BlockBeats news, on June 14, according to the Associated Press, several prediction market platforms, including Kalshi, Crypto.com, and Polymarket, formed an alliance and filed a lawsuit in state court this Friday to block Kentucky’s newly implemented 14.25% tax on prediction market transactions.
This tax, enacted by the Kentucky General Assembly in April of this year, imposes a 14.25% fee on transaction fees from prediction market platforms, higher than the approximately 9.75% tax burden faced by the state’s horse racing industry. The plaintiffs in the lawsuit argue that the tax is discriminatory, violates the Constitution, and may conflict with federal law.
Prediction market platforms allow users to trade contracts on real-world events, such as economic data or election outcomes, essentially functioning as event derivatives markets. The plaintiffs argue that this tax would significantly increase compliance costs and may force trading activity to migrate to offshore platforms with weaker regulation.
Kentucky Attorney General Russell Coleman stated that he will vigorously defend the law in court and affirmed that the state is equipped to handle the associated challenges.
Meanwhile, Kalshi stated that excessive state-level taxation would undermine the competitiveness of the legal market and could drive users toward unregulated and unprotected illegal platforms.
This case is viewed as the latest development in the ongoing conflict between the U.S. prediction market industry and state regulatory and tax systems.