North Carolina Budget Advances Prediction Market Tax

North Carolina lawmakers advanced a wide-ranging budget bill Wednesday that would create a new tax on prediction market operators while leaving those platforms outside the state’s gambling regulatory framework.

The Senate approved the budget on second reading in a 37-19 vote early Wednesday afternoon. The House followed later in the day with a 92-22 vote. The bill still needs third-reading approval in both chambers before it can be sent to Gov. Josh Stein.

The gambling provisions appear near the end of the more than 600-page budget plan and received little discussion during floor debate. One section would allow prediction market platforms to operate in North Carolina without additional state gambling oversight, while taxing them at 6%. Another would raise the online sports betting tax rate from 18% to 23%. The bill also changes how gambling losses may be deducted on state income tax returns.

Most of Wednesday’s debate focused on the broader budget. Democrats criticized the process, saying they received the Republican-written plan less than 24 hours before voting and had no role in shaping it. They also objected to the proposed lower flat income tax, arguing that many residents would only see about $3 to $13 a month in savings.

Prediction markets would be taxed but not regulated as gambling

If the budget becomes law, North Carolina would become the second state in a month to tax prediction markets and their sports event contracts.

Illinois approved the first such tax in June, targeting platforms including Kalshi and Polymarket. That law took effect on Wednesday, and Kalshi has already sued to block it.

North Carolina’s proposal would tax an operator’s net trading fee revenue from trades made inside the state. However, the language would not bring prediction market platforms under state gambling rules.

That distinction is significant. Kalshi and similar companies could continue operating under Commodity Futures Trading Commission oversight without having to meet North Carolina gambling requirements tied to know-your-customer checks, responsible gaming, licensing or other state-level sportsbook obligations.

Sports betting tax rate would rise to 23%

The same budget bill would increase North Carolina’s online sports betting tax from 18% to 23%.

That change could generate at least $40 million in additional revenue, according to the bill language. The measure also adds the University of North Carolina and N.C. State University to the list of schools that share in wagering revenue.

The tax increase comes a little over two years after North Carolina legalized online sports betting and just months after the market launched.

Gambling-loss deduction language draws attention

Some Democratic lawmakers raised concerns about the section dealing with gambling-loss deductions.

The bill says taxpayers may claim either the standard deduction or the itemized deduction. However, an editor’s note in the source text says no “subdivision (1)” appears in the bill.

The itemized language includes “the amount allowed as a deduction for wagering losses under section 165(d) of the Code, to the extent the losses are not deducted in arriving at adjusted gross income.”

That provision would affect how North Carolina residents report gambling losses on state income tax returns.

Separate revenue bill changes sportsbook reporting and withholding rules

A separate measure, Senate Bill 595, titled “Various Revenue Laws Changes,” has already cleared the General Assembly and is also awaiting action from Stein.

That bill makes several changes tied to legal online sports betting. It updates how taxable sports betting revenue is calculated and clarifies how promotional credits are treated for tax purposes.

Under the bill, promotional credits would count toward gross wagering revenue when they are returned to an operator as a deposit or used to place a sports wager.

The measure also expands what the Department of Revenue can request from operators. The revenue secretary would be allowed to seek annual records on players with at least $2,000 in winnings.

Starting Jan. 1, 2027, operators would also have to withhold North Carolina income tax when federal withholding applies to gambling winnings. Sportsbooks would be required to file returns, report the withheld money and hold those funds in trust for the revenue secretary.

Together, the budget bill and Senate Bill 595 would reshape several parts of North Carolina’s betting tax structure, from sports wagering revenue and promotional credits to prediction market trading fees.

North Carolina lawmakers advanced budget language that would tax prediction market operators at 6% while leaving them outside state gambling regulation. The same package would raise the online sports betting tax rate from 18% to 23% and change several reporting, withholding and deduction rules tied to gambling revenue.

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