The Iowa Senate has taken the first step toward regulating online prediction markets, passing an amended version of Senate File 2470 on Tuesday by a 45-1 vote. The legislation, now headed to the state House of Representatives, would require platforms offering event-driven contracts to obtain state licenses and pay taxes on transactions conducted within Iowa. The 2026 legislative session is set to adjourn on April 21.
Senate File 2470 has undergone substantial changes since its initial proposal. The original bill, filed as SF 2085 in January by Sen. Mike Klimesh, aimed to regulate designated contract markets (DCMs) such as Kalshi, Crypto.com, and Polymarket. These platforms allow users to trade financial derivatives that pay a fixed sum based on the outcome of specific events, including sports, elections, legislative actions, and economic indicators.
Licensing Fees and Excise Tax Clarified
Before floor approval, an amendment increased initial licensing fees from $10 million to $20 million per permit, with an annual renewal cost of $100,000. Licenses would expire on June 30 each year. The amendment also introduced an “event-driven contract excise tax” of 20% on the price of each event contract purchased on licensed DCMs, levied “for the privilege of doing business in the state.”
The legislation maintains a 20% tax on adjusted revenue from event contracts, calculated as total fees collected minus payouts and multiplied by a location percentage. The fiscal note for the original bill projected $20 million in revenue for Iowa’s General Fund in fiscal year 2027, with smaller incremental increases in subsequent years.
The amended version further clarifies that the bill applies only to designated contract markets until a court determines whether event-driven contracts fall under Iowa’s sports betting law. This provision reflects ongoing litigation, such as Kalshi’s lawsuit against Iowa Attorney General Brenna Bird and the Iowa Racing and Gaming Commission, filed March 11, citing “substantial risk” of enforcement action.
Tax and Reporting Requirements
The bill also addresses state income taxation of event-driven contract activity. Individual and corporate taxpayers must recompute gains or losses from these contracts for state purposes, independent of federal capital gains rules. Losses may offset up to 90% of gains from contracts, and state income tax must be withheld on gains exceeding $600.
In addition, the Iowa Department of Revenue (IDR) is authorized to issue administrative rules to enforce new provisions in the Iowa Code, including chapter 99H and sections 422.7(41) and 422.35(15). The law applies retroactively to January 1, 2026, for tax computation and will govern collection of the prediction market tax starting with the 2026–2027 tax year.
Regulatory Scope and Oversight
By requiring licensing, imposing excise and revenue-based taxes, and establishing reporting rules, the legislation represents a significant expansion of state oversight over online prediction markets. It aims to bring federal CFTC-regulated platforms under Iowa’s jurisdiction while ensuring tax revenue from these emerging financial derivatives is captured in the state’s General Fund.
The bill’s future depends on House approval and potential judicial review, given its connection to ongoing court disputes regarding state versus federal regulatory authority over event-driven contracts.
Source:
“SF 2470 – Prediction Market Taxation“, legis.iowa.gov, March 18, 2026
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