Judge Blocks Illinois Prediction Market Tax As State Appeals
A federal judge has barred Illinois from enforcing its new tax on prediction market operators, and the state is taking the fight to the Seventh Circuit.
Judge Martha Pacold of the Northern District of Illinois signed a preliminary injunction on October 30 that stops the state from applying its licensing rules, fees and taxes to sports event contracts traded on federally regulated exchanges. It is the latest twist in the legal row over prediction markets in the US.
The order covers three consolidated cases brought by Coinbase, Kalshi and the United States, with the Coalition for Fair Markets and the exchange OG joining as intervenor plaintiffs.
It follows an October 2 ruling against Illinois on licensing, and Bloomberg Tax reported that the state appealed the injunction to the Seventh Circuit.
What The Injunction Covers
The order is short but broad. It enjoins the defendants, including their successors, agents and employees, from enforcing four provisions: article 25 of the Sports Wagering Act (230 ILCS 45), the state criminal gambling statute at 720 ILCS 5/28-1(a), a section of the Illinois Gambling Act (230 ILCS 10/18(a)(1)) and an Illinois Gaming Board internet wagering rule (11 Ill. Admin. Code 1900.1210(a)).
The bar applies to those laws as they relate to the trading of swaps, including sports event contracts, listed on or available through designated contract markets and futures commission merchants regulated by the Commodity Futures Trading Commission.
The court order states that this includes licensing requirements, associated fees, taxes, and related criminal provisions.
It also blocks criminal or civil enforcement actions, subpoenas and other compulsory investigative steps tied to those contracts.
Why The Tax Fell Along With The Licence
Illinois added a transaction fee on sports-linked exchange wagers in its fiscal 2027 budget. According to law firm Holland & Knight, the rate is 1.75 percent on a licensee's first 5 million exchange wagers in a fiscal year and 3.5 percent after that.
The charge sits on top of the existing 15 percent fee on gross sports wagering receipts and the per-wager fees already in the statute. Kalshi sued over the levy in June 2026, and the firm notes Illinois did not book the expected revenue in its budget.
In the October 2 opinion, the judge held that Illinois' sports betting licensing rules were likely preempted when applied to exchange-traded event contracts, but she reserved the fee question for further briefing.
Six days later, the parties told the court that no more briefing was needed. The reason was simple: the fee applies only to licensees, so once the licensing requirement is enjoined, the tax cannot be enforced against CFTC-registered exchanges and intermediaries.
Bloomberg Tax makes the same point, noting that the fees apply only to providers licensed by the state.
How The Court Reached Its View
The October 2 opinion found that title-type sports contracts traded on Kalshi, a CFTC-designated contract market, are likely swaps under the Commodity Exchange Act. That label matters because swaps fall under the CFTC's exclusive jurisdiction.
Working within Seventh Circuit precedent, the judge noted that the Commodity Exchange Act does not expressly preempt state law or occupy the whole field.
State laws that directly affect trading on, or the operation of, a futures market can still be conflict-preempted, however.
Holland & Knight says the court treated Illinois' licensing rules as exactly that kind of law, because they dictate how the contracts are structured, which events they may reference and who may trade them.
In practice, the firm adds, they would force Kalshi to build an Illinois-only market.
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What Happens Next
The state has appealed, so the Seventh Circuit will now decide whether the injunction remains in effect.
For operators and online casinos, the immediate effect is that neither Illinois' licensing regime nor its new transaction fee can be applied to covered contracts while the order remains in effect.
The ruling also gives states something to study. Holland & Knight reads the decision as support for the idea that exclusive federal oversight does not automatically rule out state revenue measures, with a caveat about design: a tax tied to a preempted licence falls with that licence.
Whether a tax built independently of any licensing regime would survive was left for another day. Readers following the wider fight can find more coverage in our US betting news section.
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