Illinois Prediction Market Tax Blocked by Federal Judge, State Appeals

A federal judge in Chicago blocked Illinois from enforcing its prediction-market licensing rules and a new transaction tax against sports-linked event contracts traded on CFTC-regulated exchanges, signing a preliminary injunction on October 30, 2026. Illinois has appealed the ruling to the Seventh Circuit Court of Appeals, according to a Bloomberg Tax report.

U.S. District Judge Martha Pacold issued the order in three consolidated cases brought by Coinbase, Kalshi, and the United States, with the Coalition for Fair Markets and the exchange OG joining as intervenors. At issue was a transaction fee Illinois added to its fiscal 2027 budget targeting sports-linked exchange wagers - 1.75% on a licensee's first 5 million exchange wagers in a fiscal year and 3.5% after that, stacked on top of an existing 15% fee on gross sports wagering receipts. Kalshi had sued over the levy back in June 2026.

The fee only applied to licensees, so once Judge Pacold's earlier October 2 ruling found Illinois' licensing requirement was likely preempted for exchange-traded event contracts, the tax lost the hook it was enforced through - as the reporting on the order put it, the tax fell "with the licence it hangs on." The outcome is notably different from how a similar fight played out for Ohio: the Sixth Circuit ruled against Kalshi in September, finding the company hadn't shown its sports contracts qualify as CFTC-exclusive swaps. Which circuit hears a given state's case is increasingly deciding which argument wins.

Illinois' sweepstakes-casino enforcement - the cease-and-desist letters it sent to more than 60 operators back in February, which we've covered here - is a separate track from this prediction-market tax fight, but both turn on the same underlying question the industry keeps testing: how much a product can lean on federal registration or a different legal label to get out from under a state's own gambling law.