Why Kalshi Paying State Taxes May Complicate Its Court Cases

What North Carolina Did

North Carolina became the first state to formally authorize CFTC-regulated prediction market platforms in its 2026 state budget. Under SB 257 (Session Law 2026-41), platforms like Kalshi that hold a CFTC Designated Contract Market license may operate in North Carolina without a separate state gaming license or additional regulatory approval.

The law does impose one obligation: a tax on trading fee revenue attributable to North Carolina residents. The tax takes effect on January 1. Governor Josh Stein (D) signed the bill into law.

Kalshi operates in North Carolina and has not filed a legal challenge to the tax. For comparison, sports-betting operators in NC face a 23% tax on gross wagering revenue.

Kalshi's Preemption Position

In Nevada, Ohio, Washington, Minnesota, Illinois, and a dozen other states, Kalshi's legal argument is the same: the Commodity Exchange Act (CEA) grants the CFTC exclusive jurisdiction over designated contract markets. States cannot restrict, license, or tax CFTC-regulated event contracts because federal law "leaves no room for states to supplement it."

This is called field preemption — the argument that federal regulation of an area is so comprehensive that states are excluded from it entirely, even if they aren't directly contradicting a federal rule.

Kalshi has also argued conflict preemption: that state-specific regulation would frustrate the federal policy of uniform national oversight of derivative markets.

Nevada's Counter-Argument: The Tax Proves States Can Regulate

Nevada's Attorney General filed papers with the 9th Circuit arguing that Kalshi's acceptance of North Carolina's tax is evidence that states have regulatory authority over prediction market operations — directly contradicting Kalshi's preemption claims.

Nevada has cited Kalshi's acceptance of North Carolina's trading revenue tax in its 9th Circuit brief as evidence that states retain authority to regulate prediction market operations — contrary to Kalshi's preemption defense.

The core of the Nevada argument: paying a state tax on trading activity is a form of state regulation, not merely revenue collection. If the CEA truly preempted states from touching event contracts, Kalshi could not have been obligated to pay the NC tax in the first place — and the fact that it accepted that obligation without a legal challenge is, Nevada argues, telling.

Nevada's filing also noted the contrast between NC and Illinois: Kalshi accepted the NC tax, but filed suit to overturn Illinois's tiered tax structure. Nevada argues that selective legal challenges — challenging some state laws but not others — further undercut the claim that all state regulation is uniformly preempted.

The North Carolina vs. Illinois Contrast

What explains the different responses? NC levies a revenue tax with no licensing burden; IL imposes both a tiered transaction tax and a costly state license. Whether that distinction is legally meaningful under CEA preemption is an open question that courts have not resolved.

How Courts Might Read This Argument

The NC tax argument is one theory being tested in pending litigation — courts have not ruled on it yet. There are two plausible interpretations:

What It Means for Your Account

If the 9th Circuit accepts Nevada's argument, courts in other states could apply the same reasoning: that Kalshi's NC tax compliance weakens its preemption defense. This could make it harder for Kalshi to win injunction stays in new state enforcement actions — potentially expanding the list of restricted states.

If courts reject the argument — finding that tax compliance is not a legal concession about regulatory authority — Kalshi's preemption defense remains intact, and the legal landscape stays roughly where it is today.

The outcome depends on how the 9th Circuit frames the question and whether other circuits adopt the same analysis. This page will be updated when the court rules.