North Carolina Raises Sports Betting Tax to 23 Percent, Taxes Prediction Markets

In North Carolina, Governor Josh Stein has signed legislation that increases the tax on gross sports wagering revenue from 18 to 23 percent. The change, enacted through Senate Bill 257, became effective immediately upon his signature. This action responds to a projected 2.8 billion US dollar budget shortfall over the next two years, following previously enacted income tax cuts.

In addition to the sports betting tax hike, the budget also introduces a six percent tax on net commission revenue generated by prediction markets. This regulation, effective January 1, 2027, impacts platforms such as Kalshi and Polymarket. Interestingly, North Carolina has not created its own regulatory framework for this, instead leaving oversight to federal authorities.

Numbers and facts

The five-percentage-point increase in the sports betting tax is projected to generate an additional 50.7 million US dollars for the general fund in the first year. The new tax rate applies to online sportsbook operators including DraftKings, FanDuel, BetMGM, and Caesars. No deductions for promotional expenses are allowed.

The introduction of the six percent tax for prediction markets, effective January 1, 2027, creates a significant tax differential compared to the 23 percent for sports betting. Larger operators are already analyzing whether to develop prediction-style products in the state to shift certain transactions under the lower tax structure.

Another interesting change allows players to deduct gambling losses on their state tax returns up to the amount of winnings. This is retroactive to January 1, 2025. Previously, gross winnings were taxed without accounting for losses. In exchange, the Department of Revenue received authority to request full wagering histories and personal data directly from operators to verify deductions. Nathan Goldman, an accounting professor at NC State University, stated that this increased audit risk may deter improper claims, even if additional tax assessments are not certain.

Starting July 2027, the University of North Carolina at Chapel Hill and NC State will be eligible to receive between 2.9 million and 5.8 million US dollars annually from sports wagering proceeds for their athletic programs.

Background

The Sports Betting Alliance opposed the tax increase during budget negotiations. > “Right now, some lawmakers in Raleigh are pushing for a massive tax hike on legal sports wagering that punishes fans who are just playing by the rules.” - Sports Betting Alliance

The organization warned that the costs would be passed down to customers, potentially driving players to offshore operators. FanDuel sent emails and text messages to customers, urging them to contact lawmakers and warning that “bettors like you will pay the price” if the measure took effect.

North Carolina is also one of the first states to tax prediction markets without creating a specific regulatory framework. This could lead to further clashes between state and federal authorities, as the Commodity Futures Trading Commission (CFTC) has already sued Kentucky and Illinois over similar laws, arguing that such measures unlawfully aim to regulate federally overseen derivatives markets.

Why it matters for German players

These developments in the US indicate a trend towards stricter taxation and regulation of the gambling market, although the political and legal frameworks in Germany differ. For German players, this means they can continue to rely on the German State Treaty on Gambling 2021 (GlüStV 2021) and its resulting rules.

The GlüStV 2021 has redefined the framework for online gambling in Germany. Players should exclusively use casinos licensed by the Joint Gambling Authority of the Federal States (GGL). This license ensures that strict player protection measures are adhered to. These include a one-euro stake limit per game round for slot machines and a monthly deposit limit of 1,000 euros.

Another important aspect is the central self-exclusion system LUGAS (Cross-State Gambling Supervision System). This system aims to protect players from excessive gambling behavior and is used by all GGL-licensed providers. Players who self-exclude or are blocked by a provider cannot then play at any other licensed provider in Germany. The German approach aims to maximize player protection while ensuring a legal, safe gambling offering to curb the black market.

What it means for GGL-licensed casinos

For GGL-licensed casinos in Germany, such tax increases as seen in the US serve as a warning sign but are not an immediate threat. The German gambling tax on sports betting is currently 5.3 percent of the stake, not the gross gaming revenue. For virtual slot games, a tax rate of 5.3 percent of the stake is also levied. This is a different calculation basis than in North Carolina.

Germany focuses strongly on player protection and channeling players into the regulated market. Excessive taxation could, as the Sports Betting Alliance in the US also warns, drive players to the black market. The GGL monitors the market very closely to prevent this. The current tax legislation and strict licensing requirements are designed to enable fair competition while generating the necessary revenue without overburdening players. New GGL licensees benefit from a clear legal framework that provides investment security.