North Carolina Increases Sports Betting Tax to 23%, Introduces Levy on Prediction Markets

North Carolina Governor Josh Stein officially signed the state's $34 billion fiscal budget for 2025-26 on Tuesday, implementing significant adjustments to gaming taxation. The new legislation escalates the tax rate for online sports betting operators and establishes a distinct tax framework for prediction market platforms operating within the state.

Under Senate Bill 257, the tax on gross wagering revenue from online sports betting will climb from 18% to 23%, a change that took effect immediately upon the budget's signing. This increase impacts the seven licensed online sportsbooks in North Carolina and marks the first such tax adjustment since regulated online wagering commenced in March 2024. The revised rate positions North Carolina's sports betting tax higher than those in established markets like Massachusetts, Ohio, and New Jersey.

This final 23% rate follows extensive legislative deliberation. Earlier in April 2025, the state Senate had proposed a more ambitious increase to 36%, which would have placed North Carolina among the states with the highest flat sports betting tax rates nationwide. However, this proposal failed to gain traction, with lawmakers ultimately converging on the 23% figure after considering options within the 20% to 25% range. The budget secured passage in the House of Representatives with an 88-21 vote, and later in the Senate by a 35-10 margin on the same day. Prominent operators such as FanDuel and DraftKings had expressed opposition to the multi-year effort to raise the tax, while legislators advocated for the increase as a strategy to help mitigate a $2.8 billion state budget deficit.

The budget also outlines new allocations for the revenue generated. Under the previous 18% rate, sports betting had already contributed over $300 million in tax revenue. Commencing July 2027, both UNC Chapel Hill and North Carolina State University, the state's two largest universities by enrollment (32,200 and 37,300 students respectively), will become eligible to receive portions of these tax proceeds. Existing UNC System institutions already benefit from annual payments from sports betting tax revenue and may receive up to 20% of the remaining tax revenue after other state allocations. Initial annual payments to these schools are capped at $2.9 million per institution, with the budget providing additional funding for specific educational bodies.

Further distribution of sports betting revenue includes allocations to youth sports initiatives, programs dedicated to gambling addiction treatment, and the state’s general fund. The budget also sets an annual cap for the Major Events, Games, and Attractions Fund at $30 million, which is below the $45.3 million projected for fiscal 2026-27 in a May 2026 Consensus Revenue Forecast.

Prediction Market Taxation

Beyond sports betting, North Carolina will also begin taxing prediction markets, encompassing platforms such as Kalshi and Polymarket. These platforms will be subject to a 6% tax on net trading fee revenue, effective January 1, 2027. A fiscal memorandum estimates this new tax will generate approximately $2 million in 2027 alone. Notably, the budget explicitly states that it does not impose “any license, registration, or other regulatory requirements or obligations of any kind on prediction markets,” allowing trading exchanges offering sports contracts to operate without state licensure or regulation.

By adopting this prediction market tax legislation, North Carolina joins states like Kentucky and Illinois. However, similar regulatory and taxation measures concerning prediction market platforms have previously encountered legal challenges involving entities like the Commodity Futures Trading Commission.