Taxes Against Prediction Markets: New Jersey to Push Legislation
Prediction markets are blooming as the 2026 FIFA World Cup and fluid political cycles push trading volume to unprecedented heights. Meanwhile, state governments are scrambling to extract their piece of the pie. In New Jersey, the battle lines have officially been drawn for the second half of the year. Democratic leadership confirmed that a controversial legislative proposal to tax prediction markets will be revived immediately following the summer recess, anticipating fierce legal clashes between state-level lawmakers, the companies and the CFTC.
New Jersey Is Coming for a Piece of the Pie
The legislation, advanced in late June through party-line votes in both the Senate and Assembly budget committees, represents the first coordinated effort by a state legislature to directly tax federally regulated platforms like Kalshi.
A major shift in legislative strategy is behind the sudden push by New Jersey Democrats to impose taxes on the sector. Initial efforts by influential state lawmakers focused on establishing a strict regulatory framework to govern the industry’s future. This initial plan sought to require prediction markets to secure formal licensing via the New Jersey Division of Gaming Enforcement.
However, because this approach constituted a regulatory overreach that conflicted with the authority of the Commodity Futures Trading Commission, it ultimately faced a severe setback in federal court.
Bans, Million-Dollar Fines and the Summer Break
Initial drafts of the legislation attempted to categorize sports-related event contracts as traditional wagering, which would have forced platforms like Kalshi and Polymarket to pay a combined tax rate of 29.75%.
Additionally, the original bill sought to criminalize prediction markets centered on political matters, disasters, or deaths, threatening non-compliant operations with preliminary injunctions along with daily fines of up to $1 million.
New Jersey lawmakers recognized that an outright ban would be tossed out due to federal preemption. That’s why the licensing demands, criminal penalties and the state-level oversight were tossed out. In replacement appeared a regulatory text with a proposed tax.
The financial impact of the surtax remains uncertain. According to a fiscal note from the Office of Legislative Services, it could generate between $10.3 million and $15.3 million during the current July-to-June fiscal year; however, the office cautioned against using these figures to project future revenue.
Despite passing through the committee substitute phase on June 28, legislative leaders ultimately chose to pull the scaled-down tax bill from the final voting sessions before the summer break. According to official sources, the decision to pause was rooted strictly in a desire to bulletproof the language against unavoidable legal challenges from the affected companies.
Anticipating the Autumn Battle
When legislators return to work this autumn, the revived 9% surtax will serve as a critical test case for state-level taxation of event contracts. For prediction markets, a successful passage in New Jersey could trigger a domino effect, providing a fiscal blueprint for dozens of other tax-hungry states looking to capture revenue from the explosive growth of the industry.
It is highly unlikely that the platforms will accept the surtax without resistance. Legal counsel and corporate quants are expected to argue in court that a targeted state income surtax, designed explicitly to make up for a lack of regulatory control, remains a violation of the CFTC’s exclusive jurisdiction.
In this regard, Olivia Chalos, Polymarket’s deputy chief legal officer, said that any state-level efforts to regulate prediction markets would result in significant federal preemption challenges.
As the industry prepares for a hyper-liquid final stretch of the year, the upcoming autumn session in New Jersey will determine whether prediction markets can continue to scale under a unified federal rulebook, or if they will be forced to navigate a costly, fragmented network of state-level tax walls.