Prediction markets and sports betting weren’t a key part of debate Wednesday as North Carolina’s legislature passed its partisan budget bill on second reading. Slipped in at the very bottom of the 600-plus page bill is a provision to allow prediction markets to operate without additional state regulation, but be taxed at 6%. Just above are a provision to raise online sports betting taxes from 18% to 23% and a change to how gambling losses may be deducted on personal tax returns.
The Senate passed the budget on second reading, 37-19, early Wednesday afternoon. The House followed suit later in the day, 92-22. The bill now moves to the third reading agenda, and should it pass both chambers, it will be sent to Gov. Josh Stein.
Debate about the bill was contentious and along party lines. Democrats repeatedly said they had less than 24 hours to review the Republican-written budget and were not consulted. They argued as much about process as about what is in the bill, the highlights of which are a raise for teachers and a lowered flat income tax. (Democrats said that for most in the state, the monthly benefit of that will be between $3-$13.)
The predictions tax and sports betting tax increase were barely mentioned. Several Democratic lawmakers in both chambers complained about language in the gambling losses deduction section, which reads:
Deduction Amount. – In calculating North Carolina taxable income, a taxpayer may deduct from adjusted gross income either the standard deduction amount provided in subdivision (1) of this subsection or the itemized deduction amount provided in subdivision (2) of this
subsection. The deduction amounts are as follows: [Editor’s note: No “subdivision (1) listed in bill text]:
(2) Itemized deduction amount. – An amount equal to the sum of the items listed in this subdivision. The amounts allowed under this subdivision are not subject to the overall limitation on itemized deductions under section 68 of the Code:
e. The amount allowed as a deduction for wagering losses under section 165(d) of the Code, to the extent the losses are not deducted in arriving at adjusted gross income.”
Illinois was first to pass prediction tax law
Should the budget become law, North Carolina will be the second state in a month to impose a tax on prediction markets and the sports event contracts they offer. Illinois, which calls for prediction markets to come under state regulation, in June became the first state in the nation to pass a tax on platforms like Kalshi and Polymarket. The new tax in Illinois and proposed tax in North Carolina will also extend to state-regulated sports betting operators like DraftKings, FanDuel, and Fanatics Betting & Gaming, which also offer prediction platforms.
The Illinois bill went into effect Wednesday. Kalshi has sued the state in seeking to stop it.
North Carolina seeks to tax “the operator’s net trading fee revenue apportionable to the State.” The bill goes on to define “apportionable” as revenue from a trade made anywhere within the state’s borders.
What makes the North Carolina proposal unique is that it would allow companies like Kalshi to continue to operate under its federal regulator, the Commodity Futures Trading Commission (CFTC), and not pull the platforms under the state’s purview. The platforms, therefore, would not have to meet the state’s know-your-customer, responsible gaming, or other requirements, while paying a lower tax rate than state-regulated sportsbooks do.
Sports betting tax
The 5 percentage point sports betting tax increase could bring North Carolina an additional $40 million or more in tax revenue. Sports betting operators have been relatively quiet about the increase, which is significantly less severe than the 18 percentage point increase lawmakers proposed in 2025.
As part of the proposal, the University of North Carolina and North Carolina State would get a share of the dollars earmarked for higher education. The two schools have up to now been left off the list of public schools to benefit from wagering, but beginning July 1, 2027, 2.2% of betting revenue — up to $400,000 per university — would be shared equally by D-1 universities. D-2 schools would share in 19.5% of the wagering revenue, up to $2.9 million per school.
There is also a provision that would reward the universities’ D-1 football programs — which ultimately, along with basketball, draw the majority of bets and handle in the state. Five state universities with D-1 football would share in 5.7% of wagering tax revenue up to $2.5 million per school.
Though not in the budget bill, the general assembly last week passed a tax revenue bill that includes language that would allow the state to request information about bettors, including annual winnings. The language in SB 595 resembles that of the federal Internal Revenue Service, which already requires gamblers and gambling companies to report winnings of $2,000 or more. Currently, North Carolinians must report winnings, but they cannot itemize losses. It also eliminates promotional deductions for sportsbooks. That bill was sent to Gov. Josh Stein June 26, and he has 10 days to act on it — otherwise it becomes law without his signature.
