North Carolina, New Jersey Advance Taxes on Prediction Markets

North Carolina lawmakers approved a conference committee budget report on second reading on July 1 that would impose a 6% tax on prediction market operators’ net trading fee revenue tied to transactions in the state. New Jersey legislators advanced companion bills late in June that would add a standalone 9% surtax on income from operating prediction markets for activity accessible to New Jersey users.

The North Carolina budget also raises the state’s online sports betting tax from 18% to 23% and allows taxpayers to deduct gambling losses on state income tax returns. The prediction market tax would apply to platforms’ net trading fees attributable to activity linked to the state. The proposal does not create a state licensing or regulatory regime for prediction markets; federally listed platforms would remain under Commodity Futures Trading Commission oversight while paying the state tax. The budget requires a third reading in both chambers before it can be sent to Governor Josh Stein. The package includes a separate measure requiring sportsbooks to report to the Department of Revenue registered players who won at least $2,000 in the prior calendar year.

In New Jersey, the Legislature substantially narrowed earlier proposals and adopted substitute versions of Senate Bill 4447 and Assembly Bill 5336. The revised bills remove proposed licensing and regulator oversight and would instead impose a 9% surtax on operators’ income from prediction markets. Earlier drafts would have required operators offering sports-event contracts to obtain licenses from the Division of Gaming Enforcement, pay the state’s 19.75% sportsbook tax plus a 10% surcharge, follow responsible gambling requirements and accept restrictions on certain event categories. Those regulatory and restriction provisions were removed in the committee substitutes, leaving taxation as the primary measure.

Federal litigation involving prediction market operators is affecting state approaches. A company that operates federally listed event contracts won a preliminary injunction against New Jersey regulators, and the U.S. Court of Appeals for the Third Circuit found the company was likely to succeed on its argument that the Commodity Exchange Act gives the CFTC exclusive jurisdiction over those contracts. The litigation is ongoing.

Illinois is the first state to impose a tax specifically on federally regulated prediction market platforms. Several other states, including Maryland and Louisiana, have recently increased sportsbook tax rates.

If North Carolina’s budget is enacted, it would become the second state to levy a tax on prediction market transactions tied to the state. The New Jersey bills still require additional committee approvals and floor votes before final language, effective dates and enforcement details are set.