Kalshi Sues Illinois Over New State Tax on Sports-Related Prediction Markets

In brief

Kalshi sued Illinois after the state created a 15% tax on revenue from sports-related prediction market wagers.
The tax is set to go into effect on July 1. The Trump CFTC has sued to prevent its enforcement.
The case marks the latest battle in a nationwide fight between states and the Trump administration over whether prediction markets should be considered gambling.

Kalshi sued Illinois Wednesday, claiming in federal court that the state has no right to levy taxes on prediction markets.

Last week, Illinois governor JB Pritzker signed a bill into law that, in addition to creating a statewide tax on crypto transactions, also established a “Sports Wagering Fund.” The fund, set to launch on July 1, will tax gross receipts from sports-related prediction market wagers at 15%.

In taxing such wagers, Illinois asserted that sports-related prediction markets are a form of state-regulated sports betting—and not swaps overseen by the CFTC at the federal level, as industry leaders and President Donald Trump’s administration have argued.

Now, Kalshi has sued the government of Illinois, arguing the state has no right to tax its sports-related income—which does not, it says, constitute gambling-related revenue.

“On July 1, 2026… Kalshi will be subject to criminal penalties in Illinois unless it either ceases to offer Illinois residents sports event contracts that are perfectly lawful in the eyes of Kalshi’s exclusive federal regulator or pays Illinois millions of dollars and submits to the state’s regulatory regime,” the complaint reads.

Kalshi’s lawsuit follows the lead of the Trump CFTC, which last week amended an existing lawsuit against Illinois to protest the state’s new tax. The CFTC also filed a motion for preliminary injunction seeking to prevent Illinois from instituting the law next week.

Skirmishes over the new Illinois tax are just the latest wrinkle in an ongoing, nationwide jurisdictional war between states and the federal government over the fate of prediction markets. The Trump administration has aggressively come to the defense of the booming sector, even as red and blue states alike argue that platforms like Kalshi and its rival, Polymarket, are offering unregulated gambling to customers as young as 18.

Lawsuits on the subject are ongoing in nearly every federal jurisdiction at this point, and the issue is therefore likely to ultimately be decided by the U.S. Supreme Court.