New Jersey Considers 9% Tax on Prediction Markets Instead of Ban

^{The New Jersey State House in Trenton, where lawmakers plan to revisit a prediction market tax bill after the state's summer recess. (Photo: Paul Brady / Alamy)}

New Jersey lawmakers plan to take up a bill that would levy a 9% tax on prediction markets’ income in the fall, after such legislation failed to progress prior to the state’s summer recess on June 30.

While the bill enjoyed strong momentum, the New Jersey Assembly slowed the process after Senate Democrats proposed amendments to it.

If You Can’t Beat Them, Tax Them

Prior to those amendments, nearly all contracts on prediction markets would have been subject to a 10% surcharge. Earlier versions of the bill would have imposed a 19.75% tax on sports contracts – the rate charged for online sports betting in New Jersey.

“We’re planning on looking at that over the summer and into the fall,” New Jersey Assembly Speaker Craig Coughlin (D-Middlesex) told the New Jersey Monitor. “I think there’s every chance we’ll pass something out. We’ll make sure it’s right.”

New Jersey isn’t the first state to contemplate a tax on prediction markets. On Wednesday, North Carolina Gov. Josh Stein signed the state’s annual budget, which included a 6% tax on prediction markets. That tax came without efforts to regulate prediction markets in the state, a notable contrast to the many other states that are engaged in ongoing legal battles over the status of prediction market platforms such as Kalshi and Polymarket.

While New Jersey’s bill doesn’t explicitly say the state won’t continue to try to regulate prediction markets, critics of the tax plan say that it will provide legitimacy to sites that threaten the state’s gambling industry.

“If the state taxes prediction markets, it appears to legitimize them,” UNITE HERE Local 54 President Donna DeCaprio told the Assembly Budget Committee last month. “Jobs in New Jersey have been lost and will continue to be lost as a result of this. We understand the sponsors are trying to level the playing field and generate tax revenue, but prediction markets are an existential threat to our jobs.”

Tax Plans Opening New Legal Battleground

There’s also no guarantee that taxing prediction markets will be accepted by the sites any more than attempts to regulate them at the state level. Last month, a coalition of prediction markets filed a lawsuit against Kentucky after the state enacted a 14.25% tax on their transaction fees, becoming the first state in the nation to levy such a tax.

“No State currently levies a State-specific excise tax of any kind on derivatives transactions that take place on a federally designated exchange, let alone the sort of specifically targeted and discriminatory tax that Kentucky has imposed here,” the lawsuit states.

Similarly, Kalshi filed a lawsuit in June challenging an Illinois law that would enact a $15 million licensing fee and taxes ranging from 1.75% to 3.5% on sports contacts in the state, new charges that were set to go into effect on July 1.

“This action challenges the State of Illinois’ clear violation of the Supremacy Clause with respect to the regulation of event contracts,” the lawsuit read, referencing the argument that prediction markets are exclusively under the jurisdiction of the Commodity Futures Trading Commission (CFTC).