Kalshi, Polymarket and other prediction-market platforms launched a legal challenge against Kentucky’s recently enacted tax, arguing it unfairly targets their industry and violates constitutional and federal protections.
The Coalition for Fairer Markets, including Kalshi, Crypto.com, and Polymarket, filed suit on June 12 in a Kentucky court aiming to block the state’s new levy on prediction-market transaction fees. The tax, passed in April by the Kentucky legislature, imposes a 14.25% charge on transaction fees–substantially higher than the 9.75% tax rate on horse-race betting, a long-established local industry. The plaintiffs contend the measure discriminates against emerging digital markets and exceeds the state’s taxing authority, which is preempted by federal regulation governing prediction markets.
Kalshi emphasized it operates under federal oversight and said Kentucky’s approach risks pushing users toward unregulated platforms where consumer protections vanish. “Taxing legally regulated prediction markets at this level threatens to drive Kentuckians to illegal offerings without oversight,” the company said, underscoring its commitment to defending safe and compliant market access for state residents.
Kentucky officials pushed back quickly. Attorney General Russell Coleman vowed to defend the new law and suggested the case amounts to out-of-state companies challenging local authority. “Our office will vigorously uphold Kentucky’s laws protecting sports betting and related markets,” Coleman said, noting confidence his team will win in court.
The battle emerges amid increased scrutiny of prediction markets after high-profile insider trading controversies. Ex-US Representative George Santos, for example, placed bets on Kalshi inconsistent with public statements, triggering a federal criminal referral. Similarly, a US special operations soldier was charged in April with exploiting confidential military information for illicit gains on Polymarket–further fueling regulatory concerns around the industry’s integrity.
At stake is not only Kentucky’s future tax revenue but broader precedent around how digital prediction markets will be regulated and taxed in the US. If providers succeed, it could limit state-level taxes that diverge sharply from the treatment of conventional gambling. If Kentucky prevails, other states might follow with similarly steep levies.
Market participants will be watching closely for developments in court filings and potential appeals, as the case poses critical questions about the intersection of emerging fintech platforms, state sovereignty, and federal oversight. The next rulings could shape the regulatory landscape for prediction markets nationwide–and with it, the viability of regulated US prediction exchanges.
Kalshi and Polymarket Sue Kentucky, Calling New Tax on Prediction Markets Illegal
Prediction-market platforms Kalshi and Polymarket sued Kentucky to block a 14.25% tax on their transaction fees. Plaintiffs argue the tax is discriminatory and unconstitutional while Kentucky officials vow to defend the law.