Nevada Uses North Carolina Prediction Market Tax Against Kalshi in Court

As part of the ongoing fight between Kalshi and Nevada, Nevada is now using North Carolina's prediction market tax law against Kalshi and their argument against state oversight. 

From Nevada's perspective, Kalshi cannot both support taxing prediction market operations and claim that federal law overrides states' ability to regulate them. This argument was raised by Nevada in the Ninth Circuit Court of Appeals, where Kalshi is currently challenging the state's application of its gaming laws to prediction market platforms such as its own. 

Per Nevada Deputy Attorney General Abigail Pace, Kalshi's support is an admission. 

Nevada Says Kalshi's Tax Position Undermines Its Argument

In the notice to Molly Dwyer, Clerk of Court, Pace mentions North Carolina's SB 257, which imposes a 6% tax on fees earned by prediction markets. 

"Kalshi’s embrace of S.B. 257 undermines its arguments at every turn. On field preemption, Kalshi argued that the CEA creates a “regime [that] leaves no room for the States to supplement it.” Opening Br. 35 (internal quotation marks omitted). Yet S.B. 257 acts directly in the very field Kalshi claims is preempted—on-DCM transactions. Kalshi attempts to draw a distinction between regulating its contracts and taxing its revenues from those contracts, see Ltr. 2, but that is purely a formalism—both are forms of regulation by the State," Pace wrote. 

North Carolina's 6% tax goes into effect on Jan. 1. 

As for Kalshi, they argue that CFTC jurisdiction prevents states from regulating the trading, but it doesn't prevent them from taxing revenue generated from such contract trading. 

"By embracing S.B. 257, Kalshi is admitting that a State has the power to regulate its operations in the State—a stunning aboutface, which would mean that (at a minimum) Kalshi cannot evade Nevada’s taxing provisions. See NRS § 463.370," Pace also said in her letter. 

Kalshi and Nevada Battle Over State Authority

While North Carolina is taxing prediction markets, it's much different than what it taxes sportsbooks. The state taxes sportsbooks 23% on gross wagering revenue. 

We'll see if this argument Nevada has brought to the table has merit. Also, we'll see if Nevada is proven right that Kalshi didn't put up a geofence, as promised in their agreement to cease offering sports event contracts.