States Turn to Prediction Market Taxes as Sports Betting Revenue Battle Grows

North Carolina and New Jersey are moving to tax prediction markets, signaling a new state-level strategy for platforms that sit close to sports betting but often operate outside traditional sportsbook licensing.

The proposals show how states are shifting from simply challenging prediction markets in court to trying to capture revenue from them. That matters as event-contract platforms continue gaining attention around sports outcomes, especially in markets where users may view them as an alternative to sportsbook apps.

North Carolina lawmakers advanced a budget package that includes a 6% tax on prediction market operators. New Jersey lawmakers have also moved forward with a proposal to impose a 9% surtax on prediction market income.

The push comes after Illinois approved its own prediction market tax, making taxation a growing response to platforms that states argue compete with regulated sports betting.

States Move From Enforcement to Taxation

The North Carolina proposal would tax prediction market operators at 6% of net trading fee revenue. The measure is part of a broader budget package that also raises the state’s online sports betting tax.

New Jersey’s proposal takes a different route. Lawmakers advanced a scaled-back version of earlier prediction market legislation that would apply a 9% surtax to gross income generated from prediction market activity.

The original New Jersey proposal went further, with licensing rules, sports-event contract oversight, responsible gaming requirements, and higher tax exposure. The newer version focuses more directly on taxation.

That change is important because it shows a more practical state response. If prediction markets continue operating under federal oversight, states may increasingly look for ways to tax the activity instead of relying only on gambling law enforcement.

Why This Matters

Traditional sportsbooks are licensed and taxed by states. Prediction market operators often argue that their event contracts are federally regulated financial products, not state-regulated wagers. That has created tension over who gets to regulate the activity and who gets to tax it.

For states, if sports-related event contracts compete with sportsbooks, they may also reduce the value of the regulated sports betting market. Tax proposals give states another way to respond, especially while federal and state authority remains contested in court.

This is also relevant to social sportsbooks and other alternative gaming models. As users explore sports-adjacent products outside standard sportsbook apps, lawmakers may look more closely at how these platforms are classified, taxed, and marketed.

Wider Impact on Sports-Adjacent Platforms

The tax debate is not only about prediction markets. It shows how states are reacting to products that sit near gambling but do not always fit neatly into existing state sportsbook laws.

That wider conversation can affect social sportsbooks, sweepstakes casinos, and other alternative gaming categories. Each model is different, but all are part of a growing market where users engage with outcomes, prizes, promotional play, or event-style products outside traditional gambling channels.

For social sportsbooks, the issue is especially relevant. These platforms may offer sports-style contests, odds-style experiences, or promotional coin-based play without operating like licensed real-money sportsbooks. If states become more aggressive around prediction markets, similar questions could follow for other sports-adjacent products.

What Happens Next

North Carolina’s proposal is tied to the state budget process, while New Jersey’s tax proposal still needs to move through the legislative process before becoming law.

The bigger question is whether more states follow the same path. Illinois has already approved a prediction market tax, Kentucky’s tax has triggered a legal challenge, and now North Carolina and New Jersey are considering their own versions.

If this trend continues, prediction markets may face a state-by-state tax map similar to sports betting. That could affect operator costs, market access, and the wider debate over whether sports-related event contracts should be treated more like financial products or gambling products.

Reference

• New Jersey S4447 prediction market tax proposal
• North Carolina Senate Bill 257 / State Budget Bill