A former New York state official argued at a Saratoga panel that the state should tax prediction markets instead of fighting them in court.
While New York pursues a $36 billion lawsuit against Kalshi, a lawyer who once ran gaming policy for the state’s own governor says that legal fight is the wrong approach entirely. At a panel discussion during last week’s Racing and Gaming Conference in Saratoga Springs, Katie Neer argued the state should drop the standoff and start collecting tax revenue instead.
Key Takeaways
- Kalshi proposed a 6% tax on its New York trades before the state sued, projecting roughly $10 billion in revenue over five years
- New York’s licensed sportsbooks currently pay a 51% tax rate, making Kalshi’s offer look thin by comparison
- North Carolina and Illinois have already moved to tax prediction market operators rather than ban or sue them, a path New York has so far avoided
What Happened
Katie Neer, now a lawyer with Albany lobbying firm Dickinson & Avella, spent nearly three years as New York’s assistant secretary for general government and financial services under then-Governor Andrew Cuomo, overseeing six state agencies including the state’s Gaming Commission. Speaking on a panel just a day before the CFTC invoked emergency powers to keep Kalshi operating in New York despite the state’s lawsuit, Neer said she understood why officials have avoided taxing prediction markets while litigation is pending, but disagreed with the strategy. She argued the state should move past that hesitation and start capturing tax revenue regardless of how the legal fight resolves.
Kalshi had floated a 6% tax on its New York trades before the state filed suit in late July, projecting it would generate close to $10 billion over five years. Chelsea Davis, New York Governor Kathy Hochul’s deputy secretary for gaming, cannabis, and alcohol, pushed back on that framing during the same panel, noting the offer looks considerably less generous next to the 51% tax rate the state’s licensed sportsbooks already pay. Davis also argued the state shouldn’t be collecting revenue from what it considers illegal activity in the first place, drawing a comparison to how New York approached legalizing marijuana, a policy area with public support that prediction markets, in her view, don’t yet have given some of the more controversial contract types the platforms have offered.
Other States Have Already Chosen a Side
New York’s wait-and-sue posture isn’t the only model on the table. North Carolina has already approved a 6% tax on prediction market operators while allowing them to offer sports contracts without a state license, and Illinois included a tax on prediction market operators directly in its state budget this year rather than pursuing a ban or lawsuit. Pennsylvania is weighing a different route again: HB 2711 would regulate prediction markets and set a 21-plus age floor without taxing them at all, while a competing bill, HB 2497, would license and tax operators at 22%, still well below what Pennsylvania’s existing sportsbooks and casinos pay. That patchwork means prediction market operators are already facing three distinct state strategies, tax, regulate without taxing, or sue, depending entirely on which state they’re operating in.
Why Regulation Might Be Needed Regardless of Tax Policy
Beyond the tax question, panelist Dan Ullman, a partner at Orrick, said the CFTC’s continued rulemaking and stress-testing of sports contracts suggests the agency is hedging on how courts will ultimately resolve the underlying legal fight, predicting the issue will eventually land at the Supreme Court. Neer separately raised a consumer protection concern distinct from taxation: she noted that a large share of prediction market trading volume comes from professional “super forecasters” capable of moving prices, raising the question of whether the retail traders on the other side of those trades, whom she estimated at 20% to 30% of participants, deserve stronger protections than an unregulated market currently offers.
What’s Next
None of this resolves New York’s active lawsuit against Kalshi, which continues alongside the CFTC’s emergency order keeping the platform running in the state. But panelists agreed the current standoff, where prediction markets operate in a kind of legal limbo while litigation plays out, isn’t a stable long-term arrangement, whichever direction individual states ultimately land on.