According to Abcnews, a coalition of prediction market platforms including Kalshi, Crypto.com and Polymarket filed a lawsuit in state court this Friday, seeking to block Kentucky’s newly implemented 14.25% tax on prediction market trading. The case centers on a state-level tax applied to trading fees charged by prediction market platforms, with the plaintiffs describing the measure as discriminatory.
The 14.25% tax rate sits at the center of the dispute
The Kentucky legislature passed the tax measure in April this year. It targets transaction fees collected by prediction market platforms and sets the rate at 14.25%. In the lawsuit, the plaintiffs said the tax is higher than the roughly 9.75% tax burden faced by the local horse racing industry. They also argued that the tax is discriminatory, violates the Constitution, and conflicts with federal law.
Prediction market platforms allow users to trade contracts tied to real-world events, such as economic data and election results. The plaintiffs characterized these markets as event derivatives markets. They argued that the new Kentucky tax would significantly raise compliance costs and drive trading activity toward offshore platforms that operate under weaker regulatory oversight.
Kentucky and Kalshi state opposing positions
Kentucky Attorney General Russell Coleman said the state will firmly defend the law in court and stated that the state government has the ability to handle the related challenges. His comments indicate that Kentucky intends to maintain its legal defense of the new tax despite the lawsuit filed by the prediction market platform coalition.
At the same time, Kalshi said excessive state-level tax burdens would weaken the competitiveness of legal markets and push users toward illegal trading platforms that lack regulation and protection. The case is being viewed as the latest development in the continuing conflict between the U.S. prediction market industry and state-level regulatory and tax systems.