Kalshi, a federally regulated prediction market exchange, has hauled Illinois into federal court this week, trying to stop a new state tax that would hit per-trade “exchange wagers” on sporting events. The company says the law would effectively corner it into either paying millions and submitting to state licensing or cutting off Illinois users and running afoul of federal exchange rules.
Inside Kalshi’s Court Move
In a complaint filed in the U.S. District Court for the Northern District of Illinois, Kalshi names Governor J. B. Pritzker, Attorney General Kwame Raoul and Illinois Gaming Board officials as defendants. The suit asks for a permanent injunction to block enforcement of the budget provisions that reach prediction market contracts. Kalshi argues the statute violates the Supremacy Clause and federal commodities law, according to CourtListener.
What the New Illinois Law Targets
The budget measure, Senate Bill 3019, amends Illinois’ Sports Wagering Act to spell out “exchange wagers,” a category that includes agreements, contracts or swaps offered on prediction markets tied to sporting events. It then slaps on a transaction tax of 1.75% on the first 5,000,000 exchange wagers by a licensee in a fiscal year and 3.5% on wagers above that threshold. The law also folds such contracts into the state’s licensing framework and is set to take effect on July 1, 2026, according to Mondaq.
Federal Regulator Is Already in the Ring
The Commodity Futures Trading Commission has its own fight going with Illinois. In April, the CFTC sued the state, arguing that event contracts traded on federally designated contract markets fall under the CFTC’s exclusive jurisdiction, and that states cannot apply gambling laws or separate licensing regimes to federally regulated exchanges. That stance is laid out in the CFTC complaint.
State Crackdown and Insider Trading Jitters
The Illinois Gaming Board has already sent cease-and-desist letters to Kalshi and other platforms, accusing them of unlicensed sports wagering, according to the Illinois Gaming Board. Governor Pritzker has separately signed an executive order that bars state employees from using nonpublic government information to trade on prediction markets, according to the Gov. Pritzker Newsroom.
Federal prosecutors have also highlighted high-profile insider trading allegations as part of the backdrop for state scrutiny, including a Justice Department indictment that claims roughly $409,000 in profits on a Polymarket account, as described by the Justice Department.
Kalshi Fires Back
“Kalshi is fundamentally different from state-regulated sportsbooks and casinos," adding "Courts have already recognized our status as a federally regulated exchange,” Kalshi spokesperson Jacki McGavick said in a statement to the Chicago Sun-Times. The paper also notes that Illinois lawmakers did not count on any revenue from the prediction market levy when they approved the budget that takes effect next month.
How Far This Fight Could Go
The lawsuit lands in the middle of a messy national patchwork over how to treat event contracts, with states experimenting with cease-and-desist letters, steep excise taxes and even criminal referrals. That mix has already sparked litigation in other states and could push the issue up the federal court ladder, as reported by the Associated Press.
Legal Stakes
Kalshi is asking for emergency injunctive and declaratory relief to keep SB 3019 from taking effect on July 1 while courts decide whether the Commodity Exchange Act preempts state gambling and tax measures. If a judge sides with Kalshi and the CFTC, states would be constrained in their ability to license, geofence or tax nationally accessible exchanges. A loss for Kalshi would hand states more power to force platform changes or collect levies, according to CourtListener.
