North Carolina Acknowledges CFTC's Authority Over Prediction Markets

North Carolina recently established itself as a pioneer regarding the regulation of prediction markets by formally recognizing the Commodity Futures Trading Commission's (CFTC) exclusive federal authority over these platforms. This development allows CFTC-registered prediction market operators to function legally in the state without the need for additional licenses from local gambling regulators.

On July 7, Governor Josh Stein signed Senate Bill 257, which became a part of the state's budget plan for 2026. This significant piece of legislation distinguishes federally regulated event contracts from traditional sports wagering, creating a unique legal framework for prediction markets that previously did not exist in North Carolina.

Details of Senate Bill 257

The new law underscores that the CFTC has exclusive jurisdiction over prediction markets as defined by the Commodity Exchange Act. Consequently, businesses registered with the CFTC are free to operate without state-level licenses. North Carolina's legislation marks it as the first state in the U.S. to legislate recognition of CFTC preemption in this manner. Notably, this regulatory clarity could benefit companies like Kalshi, which already have federal approval for their event contracts, while others, such as Polymarket, have limited access within the U.S.

Tax Structure for Prediction Markets

Under Senate Bill 257, a tax rate of 6% on net trading fee revenue from prediction markets will come into effect on January 1, 2027. This tax rate replaces the previously applied corporate income tax of 2.25%, thus establishing a more defined tax structure within the state. In contrast, North Carolina has raised its sports betting tax from 18% to 23% of gross wagering revenue, marking a nearly 28% increase. This differentiation indicates that prediction markets will be taxed based on net earnings, while sports betting will adhere to gross revenue metrics, reflecting the distinct federal and state oversight governing these activities.

Comparison with Other States

North Carolina's approach to regulating prediction markets stands in stark contrast to the policies being pursued in other states such as Kentucky, Illinois, and New York, which are looking to assert more regulatory control over prediction markets. These states are exploring stricter frameworks similar to those already applied to sports wagering. The discrepancy highlights diverse regulatory philosophies across the nation and may prompt further legislative adjustments as states navigate the complexities of managing emerging financial markets.

This material is for informational purposes only and should not be considered financial advice.