In Illinois, the recently introduced tax on sports prediction markets faces potential repeal as Republican Rep. Travis Weaver has filed House Bill 5811 this month. This legislation aims to eliminate the tax on "exchange wagers," which was included in the state's budget approved in June.
Weaver's proposal not only seeks to abolish this yet-to-be-enforced tax but also aims to remove the definition of "exchange wager" from Illinois legislation. The budget signed by Governor JB Pritzker on June 16 included a 1.75% tax on all trades made on prediction market platforms, increasing to 3.5% after the first 5 million wagers in a fiscal year.
Opposition to this tax aligns with party lines, as Weaver criticized his Democratic counterparts for implementing a series of new taxes—five in total—including those on fantasy sports, digital advertising, cryptocurrency, and social media.
In a recent conversation with SBC Americas, Weaver expressed concerns over the hurried introduction of these taxes, which he believes were not adequately assessed for legality. He noted, "Typically, you would include a tax in a budget because you think it will raise money, but they actually didn’t include any revenue in the budget for many of these taxes. Instead, they included money in the budget for the attorney general to defend them because they’re not even sure if these taxes are legal."
Weaver further elaborated on the heavy taxation of gamblers in Illinois, citing the existing online sports wagering rates. He remarked, "I think it’s ridiculous that we’re inventing brand-new, first-in-the-nation taxes to get even more money out of the sports betting market."
The Illinois legislature is currently on recess until the 2027 session commencing in mid-January, but a brief veto session will occur in late November and early December. Weaver believes this period offers a vital opportunity to challenge and potentially eliminate these taxes before any revenue is collected.
This proposed repeal follows notable changes to how Illinois has taxed sportsbooks in recent years. Starting July 1, 2024, the state will switch from a flat 15% tax on revenue to a sliding scale tax ranging from 20% to 40%. Additionally, beginning July 1, 2025, Illinois will implement a per-wager tax of 25 cents, increasing to 50 cents after 20 million wagers.
Like the predicted market tax, these per-wager taxes forced all 10 licensed sportsbooks in Illinois to either adjust customer fees or set new minimum bet amounts, leading to similar legislative proposals from other states.
As the state grapples with various legal challenges relating to prediction markets, Kalshi has initiated court proceedings against Illinois following the budget's enactment. Kalshi contests the tax and the state's licensing requirements, claiming jurisdiction over event contract regulation lies solely with the Commodity Futures Trading Commission, not the state.
In April, the CFTC sued Illinois along with Arizona and Connecticut, arguing that these states were excessively enforcing their gambling laws on regulated firms. The CFTC later revised its lawsuit to include the prediction markets tax as part of the challenge.
Weaver’s legislation specifically targets the exchange wager tax but does not encompass the broader licensing and regulatory initiatives that Illinois seeks to enforce on prediction markets. Illinois stands among three states endorsing some form of tax on sports event contracts in 2026, with Kentucky implementing a similar tax, which led to swift legal disputes. North Carolina plans to tax these markets beginning January 1, 2027, without any accompanying regulation and has yet to face a court challenge.
Josh Kirchner, a gaming attorney at Holland and Knight LLP, noted last month that while states can tax federal activities, complications arise when states impose their regulations. Kirschner questioned, "How far can [a state tax] go before you reach the point of saying this is a stand-in for regulation that attempts to preempt federal law?"
