Kalshi to Ninth Circuit: CEA Preempts State Gaming Rules but Not Taxes on Revenue

KalshiEX LLC argued in an appellate filing against Nevada that the CEA preempts state efforts to regulate trading on designated contract markets ("DCMs") but does not preempt state taxes on revenue from those transactions.

In a letter to the U.S. Court of Appeals for the Ninth Circuit, Kalshi said state defendants mischaracterized Kalshi's position in two respects. The prediction-market operator said it argues both express and field preemption: the CEA preempts the field of regulating trading on DCMs. Kalshi separately argued that state efforts to regulate that trading conflict with the CFTC's exclusive jurisdiction over swaps traded on DCMs under CEA Section 2(a) ("Jurisdiction of Commission").

Kalshi distinguished between state taxation and state regulation. It pointed to North Carolina's S.B. 257, a new law taxing prediction-market revenue that is not at issue in the Nevada appeal. Kalshi said the tax does not conflict with federal law because it imposes no licensing or registration requirements.

By contrast, Kalshi argued that Nevada's gaming rules directly conflict with the CEA because they subject prediction markets to comprehensive gaming regulation, including licensure requirements.