North Carolina Governor Josh Stein has put his signature on a $34 billion budget for fiscal year 2026, marking a major shift in the state’s tax market. This budget introduces a 6% tax on net trading fees from prediction market operators such as Kalshi and Polymarket. Though it pushes back some planned tax cuts, Stein emphasized that it preserves what he considers reckless cuts that mainly serve corporate interests. The House passed the budget by an 88-21 margin, and the Senate followed with a 35-10 vote. This development is North Carolina’s first tax increase since legalizing sports betting in March 2024.
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Tax Reform Amid Revenue Challenges
The state is grappling with a $2.8 billion budget shortfall forecast over the next two years. This fiscal gap has driven lawmakers to enact tax increases on online sportsbooks by an additional 5%. The delay in further income tax cuts mainly impacts personal and corporate levies, which many argue have worsened the deficit. Despite this budget deal, Stein’s opposition to preserving corporate tax reductions remains a point of contention. “While this budget delays some cuts, it’s a key step to address our fiscal responsibilities,” Stein remarked after signing the bill.
Response from Sports Betting Operators
As expected, major sports betting companies like FanDuel and DraftKings have voiced their opposition to the new tax measures. These operators argue that higher taxes could stifle market growth and deter new entrants. Since the launch of legal sports betting, North Carolina has collected over $300 million in tax revenue at an 18% rate, but the new measures could disrupt this trend. While prediction market operators like Kalshi and Polymarket haven’t publicly commented on the changes, industry insiders speculate they might react similarly to moves in other states.
Broader Implications and Legal Challenges
North Carolina isn’t alone in this tax approach—Kentucky and Illinois have also bumped up taxes on prediction markets. Kalshi has even taken legal action against Illinois, challenging its inclusion in the Sports Wagering Act, while Kentucky has filed suits claiming illegal operations by Kalshi and Polymarket. The root of these disputes lies in whether these platforms are considered gambling entities and should be federally or state-regulated—a debate still unresolved.
Future Outlook
The North Carolina budget act is set to take effect immediately, but its long-term impact on the state’s gambling market remains uncertain. The resolution of regulatory disputes will likely influence future state policies. Lawmakers will need to address these challenges as they unfold, with further legislative sessions expected to tackle the state’s ongoing fiscal issues.
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