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Prediction markets are platforms where customers can buy, sell
or trade event contracts — a form of derivative that allow
placing trades based on whether real-world events, such as
election results or economic indicators, will or won't happen.
The new tax is higher than for Kentucky's “favored incumbent
industry,” the lawsuit filed in state court by the Coalition for
Fair Markets says, noting a 9.75% tax on wagers at horse tracks.
In a statement using gambling terminology, Kentucky Attorney
General Russell Coleman vowed to fight the legal challenge.
“You can bet our Office will defend these statutes and the
people of our Commonwealth from out-of-state companies that seek
to cancel Kentucky’s sports betting laws," he said. “In any
courtroom, the attorneys with the AG’s Office are the odds-on
favorite to win.”
The tax disincentivizes the operation of prediction markets in
Kentucky, the lawsuit says.
“No State currently levies a State-specific excise tax of any
kind on derivatives transactions that take place on a federally
designated exchange, let alone the sort of specifically targeted
and discriminatory tax that Kentucky has imposed here," it says.
Taxing federally regulated markets “just pushes people toward
illegal platforms with no oversight and no protections,” Kalshi
said in a statement. "Kalshi is an American company, regulated
here at home, and we’re joining the fight for Kentuckians’
access to safe, legal markets.”
Prediction markets have been pushing hard to gain legitimacy
among the public and policymakers as a legitimate platform where
users can bet on everything from sports to the weather to
geopolitical events.
There have been several incidents where traders have used inside
information to profit on prediction market platforms. It was
recently disclosed that former former Congressman George Santos
was under investigation for allegedly illegally betting he
wouldn’t attend President Donald Trump’s State of the Union
address after initially saying he would. In April, a U.S. Army
soldier was charged with using classified information to make a
$400,000 profit trading on Polymarket on the timing of the U.S.
military operations in Venezuela earlier this year.
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