Prediction Market Platforms Sue Kentucky Over 14.25% Tax

A coalition that includes Kalshi, Polymarket and Crypto.com has filed a lawsuit in Kentucky state court challenging the state's new 14.25% excise tax on prediction‑market transaction fees. The tax, enacted by the Kentucky General Assembly in April, is described by the plaintiffs as discriminatory, unconstitutional and pre‑empted by federal law, especially because it is higher than the 9.75% levy on horse‑track wagers. Kentucky Attorney General Russell Coleman said his office will defend the statute, calling the challengers "out‑of‑state companies" seeking to undermine Kentucky's sports‑betting framework.

The plaintiffs argue the tax will push users toward unregulated platforms, reduce market liquidity and set a precedent for other states to adopt similar levies. Prediction markets are platforms where users trade event contracts tied to real‑world outcomes. Recent high‑profile incidents, such as investigations of former Congressman George Santos and a U.S. soldier for illicit trades on these platforms, have heightened scrutiny. The lawsuit seeks an injunction to block enforcement of the tax while the case proceeds.