New Jersey lawmakers are moving forward with legislation that would impose a new 9% surtax on income generated by companies operating prediction markets in the state, as legislators look to tax a rapidly expanding sector while the state continues its legal fight over the industry's future.
The proposed legislation would apply the additional tax to allocated taxable net income received by prediction market platforms operating in New Jersey, in addition to existing taxes, including the Corporation Business Tax. The measure would also apply a matching 9% surtax to income earned by certain partners and shareholders when that income is derived from operating prediction market platforms, in addition to the state's Gross Income Tax.
The proposal focuses exclusively on prediction markets, which are defined broadly as any physical or electronic system that allows participants to open a speculative position on the outcome of future events, in a bid-ask format, and in any other form regardless of the mechanisms or structures used for opening speculative positions on future events.
The bill also adopts an expansive definition of "future events," which includes the outcome or occurrence of a federal, state, or local election, events in popular culture, an athletic event or game of skill, any game played with cards, dice, equipment, or any mechanical or electronic device machine, and legal actions.
Rather than separating different types of prediction markets, the legislation would apply the surtax uniformly, without distinguishing the types of speculative positions.
New Jersey pairs proposed prediction market tax with continued legal challenge against Kalshi
The tax proposal comes as New Jersey remains involved in an ongoing legal dispute over prediction market operator Kalshi. The state has argued that Kalshi's activities should be subject to state gaming laws, and cited a recent ruling in Nevada that determined the company should be regulated as a gaming operator.
The state's filing contended that New Jersey had become "the only court in the country to accept Kalshi's attempted federalization of the multi-billion dollar gaming industry." Ohio has also cited the Nevada decision in its own efforts to challenge Kalshi's operations.
A fiscal estimate prepared by the New Jersey Office of Legislative Services projects the proposed surtax would generate between $10.3 million and $15.3 million in additional state revenue during fiscal year 2027.
However, legislative analysts cautioned that the estimate carries significant uncertainty because prediction markets remain a relatively new industry with limited publicly available financial information. The projection assumes growth in the sector will not reduce activity at existing sportsbooks and casinos, but analysts noted that forecasting revenue beyond fiscal year 2027 remains difficult due to the industry's early stage of development.
