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FRANKFORT, Ky. — <\/span>A coalition that includes Kalshi, Crypto.com and Polymarket filed a lawsuit Friday challenging Kentucky’s first-in-the-nation excise tax on prediction markets<\/a>. <\/p>\n The Kentucky General Assembly in April enacted a 14.25% tax on prediction market operators’ transaction fees, a levy the lawsuit says is discriminatory, unconstitutional and preempted by federal law. <\/p>\n Prediction markets<\/a> are platforms where customers can buy, sell or trade event contracts \u2014 a form of derivative that allow placing trades based on whether real-world events, such as election results or economic indicators, will or won’t happen.<\/p>\n The new tax is higher than for Kentucky’s \u201cfavored incumbent industry,\u201d the lawsuit filed in state court by the Coalition for Fair Markets says, noting a 9.75% tax on wagers at horse tracks.<\/p>\n In a statement using gambling terminology, Kentucky Attorney General Russell Coleman vowed to fight the legal challenge. <\/p>\n \u201cYou can bet our Office will defend these statutes and the people of our Commonwealth from out-of-state companies that seek to cancel Kentucky\u2019s sports betting laws,” he said. \u201cIn any courtroom, the attorneys with the AG\u2019s Office are the odds-on favorite to win.\u201d<\/p>\n The tax disincentivizes the operation of prediction markets in Kentucky, the lawsuit says. <\/p>\n \u201cNo State currently levies a State-specific excise tax of any kind on derivatives transactions that take place on a federally designated exchange, let alone the sort of specifically targeted and discriminatory tax that Kentucky has imposed here,” it says.<\/p>\n Taxing federally regulated markets \u201cjust pushes people toward illegal platforms with no oversight and no protections,\u201d Kalshi said in a statement. “Kalshi is an American company, regulated here at home, and we\u2019re joining the fight for Kentuckians\u2019 access to safe, legal markets.\u201d<\/p>\n Prediction markets have been pushing hard to gain legitimacy among the public and policymakers as a legitimate platform where users can bet on everything from sports to the weather to geopolitical events.<\/p>\n There have been several incidents where traders have used inside information to profit on prediction market platforms. It was recently disclosed that former former Congressman George Santos was under investigation<\/a> for allegedly illegally betting he wouldn\u2019t attend President Donald Trump\u2019s State of the Union address after initially saying he would. In April, a U.S. Army soldier was charged with using classified information to make a $400,000 profit<\/a> trading on Polymarket on the timing of the U.S. military operations in Venezuela earlier this year.<\/p>\n<\/div>\n