In New Jersey, the push to tax prediction markets is gaining momentum, as Democratic lawmakers from both chambers of the state legislature have moved forward with proposed legislation. On June 28, the Senate Budget and Appropriations Committee approved Senate Bill 4447, while the Assembly Budget Committee passed its counterpart, Assembly Bill 5336. Both bills were advanced with a committee substitute.
This revised legislation introduces a new "surtax" of 9% on the gross income generated by prediction market platforms during a tax year, supplementing existing taxes under the New Jersey Gross Income Tax Act.
Although committee members voted along party lines to support the bills, the substitute text reflects a significant scaling back from the original versions. Initially, the proposed legislation contained extensive provisions, such as the introduction of a licensing system for prediction market platforms, akin to those governing sports betting. It also included bans on various types of prediction markets, including those related to death, disasters, political elections, and trading by public officials in political markets.
The original draft of SB 4447 and AB 5336 would have mandated that prediction market operators obtain licenses from the state Division of Gaming Enforcement and pay New Jersey’s 19.75% sportsbook tax, coupled with an additional 10% surcharge. This arrangement would have resulted in an effective tax rate of 29.75% on sports event contracts.
Under the initial terms, these operators would have also been required to adhere to responsible gaming standards. Violations concerning unlicensed sports event contracts could have led to criminal charges, and the New Jersey Attorney General would have had authority to seek injunctions and impose fines of up to $1 million per day on non-compliant operators. The original bills also included various anecdotes and a description of event contracts as products "the functional equivalent of a wager."
However, the newly adopted substitute bill simplifies matters to just a 9% surcharge, eliminating many of the previous bill’s detailed provisions.
Senate President Nick Scutari and Budget and Appropriations Committee Chair Paul Sarlo are sponsoring the Senate bill, while long-serving Assembly Speaker Craig Coughlin is among the sponsors for the Assembly version. Attempts to reach the sponsors for comments regarding the amendments have so far been unsuccessful.
The progress of the bills comes on the heels of developments involving the prediction market platform Kalshi, which recently secured a preliminary injunction against the New Jersey Division of Gaming Enforcement. A decision from the U.S. Court of Appeals for the Third Circuit upheld a lower court ruling that favored Kalshi, asserting that its sports event contracts fall under federal jurisdiction regulated by the Commodity Futures Trading Commission (CFTC).
The ruling emphasized that New Jersey's broad approach to regulating sports gambling conflicts with the narrower interpretation that applies to contracts traded on federal markets, thus reinforcing the CFTC’s exclusive jurisdiction over Kalshi’s operations. Following this decision, Kalshi has initiated legal action against multiple states, including Kentucky and Illinois, where legislators are pursuing similar tax legislation.
