Prediction market giants sue Kentucky over controversial 14.25% transaction tax

A coalition of prediction market operators has filed a lawsuit against Kentucky to block a new 14.25% tax on transaction fees. The group includes Kalshi, Crypto.com, and Polymarket US, alongside KalshiEX LLC, North American Derivatives Exchange Inc., and QCX LLC. They claim the tax unfairly targets their industry and oversteps legal boundaries. The lawsuit challenges three Kentucky bills—HB 757, HB 904, and HB 869—which introduced the tax and additional restrictions in April. The tax applies to Kentucky residents trading event contracts, regardless of their location at the time of the transaction. This marks the first such tax package in the US, though Illinois has since proposed a similar measure.

The coalition argues that Kentucky’s tax unlawfully singles out federally regulated event contract exchanges without justification under the state constitution. They also claim the state attempted to disguise regulation as taxation. Representing the group is a newly formed industry association incorporated in Virginia. The legal action seeks to overturn the tax, which the coalition describes as discriminatory and unconstitutional. If successful, the ruling could set a precedent for how states tax prediction market activities. The case highlights growing tensions between state regulators and the emerging prediction market sector.