Illinois Budget Imposes New Tax on Sports Prediction Markets, Creates DFS Framework – Gambling Insider

Illinois lawmakers have approved a new tax on sports-event prediction market contracts as part of the state’s FY2027 budget package, potentially setting up further legal battles between the state and prediction market operators. The legislature also creates a formal licensing and taxation framework for daily fantasy sports (DFS).

The tax on prediction market contracts comes amid Illinois’ ongoing litigation in federal court with the Commodity Futures Trading Commission (CFTC), which sued the state in April over its attempts to regulate federally regulated prediction market operators.

Illinois Creates New Exchange Wager Tax

The revenue and tax changes bill, Senate Bill 3019, amends Illinois’ Sports Wagering Act to add “exchange wagers” to the types of sports wagers that may be offered under state law, alongside existing wager types such as moneyline bets, point spreads, and over/under wagers.

The definition of “exchange wager” includes:

An agreement, contract, transaction, or swap that is offered, traded, or executed on a prediction market or exchange tied to a sporting contest or sporting event.”

The bill then imposes a new transaction tax on exchange wagers. Under the legislation:

• Each exchange wager will be subject to a 1.75% transaction tax.
• The tax rate increases to 3.5% after a licensee exceeds five million exchange wagers during a fiscal year.

Like Illinois’ per-bet sportsbook tax enacted last year, the new exchange-wager tax is based on transaction volume rather than adjusted gross receipts.

The legislation also reduces the initial master sports wagering license fee for online operators from $20 million to $15 million, while maintaining the $250,000 nonrefundable application fee. SB 3019 does not explicitly address how the licensing provisions would apply to federally regulated prediction market operators.

CFTC, Coinbase Already Challenging Illinois

The tax arrives amid an escalating dispute over prediction markets.

In April, the CFTC sued Illinois. The agency argued that “Illinois’s attempt to shut down federally regulated DCMs intrudes on the exclusive federal scheme Congress designed to oversee national swaps markets.”

The lawsuit followed cease-and-desist letters issued by Illinois regulators to operators, including Kalshi, Polymarket, and Crypto.com. Regulators argued that sports-event contracts constitute gambling activity subject to state oversight.

Illinois has also faced litigation from operators. In December 2025, Coinbase sued the state, along with Michigan and Connecticut. The new exchange wager tax could trigger further litigation. Last week, Kalshi sued Minnesota after the state enacted a second prediction market ban bill.

The new law replaced earlier prediction market provisions that had already triggered a separate federal lawsuit brought by the CFTC against Minnesota.

Regulatory Framework for DFS

The new budget also establishes a regulatory framework for DFS under the Illinois Gaming Board.

The legislation classifies fantasy contest operators into two categories:

• Small operators serving 7,500 or fewer patrons.
• Large operators serving more than 7,500 patrons.

Small operators will pay a $500 initial license fee, while large operators will pay a $7,500 initial license fee. Licenses will be valid for two years. In addition to licensing fees, operators will pay a 15% tax on adjusted gross fantasy contest receipts.

The law requires them to implement age verification, geolocation controls, anti-money laundering procedures, and identity verification measures.

DFS will be a separate category from sports wagering and will operate under a standalone regulatory framework overseen by the Illinois Gaming Board.

Casino Tax Proposal Appears Absent

The enacted budget package does not include Gov. J.B. Pritzker’s earlier proposal to align casino table-game tax rates to those applied to slot machines. The governor’s February budget proposal estimated that the casino tax change would generate an additional $120 million annually for the Education Assistance Fund.