North Carolina Passes Prediction Market Tax Into Budget

The legality of prediction markets remains a question. So does a prediction market tax, but North Carolina is the latest state to move ahead with the idea.

The state’s legislature agreed on a new budget, which included a new prediction market tax. While the state expressly said that prediction markets are legal, it’s now planning to tax them at 6% as of Jan. 1, 2027.

It’s still a far cry from how North Carolina taxes legal sports betting. The Tar Heel State has taxed sportsbooks at 18%, and the new budget is expected to raise that to 23%. That’s likely to be a point of contention between the state and its sportsbooks, as it would allow prediction markets to undercut legal sports betting.

But it’s still likely to cause problems for the prediction markets. North Carolina is just the third state to pass any kind of prediction market tax, after Kentucky and Illinois. If prediction markets accept the tax in North Carolina, it’s likely to cause issues for existing lawsuits in other states.

The budget now moves to Gov. Josh Stein’s desk for signature. North Carolina is the only state currently operating without a budget.

What Changes With the Prediction Market Tax?

It’s an effort to increase revenue for North Carolina, which has faced a shortfall because of budget cuts. The state has operated the past year without a budget, and passing this one was a requirement.

The addition of a tax on prediction markets meant both prediction markets and sportsbooks face an increase in tax rates. Outgoing Senate Majority Leader Phil Berger (R-Rockingham) said that differing business models meant a different rate for the prediction market tax was appropriate.

“I felt it would be important for us to begin the process of having some tax on that business model,” Berger said. “There was no question in my mind that it was something that was here, didn’t appear to be getting smaller but getting larger, and we needed to start somewhere. And this was the place where we could get some consensus on where to start.”

Berger’s prediction appears to be accurate. The bill passed with bipartisan support, getting approval by 88-21 in the House and 35-10 in the Senate.

What Issues Could Arise?

Three immediate pitfalls are apparent with the budget bill. The first is whether Stein will approve the bill. The bill passed with enough votes to override a veto, but that wasn’t along party lines. If Stein, a Democrat, vetoes and convinces his party to join him, North Carolina House Republicans cannot override him.

Second, North Carolina sportsbooks could either claim unequal treatment or shift into prediction markets of their own. That was a concern that Sen. Michael Garrett (D-Guilford) raised, as the state has essentially given incentives to do so.

Finally, the prediction market tax could trigger a lawsuit. In June, prediction markets filed suit against Kentucky’s tax, and they might do the same in North Carolina to remain consistent.

What’s Next For the Prediction Market Tax?

Stein now makes the next decision in the process. He has until July 12 to either sign the budget, veto it or let it become law without his signature. If he doesn’t veto it, there’s a good chance prediction markets will file a lawsuit to block part of the budget.