Illinois enacts first U.S. state tax on sports event contracts
Illinois has enacted the first U.S. state tax on sports event contracts by embedding the levy in its fiscal year 2026 budget package. The legislature approved a $55.8 billion budget on June 1 that imposes a 1.75% tax on these contracts and adds an 'exchange wager' definition to the state's existing sports wagering framework. Governor J.B. Pritzker is expected to sign the measure. The legislation treats prediction market sports bets as a taxable gaming activity rather than prohibited gambling, diverging from Minnesota's parallel push to criminalize the same contracts. Illinois lawmakers advanced a separate bill on June 5 that would regulate sports event contracts under state wagering laws.
The 1.75% tax gives Illinois a revenue stream it can enforce regardless of whether federal preemption invalidates other states' criminal bans. Kalshi and Polymarket must now pay state gaming taxes on Illinois sports contracts or face geofencing, even as they fight felony charges and injunctions elsewhere.
Illinois's 1.75% tax this month and Minnesota's felony ban both seek to capture or constrain prediction market sports contracts at the state level, but only Illinois's revenue mechanism sidesteps the federal preemption fight that now threatens to invalidate the Minnesota statute before August 1.