<p>The prediction market behemoth Kalshi filed suit this week to block a new Illinois tax on financial exchanges like theirs that state gambling regulators have decried as illegal sports betting.</p><p>Kalshi’s federal lawsuit, filed in Chicago, seeks an injunction against the transaction taxes ranging from 1.75% to 3.5% that state lawmakers voted to slap on every “exchange wager” beginning next month on the prediction markets that have exploded in popularity over the past few years.</p><p>But Kalshi — and the Trump administration’s Commodity Futures Trading Commission — maintain that the “event contracts” traded on their markets don’t constitute gambling and can only be regulated by the federal government.</p><p>The CFTC asserted its position as the sole arbiter on prediction market regulation earlier this year when it sued to block state-level regulation efforts in Illinois as well as Arizona and Connecticut. New Jersey is also among the states grappling with how to handle the booming world of prediction markets.</p><p>Illinois Gaming Board administrator Marcus Fruchter issued cease-and-desist letters in April to Kalshi and its top competitors — Polymarket, Crypto.com and Robinhood — for engaging in “illegal gambling in violation of Illinois law.”</p><p>Prediction markets allow customers to buy “yes” or “no” contracts on the outcomes of myriad events, on everything from whether a baseball team will win a game to whether a politician will win their election.</p><p>While nearly indistinguishable from traditional sportsbooks on a practical level to the average consumer, it’s not considered betting because users are trading against each other and there’s no “house” profiting off the consumer’s loss.</p><p>It’s also led to numerous allegations of insider trading since the platforms can incentivize people to profit off classified information. A U.S.