North Carolina Approves Sports Betting Tax Increase and New Prediction Market Levy

North Carolina has approved sweeping changes to its gambling tax framework after Governor Josh Stein signed the state’s $34 billion budget, introducing higher taxes for sportsbooks and, for the first time, prediction market operators.

Beginning January 1, 2027, the tax on licensed online sportsbooks will rise from 18% to 23%, while prediction market platforms such as Kalshi and Polymarket will face a 6% tax on net trading revenue. Unlike sportsbooks, however, these federally regulated exchanges will not require a North Carolina operating license.

The changes make North Carolina one of the latest states to revisit gambling taxation as regulated betting continues to generate stronger-than-expected returns.

Prediction Markets Receive Tax, But Not State Regulation

One of the budget’s most notable provisions introduces a tax on prediction market operators without creating a separate state licensing framework. The approach contrasts with states such as Kentucky and Illinois, which paired new taxes with regulatory requirements and restrictions on federally regulated event contracts. Both states are now involved in legal disputes with the Commodity Futures Trading Commission (CFTC), while Kalshi has separately challenged Illinois’ framework in federal court.

Rather than attempting to regulate the platforms directly, North Carolina has opted to recognise their operation while seeking to capture tax revenue generated within the state.

The budget also includes several other gambling-related changes, including allowing bettors to deduct gambling losses for state tax purposes and expanding the distribution of sports betting proceeds to include the University of North Carolina and NC State from July 2027.

Sportsbooks Face Higher Taxes as Market Matures

The increase marks the first change to North Carolina’s sports betting tax rate since statewide mobile wagering launched in March 2024 under the oversight of the North Carolina State Lottery Commission.

Lawmakers argued the market has matured rapidly enough to justify a larger share of operator revenue. Since launch, regulated sportsbooks have generated more than $300 million in tax revenue, helping strengthen support for the increase as legislators worked to address a reported $2.8 billion budget shortfall.

Major operators, including FanDuel and DraftKings, had opposed repeated efforts to raise the tax rate. Still, the measure ultimately secured comfortable approval in both legislative chambers before reaching Governor Stein’s desk. Although the new 23% rate remains well below New York’s industry-leading 51%, it now exceeds sports betting tax rates in several established markets, including Massachusetts, Ohio and New Jersey.

This is not new, though. North Carolina joins a growing list of states increasing taxes on regulated gambling operators as betting markets become more established. Illinois has introduced successive tax increases through progressive rates and per-bet charges, while Maryland, Louisiana and New Jersey have all approved higher gambling taxes in recent years. Similar proposals have also emerged in Arizona and Michigan as states continue looking to maximize revenue from the expanding online gambling sector.