Can't ban them? Fine them. The court isn't buying it.
Illinois tried to tax prediction markets out of existence — the court called it gambling law
The short answer
Illinois amended its budget to impose an 'exchange wager' transaction fee set higher than Kalshi's own fees — a tax designed to make prediction markets unprofitable without calling it a ban. Judge Pacold's injunction treats it as the gambling regulation it functionally is.
In this article
Illinois found the workaround other states were looking for: if gambling law can't reach prediction markets under federal commodities registration, maybe the tax code can. The state's budget included an 'exchange wager' transaction fee on prediction-market trades — set at a level deliberately higher than the fees Kalshi charges for most contracts. Not a ban; just a price structure under which the vast majority of Illinois trades would lose money by design.
Judge Martha Pacold's injunction, issued Friday, covers the fee alongside the gambling-law enforcement. The reasoning is function-over-form: a transaction fee crafted to make a specific licensed activity unprofitable isn't taxation — it's regulation wearing a tax costume, and it collides with the same federal preemption question as the direct ban. The court's decision to freeze both at once tells states that the 'if you can't ban it, price it' playbook has the same legal vulnerability as the ban itself.
Why the fee approach was on the table
- Gambling-law enforcement against prediction markets has produced mixed results — states needed a second instrument.
- A transaction fee uses a power states indisputably hold (taxation) rather than the contested one (gambling regulation).
- Setting the fee above operators' own trading fees makes the math fatal without ever saying the word 'ban.'
- The injunction suggests courts will look through the mechanism to the function — a fee designed to eliminate an activity is regulation, and gets judged as such.
What this forecloses for other states
Several legislatures had been watching Illinois's fee model as a template — precisely because it avoided the gambling-law preemption question that has tied up state enforcement across three circuits. The Northern District's decision to strike the fee alongside the gambling-law enforcement removes the safe-harbor assumption those templates were built on. If the Seventh Circuit upholds the injunction, states lose both weapons: they can't ban prediction markets, and they can't tax them into exit either.
The fee ruling is inseparable from the broader preemption fight in the Sixth Circuit case, the enforcement wave it enabled in Nevada's earlier action, and the product category at stake in prediction markets vs. sportsbooks.
