Illinois Tax On Prediction Markets Mirrors Action On Sportsbooks

In the face of state gaming regulators battling prediction market firms, Illinois is taking a different approach by attempting to tax the industry.

The levy is part of a new package, SB 3019, of tax hikes the legislature approved Monday. It was part of the state’s $55.9 billion fiscal 2027 budget. Illinois would be the first state to officially tax the industry.

Since governments don’t tax illegal products, it also serves as a tacit admission that the platforms are legal. However, Illinois is one of several states contending that the platforms violate state gaming laws.

Governor Says He Will Sign Bill

The Illinois bill taxes prediction market sports contract at 1.75% for each wager for the first 5 million transactions. Then, the state raises the rate to 3.5% for every contract beyond that. Lawmakers exempted non-sports markets from the levy.

Legislators passed the bill by a 73-41 margin in the Assembly and 36-19 in the Senate.

Along with the tax on prediction markets, the budget bill would add new taxes on digital advertising, cryptocurrency, and social media platforms. The bill also raises tax rates on large corporations though a change in how net operating losses are treated.

Gov. J.B Pritzker said he would sign the bill.

“Every element of the budget for the upcoming fiscal year was thoroughly deliberated with the aim of achieving widespread affordability for all Illinoisans,” Pritzker said. “It builds upon seven years of fiscal discipline and efforts to make our state competitive in national and international industries.”

Proposal Mirrors Tax Changes On Sports Betting

The move follows similar efforts to raise taxes on sports betting operators over the last few years.

In 2025, the state added a 25-cent tax on wagers for an operator’s first 20 million bets. It rose to 50 cents per bet beyond that threshold. The per-bet tax followed a tax increase in 2024 that instituted a progressive tax structure on operators up to 40%.

Interestingly, lawmakers are now considering a repeal of the per-tax wager after a significant drop in betting.

Legal Battle Expected To Continue

The prediction market aspects of the budget bill could bring more legal wranglings.

The Commodity Futures Trading Commission (CFTC) is adamant the body should solely regulate the industry at the federal level. It has sued New York over efforts to curtail prediction markets. The commission has taken similar legal actions against Arizona, Connecticut, and Illinois.

In a statement to Reuters at the time of those suits, CFTC Chairman Michael ​Selig said the commission “will continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators.”

The suit against Illinois came after the state attempted to apply state gaming laws to the industry. The CFTC named Pritzker, Attorney General Kwame Raoul, and the Illinois Gaming Board in the lawsuit.

Questions On Tax Plan Remain

Beyond the courtroom battles, some questions remain unclear about how the state would interpret “bets” on a market. What would happen to traders who sell their positions before a market is concluded? Would the state tax both the entry and exit move?

Answers to those questions aren’t yet known. It’s also unknown if the tax would even be allowed once the federal government’s suit against the state is resolved.

The move to tax the industry could also undercut states’ legal arguments that sports contracts circumvent state gaming laws. Kalshi has been involved in lawsuits with several states, including in Massachusetts, where a judge recently railed against the company in state court. In April, however, a federal appeals court ruled that Kalshi could still offer sports event contracts in New Jersey.

The industry has also received significant scrutiny from federal lawmakers. In March, Sen. John Curtis (R-Utah) filed a bill to prohibit the companies from offering event contracts mimicking sports betting and other “casino-style” games.