North Carolina Budget Agreement Raises Sports Betting Tax to 23% and Introduces Prediction Market Levy

North Carolina’s state budget is heading toward a final vote with a confirmed agreement to raise the sports betting operator tax from 18% to 23%, introduce a 6% tax on prediction market net trading revenue, and allow bettors to deduct their gambling losses on state income taxes for the first time. The deal ends months of negotiations and is expected to pass before the July 1 fiscal year start.

Sen. Jim Burgin confirmed the 23% figure on June 18. North Carolina launched its regulated North Carolina sports betting market in March 2024 and has collected more than $299 million in taxes at the current 18% rate over approximately two years of operation. At 23%, analysts project the state will generate roughly $37 million more per year, bringing annual tax revenue to approximately $170 million.

Tax Hike Draws Industry Pushback

The Sports Betting Alliance, which represents major licensed operators, warned that the tax increase will penalize regulated companies that have played by the rules and paid hundreds of millions into state coffers. The group argued the hike could push bettors toward illegal offshore options if the cost structure of legal betting becomes less competitive. North Carolina’s new rate of 23% would exceed New Jersey (19.75%), Massachusetts (20%), and Ohio (20%), though it remains far below New York at 51%.

The budget negotiations also concluded with an agreement that North Carolina sports bettors will be allowed to deduct gambling losses against their winnings on their state income tax returns for the first time. The change is retroactive to January 1, 2025, giving bettors who have already filed a potential opportunity to amend returns. Rep. Erin Pare, a Republican from Wake County, championed the provision as a matter of fairness.

Prediction Markets Now on the Tax Radar

Perhaps the most forward-looking element of the budget deal is the inclusion of a 6% tax on prediction market operators based on net trading fee revenue generated from North Carolina users, effective January 1. Licensed sportsbook operators including DraftKings and FanDuel have both launched prediction market products to compete with standalone platforms such as Kalshi and Polymarket. Illinois enacted a similar prediction market tax earlier this month, and North Carolina’s inclusion signals that states are moving to close what has been an effectively tax-free operating environment for event contract platforms.

The budget also revamps how sports betting tax revenue is distributed across North Carolina’s university system, finally including UNC Chapel Hill and NC State — the two largest athletic programs in the state — in the distribution model. They could receive up to $5.8 million annually starting July 1, 2027. The changes reflect both the maturity of the North Carolina betting market and the growing fiscal importance of gambling revenue to state budgets across the country.