Kalshi sues Illinois over new tax on prediction markets

(CN) — Prediction market Kalshi is suing Illinois officials in federal court to challenge a new state law that would impose a tax on sports-related wagers on its platform.

The lawsuit, filed late Tuesday evening, comes on the heels of a new law signed by Illinois Governor JB Pritzker last week. Part of the state’s $56 billion budget, the law creates a statewide tax on cryptocurrency transactions and establishes a “Sports Wagering Fund” made up of a 15% tax on gross receipts from sports prediction markets.

Kalshi says in its 31-page complaint filed in the U.S. District Court for the Northern District of Illinois that this 15% tax is an affront to the supremacy clause. President Donald Trump and his administration have argued sports-related predictions are swaps federally overseen by the Commodity Futures Trading Commission, while Illinois and other states have attempted to classify them as sports bets in their attempts to regulate them at the state level.

The issue has prompted back-and-forth litigation between Kalshi, the CFTC and numerous states seeking to rein in the emerging industry. Indeed, the CFTC already sued Illinois, as well as Arizona and Connecticut, over their attempts to regulate prediction markets.

Kalshi’s latest lawsuit follows in the commission’s footsteps.

“Illinois apparently deems itself unencumbered by the supremacy clause and federal law such that it is free to impose its own regulatory regime on a 50-state federal derivatives exchange that is operating in conformance with federal law, as confirmed by its federal regulator,” the Manhattan-based company argues. “A preliminary injunction is necessary to restore the federal-state balance that the Constitution mandates.”

In attacking the Illinois law, Kalshi looked to a federal court in Arizona, which in May ordered Arizona officials to pause prosecution against the prediction market and allowed it to continue to host bets on political elections.

Kalshi says it’s entitled to similar relief here, claiming it will be subject to criminal penalties in Illinois unless it “either ceases to offer Illinois residents sports event contracts that are perfectly lawful in the eyes of Kalshi’s exclusive federal regulator or pays Illinois millions of dollars and submits to the state’s regulatory regime.”

“The supremacy clause is designed to prevent this intolerable situation by making clear that — where federal and state law conflict — state law must give way,” the company argues.

Pritzker’s office said it is reviewing the complaint. Kalshi also lists Illinois Attorney General Kwame Raoul and five officials on the Illinois Gaming Board as defendants.

The Trump administration has been a staunch ally to prediction markets; the president’s son, Donald Trump Jr., is a major investor of Polymarket and sits on the company’s advisory board. But the federal government’s unrelenting support of the budding space defies the attitude of several states, both Democratic- and Republican-led, many of which have argued prediction markets effectively serve as unregulated gambling apparatuses.

Additionally, numerous insider trading-esque scandals have plagued the industry — particularly as it relates to wagering on real-life events.

In April, federal prosecutors in New York charged Gannon Ken Van Dyke, a master sergeant in the U.S. Army Special Forces, with using classified information to bet on the removal of Venezuelan President Nicolás Maduro. Prosecutors say Van Dyke, who was explicitly involved in the Maduro mission, placed wagers on Polymarket in the days leading up to the operation, profiting to the tune of more than $400,000.

Polymarket, too, has sued over state regulations on prediction markets. In June, the company sued Minnesota after it became the first state to ban prediction markets outright. The ban is set to take effect in August.

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