Kalshi, Polymarket and other prediction market platforms jointly sued Kentucky over a 14.25% trading tax

According to Abcnews, several prediction market platforms including Kalshi, Crypto.com, and Polymarket have formed an alliance and filed a lawsuit in state court this Friday, attempting to block Kentucky's newly implemented 14.25% prediction market transaction tax.

This tax was passed by the Kentucky legislature in April of this year, targeting transaction fees on prediction market platforms, with a rate of 14.25%, which is higher than the local horse racing industry's tax burden of about 9.75%. The plaintiffs in the lawsuit claim that the tax is discriminatory, unconstitutional, and may conflict with federal law.

Prediction market platforms allow users to trade contracts on real-world events (such as economic data, election results, etc.), essentially belonging to the event derivatives market. The plaintiffs argue that this tax will significantly raise compliance costs and may force trading activities to shift to offshore platforms with weaker regulations.

Kentucky Attorney General Russell Coleman stated that he will vigorously defend the law in court and asserted that the state government is capable of handling the related challenges.

Meanwhile, Kalshi stated that excessive state-level tax burdens will weaken the competitiveness of the legal market and may drive users to illegal trading platforms that lack regulation and protection.

This case is seen as the latest development in the ongoing conflict between the U.S. prediction market industry and state regulatory and tax systems.