Iowa’s Senate has become the first state legislative chamber to pass a bill to regulate prediction markets, though it’s not clear whether the bill — which would charge a 20% excise tax on all event contract purchases in the state — could be enforced if it became law.
The bill, SB 2470, passed the state’s Senate in a 45-1 vote Tuesday. Sen. Doug Campbell, a Republican representing the state’s 30th district, was the lone vote against it.
The bill would not ban prediction markets, instead spelling out licensing and tax provisions. However, a 20% “excise tax” on all event contract purchases would potentially make it impossible for prediction markets to operate in the state if it ever came into effect.
Any designated contract market — the category that Kalshi, Crypto.com, and Polymarket’s U.S. site fall into — would have to pay $20 million for an initial permit to operate in Iowa, and then pay 20% of their revenue from Iowa in taxes.
In addition, exchanges would pay a 20% tax on every purchase of an event contract. That would require all prediction market operators to dramatically change their fee structure in the state if they want to make any money from Iowa-based customers. Kalshi currently charges fees that average out at around 1.2%
The 20% excise tax was added by amendment, which was passed by voice vote.
Unclear if bill could be enforced
The bill now moves to the state House of Representatives.
It is unclear whether Iowa would actually be able to enforce the bill if signed into law. Prediction markets like Kalshi have consistently argued that they are not subject to state law, and that instead the federal Commodity Futures Trading Commission has “exclusive jurisdiction.” Courts are still figuring out whether state laws apply to registered prediction markets, and the matter may eventually need to be settled by the Supreme Court.
The existing court cases, though, have concerned whether the federal Commodity Exchange Act (CEA) can preempt state gambling laws. States have argued that while the CEA might overrule state laws that are about commodity trading, this preemption does not extend into gambling, which is traditionally regulated by the states and not a direct focus of the CEA.
Even if courts rule that state gambling laws are not preempted, it is not clear whether Iowa could enforce a state law that is specifically about event contracts.
On March 11, Kalshi sued Iowa in federal court, seeking to bar the state’s gaming regulators from enforcing Iowa gambling laws against the business.
