The North Carolina General Assembly advanced a wide-ranging budget bill Wednesday that would create a new tax on prediction market operators, while leaving those platforms outside the state's gambling regulatory framework.
The Senate approved the budget on second reading in a 37-19 vote early Wednesday afternoon, with the House following later in the day with a 92-22 vote. The bill still needs third-reading approval in both chambers before it can be sent to Gov. Josh Stein.
The gambling provisions appear near the end of the more than 600-page budget plan and received little discussion during floor debate. One section would allow prediction market platforms to operate in North Carolina without additional state gambling oversight, while taxing them at 6%. Another would raise the online sports betting tax rate from 18% to 23%.
The bill also changes how gambling losses may be deducted on state income tax returns. Democrats criticized the process, saying they received the Republican-written plan less than 24 hours before voting and had no role in shaping it. They also objected to the proposed lower flat income tax, arguing that many residents would only see about $3 to $13 a month in savings.
Prediction markets would be taxed but not regulated as gambling. North Carolina would become the second state in a month to tax prediction markets and their sports event contracts, following Illinois' lead in June. That law took effect on Wednesday, and a platform called Kalshi has already sued to block it.
The new tax would apply to an operator's net trading fee revenue from trades made inside the state. However, the language would not bring prediction market platforms under state gambling rules, allowing them to continue operating under Commodity Futures Trading Commission oversight without meeting North Carolina gambling requirements.
The same budget bill would increase North Carolina's online sports betting tax from 18% to 23%. This change could generate at least $40 million in additional revenue, according to the bill language. The measure also adds the University of North Carolina and N.C. State University to the list of schools that share in wagering revenue.
The tax increase comes a little over two years after North Carolina legalized online sports betting and just months after the market launched. Some Democratic lawmakers raised concerns about the section dealing with gambling-loss deductions, which would affect how North Carolina residents report gambling losses on state income tax returns.
A separate measure, Senate Bill 595, has already cleared the General Assembly and is also awaiting action from Stein. This bill makes several changes tied to legal online sports betting, including updates to how taxable sports betting revenue is calculated and the treatment of promotional credits for tax purposes.
Together, the budget bill and Senate Bill 595 would reshape several parts of North Carolina's betting tax structure, from sports wagering revenue and promotional credits to prediction market trading fees. The changes are expected to have a significant impact on the state's betting industry and its revenue streams.
