Prediction Markets: Who Gets to Tax Them?

The debate centers on whether these platforms should be treated like sports betting, financial derivatives, or something entirely different.

Taxing Gambling vs. Trading

• Gambling view: States could tax prediction sites the same way they tax sportsbooks.
• Financial exchange view: The Commodity Futures Trading Commission (CFTC) would have authority, with taxes coming from platform fees instead.

How Prediction Sites Operate

Platforms such as Kalshi don’t act like a “house.”
They simply match people who believe an event will happen with those who think it won’t, charging a small fee for each trade. They never take the other side of a bet, so they don’t profit from outcomes like a sportsbook does.

Implications for State Revenue

Using sports‑betting tax rules could overestimate the amount states can collect.

• $20 billion in monthly trading volume reflects total contract value, not platform earnings.

Legal Landscape

• The CFTC has sued states that try to tax these markets, asserting federal jurisdiction.
• Court decisions may shift toward a national rule that taxes only transaction fees.

Future Outlook

Even if states impose a tax, it could be short‑lived and vulnerable to legal challenges.
A federal framework tying taxes to platform fees would likely be stronger, but states still retain the ability to enforce consumer protection and fraud laws related to prediction markets.