Illinois’ Contradictory Move: Taxing Prediction Markets While Fighting the Feds Over Control

(AsiaGameHub) –   Sarah Chen, senior policy analyst at the Digital Innovation Policy Institute, calls Illinois’ latest budget move a “high-stakes contradiction.” “Taxing prediction markets while fighting the CFTC over whether you can even regulate them is like trying to collect tolls on a road you don’t own,” she says. “It’s a clear signal the state wants a piece of the digital gaming revenue pie—but it’s also throwing fuel on the national fire over who controls event contracts.”

Here’s the lowdown: Illinois lawmakers approved a $56 billion FY2027 budget that adds new taxes on prediction markets, daily fantasy sports (DFS), digital assets, and social media companies. Gov. JB Pritzker plans to sign the budget, which takes effect July 1 and could bring in around $65 million in new revenue.

For prediction markets, the budget amends the Illinois Sports Wagering Act to include “exchange wager” language, requiring operators to get approval from the Illinois Gaming Board—though the exact tax rate wasn’t finalized when the budget passed. This comes as Illinois is locked in a legal battle with the CFTC: the state sent cease-and-desist letters to firms like Polymarket, Crypto.com, and Kalshi earlier this year, claiming they offered unlicensed sports wagering. The CFTC sued in April, arguing these event contracts are federally regulated derivatives, not state gambling.

DFS gets a clearer framework: operators need two-year licenses (fees range from $500 to $1500) and pay a 15% tax on gross receipts. Big players like DraftKings, FanDuel, and Underdog are active in the state, and Rep. Curtis Tarver noted DFS operators supported the regulated structure. Illinois already tightened sports betting taxes—online sportsbooks face a progressive rate from 15% to 40%, plus a per-wager fee (25 cents for the first 20 million bets, 50 cents after that).

This isn’t an isolated trend. Kentucky already tried taxing prediction markets, and more states are likely to follow as they chase digital revenue. But the CFTC lawsuit could derail Illinois’ plans—if the feds win, state taxes on prediction markets might be unenforceable. For the industry, this means navigating a messy patchwork of state rules and federal oversight. DFS is getting more stability, but prediction markets remain in legal limbo. The outcome here could set a precedent: will states get to tax these platforms, or will federal regulators take the lead? Either way, operators and users should brace for more uncertainty as the battle over digital gaming regulation heats up.