An industry coalition that includes Kalshi, Polymarket and other participants has filed a lawsuit seeking to block the U.S. state of Kentucky from imposing a 14.25% transaction tax on prediction markets. The tax was passed by the Kentucky legislature in April this year and applies a 14.25% excise tax to transaction fees charged by prediction market operators.
According to Odaily, citing Abcnews, the measure is considered the first state-level special tax in the United States aimed specifically at the prediction market industry. The plaintiffs, identified as the Fair Markets Coalition, argue that the tax is discriminatory, violates the Constitution, and may already be preempted by federal law.
The lawsuit states that prediction markets are being subjected to a higher tax burden, calling the arrangement clearly unfair. It also says the tax may distort the competitive structure of the market. The dispute centers on Kentucky’s attempt to use state-level tax rules to impose a separate excise tax on transaction fees collected by prediction market operators.