A coalition of major prediction market operators has taken legal action against Kentucky officials in an effort to block a newly enacted tax on event contracts, escalating a dispute over how federally regulated trading platforms should be treated at the state level.
The Coalition for Fair Markets, which includes Kalshi, Crypto.com and Polymarket, is challenging Kentucky’s 14.25% excise tax on prediction market transaction fees. The measure was enacted in April as part of broader state gaming legislation and is scheduled to take effect in 2027.
Prediction markets allow users to trade event-based contracts tied to outcomes such as elections or economic indicators.
According to the lawsuit, the tax places prediction markets at a disadvantage compared with other gambling-related sectors in the state. The filing points out that wagers placed at horse racing tracks are taxed at 9.75%, which the coalition describes as evidence of unequal treatment.
Legal Challenge Over Federal Regulation
The lawsuit claims the tax is discriminatory, unconstitutional and preempted by federal derivatives law. It also argues that no other state imposes a comparable excise tax on transactions conducted through federally designated exchanges.
“No State currently levies a State-specific excise tax of any kind on derivatives transactions that take place on a federally designated exchange, let alone the sort of specifically targeted and discriminatory tax that Kentucky has imposed here,” the filing states.
The coalition has asked the court to block enforcement of the law, warning that it could push activity toward unregulated platforms that lack consumer protections.
Kalshi said, “Taxing federally regulated markets “just pushes people toward illegal platforms with no oversight and no protections,” Kalshi said in a statement. “Kalshi is an American company, regulated here at home, and we’re joining the fight for Kentuckians’ access to safe, legal markets.”
State Response and Legislative Context
Kentucky Attorney General Russell Coleman said the state will defend the law in court. “You can bet our Office will defend these statutes and the people of our Commonwealth from out-of-state companies that seek to cancel Kentucky’s sports betting laws,” he said.
The tax is part of a wider gaming package that includes additional restrictions on sports betting-related business activity. Governor Andy Beshear vetoed the legislation, but lawmakers overrode it in April.
Industry Alignment and Coalition Activity
The case marks a rare instance of cooperation among competing prediction market firms. The Coalition for Fair Markets includes Crypto.com’s North American Derivatives Exchange (NADEX), Kalshi and Polymarket’s US-regulated exchange QCX. The group is distinct from another industry coalition formed previously that includes Coinbase, Robinhood and Underdog.
While prediction market platforms often compete for users, the lawsuit reflects shared concerns over regulatory treatment and tax policy. The coalition argues that the law could reshape how federally regulated event contracts operate within state boundaries.
The dispute adds to ongoing scrutiny of prediction markets, which have faced questions over compliance, oversight and cases involving alleged misuse of non-public information in trading activity.
Source:
“A coalition sues to block Kentucky’s new 14.25% prediction markets tax”, apnews.com, Jun 13, 2026
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