosing to recognize federal oversight instead of treating the platforms as state-regulated gambling businesses. For retail investors watching event-contract platforms such as Kalshi and Polymarket, the move matters because it could shape where these markets can operate and what costs get passed through to users.

Gov. Josh Stein signed the provision on July 7 as part of Senate Bill 257, the state’s 2026 budget. The law says a prediction market registered and licensed by the Commodity Futures Trading Commission, or CFTC, may operate legally in North Carolina because the Commodity Exchange Act gives the agency “exclusive federal regulatory authority” over those platforms.

Prediction markets, also called event-contract markets, allow users to trade contracts tied to whether a future event happens. The regulatory fight is about whether those contracts are federally supervised financial products or state-controlled gambling products, especially when the events involve sports.

A tax, without a state licensing regime

North Carolina’s law does not create a state licensing system for prediction markets. Instead, it applies a 6% tax to operators’ net trading fee revenue attributable to North Carolina residents, beginning Jan. 1, 2027. The statute also says that tax does not carry licensing, registration or other regulatory requirements.

That is a lighter approach than North Carolina is taking with sports betting. In the same budget, the state raised its tax on sports betting operators to 23% of gross wagering revenue from 18%.

The contrast matters because taxes and compliance rules can change the economics of trading platforms. A tax on net trading fees targets what the platform earns after trades, while a tax on gross wagering revenue applies to the money a betting operator keeps from wagers after paying winners.

States are splitting over the rules

North Carolina’s position puts it outside the main trend among states trying to police prediction markets as gambling. More than a dozen states have moved to treat the platforms as unlicensed sports betting, according to Decrypt.

Kentucky passed a bill that taxes prediction market platforms at 14.25% of transaction fees, and the CFTC filed a complaint over that law. Kentucky has also sued Kalshi and Polymarket, with Attorney General Russell Coleman saying the companies are operating illegal sportsbooks in the state.

Illinois has taken another route by placing prediction markets into its sports-wagering framework, including licensing rules and a tiered transaction tax. Kalshi has challenged those rules in court.

The CFTC has sued at least nine states as it argues that federal law gives it exclusive jurisdiction over the platforms. Courts have not reached one answer. Kalshi and other platforms have won injunctions in New Jersey and Tennessee, while losing in Maryland, Nevada and Arizona, according to Decrypt.

The latest setback for Kalshi came in New York, where Reuters reported that a federal judge denied the company’s request to block state gambling regulators. The judge found that the Commodity Exchange Act did not preempt New York gambling law as applied to Kalshi’s sports contracts.

The CFTC is also working on national rules for event contracts. The agency said the public comment period for those rules closes July 27. Until courts or federal regulators settle more of the conflict, prediction markets face a patchwork of state responses, with North Carolina now clearly on the federal-recognition side.

This story draws on original reporting from Decrypt.