New Jersey Prediction Market Tax Bill Returns This Fall

New Jersey lawmakers will return to a proposed 9% surtax on prediction market net income when the legislature reconvenes in the fall, after the measure cleared budget committees in both chambers on party-line votes but failed to reach floor votes before the summer recess.

Assembly Speaker Craig Coughlin, the bill’s prime sponsor in the lower chamber, said the delay stems from amendments adopted in the Senate that raised concerns about how far the legislation could reach.

“We’re planning on looking at that over the summer and into the fall. I think there’s every chance we’ll pass something out. We’ll make sure it’s right,” Coughlin said.

“There was some notion that we might be affecting other things, like the stock market or something like that. Clearly that was never the intent,” he added.

A scaled-back version of a tougher proposal

The current bill is narrower than its predecessor. An earlier draft would have imposed a 10% surcharge on nearly all prediction market contracts, with sports-related contracts also falling under New Jersey’s 19.75% internet sports betting tax. The revised approach targets net income rather than contract volume.

The New Jersey Office of Legislative Services estimated the 9% surtax could generate between $10.3m and $15.3m during the current fiscal year, though it cautioned that future collections are difficult to project because prediction markets remain a young industry. The analysis noted the 2026 FIFA World Cup could temporarily lift trading activity, while also warning that prediction markets could pull revenue away from casinos and sportsbooks, reducing existing state tax collections. Trading volumes have already shown how large event-driven spikes can be: Kalshi reported $1bn in Super Bowl trading volume in February, up 2,700% year-on-year.

Federal preemption question hangs over the bill

The tax push comes as New Jersey’s authority over prediction markets faces direct legal challenge. In April, a divided panel of the US 3rd Circuit Court of Appeals ruled 2-1 in KalshiEX LLC v. Flaherty that Kalshi’s sports-related event contracts are swaps under the Commodity Exchange Act, regulated exclusively by the Commodity Futures Trading Commission. The decision affirmed a preliminary injunction barring the state from enforcing its gambling laws against the platform.

Polymarket, which has faced its own state-level enforcement actions including a Nevada court restraining order, argues that taxation efforts could run into the same federal wall.

“Polymarket operates as a CFTC-regulated designated contract market under the exclusive jurisdiction of the Commodity Exchange Act, and state-level efforts to regulate prediction markets will likely face significant federal preemption challenges,” Olivia Chalos, Polymarket’s deputy chief legal officer, said.

New Jersey is not alone in trying to capture revenue from the sector. North Carolina’s latest budget added a prediction market levy alongside a sports betting tax increase, and other states have pursued aggressive rate proposals, including Massachusetts’ 51% sports betting tax bill.

Casino workers push back

Opposition in New Jersey has come from UNITE HERE Local 54, the union representing Atlantic City casino workers. The union argues that prediction markets threaten casino employment, permit participation by 18-year-olds despite the state’s legal gambling age of 21, and that taxing the platforms risks legitimising them.

“If the state taxes prediction markets, it appears to legitimize them. Jobs in New Jersey have been lost and will continue to be lost as a result of this,” Donna DeCaprio, President of UNITE HERE Local 54, said.

“We understand the sponsors are trying to level the playing field and generate tax revenue, but prediction markets are an existential threat to our jobs. This bill is not the solution,” she added.

Whether the bill returns intact depends partly on what happens in the courts. New Jersey had until late May to seek an en banc rehearing of the 3rd Circuit decision, and a pending Ninth Circuit ruling in parallel cases involving Kalshi, Robinhood and Crypto.com could produce a circuit split that pushes the preemption question to the Supreme Court. Lawmakers drafting a tax on the sector this fall will be legislating against a federal jurisdictional picture that is still moving.

Source: Yogonet