North Carolina Draws New Tax Line Between Sportsbooks and Prediction Markets
What makes the new budget law unusual is the way it deals with prediction markets. North Carolina will be introducing a 6% levy on the net trading fee income generated by prediction market operators starting January 1, 2027.
As a result, North Carolina is joining a very limited number of other jurisdictions that are trying to generate revenue through sports event-contract platforms. The legal status of this product is still up for discussion.
Prediction market operators have argued in similar disputes that federal commodities rules preempt state gambling law. Polymarket made that point in response to North Carolina’s move, while Kalshi declined to comment.
A Softer Route in North Carolina
North Carolina is following a gentler approach compared to regulating gambling. The budget does not consider prediction markets within the regulatory regime that sportsbooks have been brought into. It imposes a tax on the market, while leaving the issue of regulation unresolved.
The gap is likely to draw attention from both sides. The prediction market companies now have a path that the state has laid out for them that is certainly easier than a ban or an enforcement struggle.
Sportsbooks Face Higher Costs
North Carolina’s budget raises sportsbook tax to 23% and creates a 6% prediction markets levy, opening a state test for sports event contracts. This is the first tax increase since online sports betting launched in North Carolina in March 2024.
This was after months of debates about the amount of additional tax to be levied by the state. While other propositions would have raised taxes even higher, the lawmakers decided to take a moderate position on this. However, the increase has put North Carolina above some large US betting jurisdictions based on tax rates.
A separate revenue law also gives the Department of Revenue more access to sportsbook records. Once a year, it may request player-level data from operators for registered customers who received at least $2,000 in winnings during the previous calendar year.
From the perspective of gamblers, there is one change introduced in the budget for their benefit. Losses from gambling activities will become deductible for state income tax purposes. This is retroactive starting from January 1, 2025.
College Funding Model Expands
The budget also modifies the way in which a portion of the revenues collected by the state from sports betting will be distributed. UNC Chapel Hill and NC State are being added to the group of public universities that can receive proceeds from sports betting taxes.
Appalachian State, Charlotte, and East Carolina are among other universities that will benefit. Under the existing distribution formula, each eligible institution could receive up to $5.8 million annually.
This modification will increase the political aspect of the taxation debate on sports betting. Higher sportsbook tax is not just about balancing the budget anymore, but also about college sports and public universities funding.
State Control Remains Unsettled
North Carolina is attempting to impose taxes on two competing markets that target the same consumer base at present. However, the regulation of the two is done in very disparate manners. Sportsbook providers have to be licensed by the State and taxed at a higher level than the prediction market operators.
That split may become the real story. If prediction markets keep expanding into sports contracts, sportsbooks will question why similar products face lighter treatment. If lawsuits follow, North Carolina could become an early test of how far states can go when federal market rules are already in play.