North Carolina lawmakers passed a new state budget that includes a NC sports betting tax hike, as well as a tax on prediction markets.
Legislators advanced the budget, SB 257, to Gov. Josh Stein last week and included an NC sports betting tax increase to 23% from 18% as was discussed throughout the budget process. The budget also includes a 6% tax on on prediction market operator net revenues.
Along with the tax increase, lawmakers also included a new dispersion to the University of North Carolina and North Carolina State University.
The $34 billion budget passed the Senate, 35-10, and House, 88-21.
Could NC sports betting tax revenue dry up?
During the budget discussions, some lawmakers fear sports betting revenue could be lost to prediction markets.
Because of the lower tax, the opponents suggest sports betting brands could just operate the prediction market products in North Carolina to avoid the higher tax rates.
“The revenue that we’ve been getting from sports betting, it’s going to plummet,” Sen. Julie Mayfield told local reporters last week, per WRAL. “… And then that has all sorts of implications. Not just for our budget, but for the schools that have again come to rely on this money for their athletic programs.”
North Carolina has already lost out on tax revenue thanks to predictions. Underdog decided to switch its model to prediction markets shortly before Missouri sports betting launched last December, which led to it shutting down in North Carolina, which was its only sportsbook operation.
Prediction market taxes
North Carolina lawmakers felt the time was right to introduce the tax on prediction markets as they boom in popularity. Rather than try to regulate the operators, they just want to implement a tax on the industry.
“It’s pretty clear that it’s something that seems to be growing both in popularity and in terms of just recognition that it’s out there,” Senate President Pro Tempore Phil Berger told reporters Thursday. “Whether it’s something that eventually is going to take over from the sports betting, I don’t know.”
North Carolina is not the first state to attempt to introduce language to regulate or tax the industry. States like Kentucky, Illinois and Minnesota have also passed similar legislation, and have been sued by operators and the Commodity Futures Trading Commission arguing federal jurisdiction overrides state level regulation and tax law.
The jurisdiction battle is likely to reach the U.S. Supreme Court.
State colleges getting a cut
Since NC sports betting launched in 2024, the state has collected more than $287 million in taxes.
That money has been split between the state general fund and the UNC school system, albeit the schools with small athletic departments and not the flagship schools of UNC and NC State.
This year’s budget alters that language and includes the larger schools, which now can receive up to $5.8 million per year from sports betting tax revenue.
The Senate included sending money to UNC and NC State to a tax rate hike to 36% last year, but the House did not take up the proposed budget.
Additional NC sports betting tax change
Last month, lawmakers passed a separate sports betting tax change.
SB 595 requires NC sports betting operators to report any bettors who made more than $2,000 in winnings. That gives the state access to verify whether bettors reported their winnings.
Those winnings are treated as taxable income and subject to the state’s 4.5% state income tax.
