Coalition sues Kentucky over 14.25% prediction market tax

A coalition of prediction market operators filed suit Friday in Kentucky state court to block the state's new 14.25% excise tax on transaction fees. The lawsuit argues the tax is discriminatory because it exceeds the 9.75% rate applied to wagers at Kentucky horse tracks. It also claims the levy is preempted by federal law governing derivatives traded on designated exchanges.

Tax details and legal claims The Kentucky General Assembly enacted the tax in April. The suit states no other state imposes a similar excise tax on federally regulated derivatives transactions. Prediction markets allow users to buy, sell or trade contracts on the outcome of real-world events such as elections or economic indicators.

Industry response Kalshi stated that taxing regulated platforms pushes users toward illegal markets without oversight or consumer protections. The company said it is an American firm operating under domestic regulation. Officials said the state will defend the tax in court.