A coalition that includes Kalshi, Crypto.com, and Polymarket has filed a lawsuit challenging Kentucky’s first-in-the-nation excise tax on prediction markets. The tax, which was enacted by the Kentucky General Assembly in April, imposes a 14.25% levy on prediction market operators’ transaction fees.

Details of the Tax

Prediction markets are platforms where customers can buy, sell, or trade event contracts, which are 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 the 9.75% tax on wagers at horse tracks in Kentucky.

The lawsuit, filed in state court by the Coalition for Fair Markets, says the tax is discriminatory, unconstitutional, and preempted by federal law. The coalition argues that the tax disincentivizes the operation of prediction markets in Kentucky and pushes people toward illegal platforms with no oversight and no protections.

Response from Kentucky Attorney General

Kentucky Attorney General Russell Coleman has vowed to defend the statutes and the people of Kentucky from out-of-state companies that seek to cancel Kentucky’s sports betting laws. In a statement, Coleman said, ‘You can bet our Office will defend these statutes and the people of our Commonwealth from out-of-state companies that seek to cancel Kentucky’s sports betting laws.’

The lawsuit says that no 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.

Original reporting: WTVQ (Lexington) — read the source article.