Kalshi sues – Kalshi has filed a federal lawsuit in Chicago seeking to halt Illinois’ new transaction taxes on “exchange wagers” tied to prediction markets, arguing the state measure conflicts with federal law and that the contracts aren’t gambling under the Constitution’s
For Kalshi, the fight is already in motion—before Illinois’ prediction market tax even takes effect next month.
This week. the prediction market operator filed a federal lawsuit in Chicago seeking an injunction against Illinois’ new transaction taxes on financial exchanges like theirs. The taxes range from 1.75% to 3.5% and will apply to every “exchange wager” beginning next month. after state lawmakers voted to impose the levy—despite gambling regulators in Illinois describing parts of the market as illegal sports betting.
Kalshi’s lawsuit, brought as Illinois prepares to collect the new revenue, targets the mechanism lawmakers chose: a tax on trading. Kalshi and the Commodity Futures Trading Commission both argue the company’s “event contracts” are not gambling and should be regulated only at the federal level.
The dispute has been building for months. Earlier this year, the CFTC asserted its view that it is the sole regulator for prediction markets. It sued to block state-level regulation efforts in Illinois as well as in Arizona and Connecticut.
Illinois isn’t the only state struggling with the boom in these markets. New Jersey is also among the jurisdictions working through how to handle prediction trading.
In Illinois, the pressure escalated in April. Marcus Fruchter, an administrator with the Illinois Gaming Board, issued cease-and-desist letters to Kalshi and major competitors—Polymarket, Crypto.com, and Robinhood—accusing them of engaging in “illegal gambling in violation of Illinois law.”
At the center of the argument is how the markets work. Prediction markets let customers buy “yes” or “no” contracts on the outcomes of events ranging from whether a baseball team will win to whether a politician will win an election.
To many consumers, the practical feel can be similar to traditional sportsbooks. But Kalshi insists the market structure changes the legal classification: users trade against each other rather than playing a “house,” and there is no “house” profiting off a loss.
Still, critics say the setup creates other vulnerabilities. The platforms have faced allegations of insider trading, with the claim that participants can profit from classified or nonpublic information. One example cited in the public record: a U.S. Army solder is facing federal fraud charges after allegedly making more than $400. 000 through a series of well-timed Polymarket bets on the removal of Venezuelan President Nicolás Maduro earlier this year.
Illinois has acted on that risk too. Gov. JB Pritzker signed an executive order barring state employees from using insider information to bet on prediction markets.
Economically, the new tax is straightforward in concept. Kalshi and similar companies earn money by charging transaction fees when users buy contracts. Under Illinois’ law. the state would take a 1.75% cut of each transaction. with the rate doubling to 3.5% after a company’s first five million “event wagers.”.
Kalshi says the state measure is unconstitutional. In its lawsuit, the company argues the tax violates the Supremacy Clause of the U.S. Constitution by encroaching on federal law. Jacki McGavick. a spokesperson for Kalshi. said. “Kalshi is fundamentally different from state-regulated sportsbooks and casinos.” She added. “Courts have already recognized our status as a federally regulated exchange. Illinois is wasting its time and taxpayers’ dollars.”.
Illinois lawmakers, for their part, moved ahead without counting on the revenue in the state budget they approved in Springfield last month and signed by Pritzker last week. The budget takes effect next month, when the new transaction levy would begin.
The lawsuit arrives at a time when other controversial levies tied to tech and finance are also facing legal scrutiny. The measure is part of a wider push that has already targeted big social media companies and cryptocurrency exchanges—taxes that could face court fights of their own.
A Pritzker spokesperson said in a statement. “Prediction companies are seeking to use the courts to avoid complying with the same rules and consumer protections that apply to other wagering operators in Illinois.” The spokesperson added. “The state of Illinois will continue defending Illinois’ authority to regulate these activities and protect consumers.”.
For Kalshi. the goal is immediate: stop a tax before it starts landing on “exchange wagers.” For Illinois. the message is equally clear—its regulators and lawmakers want authority to shape how these markets operate. even as federal regulators maintain that prediction markets belong under a single national framework.
Kalshi Illinois tax prediction markets CFTC Commodity Futures Trading Commission Illinois Gaming Board Polymarket Crypto.com Robinhood event contracts insider trading Supremacy Clause JB Pritzker