FRANKFORT, Ky. (AP) 鈥� A coalition that includes Kalshi, Crypto.com and Polymarket filed a lawsuit Friday challenging Kentucky’s first-in-the-nation excise tax on .
The Kentucky General Assembly in April enacted a 14.25% tax on prediction market operators’ transaction fees, a levy the lawsuit says is discriminatory, unconstitutional and preempted by federal law.
are platforms where customers can buy, sell or trade event contracts 鈥� a form of derivative that allow placing trades based on whether real-world events, such as election results or economic indicators, will or won’t happen.
The new tax is higher than for Kentucky’s 鈥渇avored incumbent industry,鈥� the lawsuit filed in state court by the Coalition for Fair Markets says, noting a 9.75% tax on wagers at horse tracks.
In a statement using gambling terminology, Kentucky Attorney General Russell Coleman vowed to fight the legal challenge.
鈥淵ou can bet our Office will defend these statutes and the people of our Commonwealth from out-of-state companies that seek to cancel Kentucky鈥檚 sports betting laws,” he said. 鈥淚n any courtroom, the attorneys with the AG鈥檚 Office are the odds-on favorite to win.鈥�
The tax disincentivizes the operation of prediction markets in Kentucky, the lawsuit says.
鈥淣o State currently levies a State-specific excise tax of any kind on derivatives transactions that take place on a federally designated exchange, let alone the sort of specifically targeted and discriminatory tax that Kentucky has imposed here,” it says.
Taxing federally regulated markets 鈥渏ust pushes people toward illegal platforms with no oversight and no protections,鈥� Kalshi said in a statement. “Kalshi is an American company, regulated here at home, and we鈥檙e joining the fight for Kentuckians鈥� access to safe, legal markets.鈥�
Prediction markets have been pushing hard to gain legitimacy among the public and policymakers as a legitimate platform where users can bet on everything from sports to the weather to geopolitical events.
There have been several incidents where traders have used inside information to profit on prediction market platforms. It was recently disclosed that former for allegedly illegally betting he wouldn鈥檛 attend President Donald Trump鈥檚 State of the Union address after initially saying he would. In April, a U.S. Army soldier was trading on Polymarket on the timing of the U.S. military operations in Venezuela earlier this year.
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