Kalshi, Crypto.com, Polymarket Challenge Kentucky's New 14.25% Prediction Market Tax

June 14 — Several prediction market operators, including Kalshi, Crypto.com, and Polymarket, have joined forces to sue Kentucky in state court, seeking to stop a newly implemented 14.25% tax tied to prediction market transactions, the Associated Press reported. The levy was passed by the Kentucky General Assembly in April. It applies a 14.25% charge on transaction fees collected by prediction market platforms, a rate higher than the roughly 9.75% tax burden borne by the state's horse racing industry. The plaintiffs contend the tax is discriminatory, unconstitutional, and potentially at odds with federal law. Prediction markets let users trade contracts linked to real-world outcomes such as economic data releases and election results, effectively operating as event-derivatives venues. In the filing, the platforms argue the measure would sharply raise compliance costs and could push trading activity offshore to less regulated venues. Kentucky Attorney General Russell Coleman said he will vigorously defend the law and maintained the state is prepared to manage any related challenges. Kalshi also warned that aggressive state-level taxation would weaken the competitiveness of legal markets and steer users toward illegal platforms that lack regulatory safeguards. The lawsuit marks the latest flashpoint in ongoing tensions between the U.S. prediction market sector and state regulatory and tax regimes.