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The Iowa Senate has become the first state legislature to pass a bill regulating prediction markets, although it is unclear whether the bill — which would impose a 20% excise tax on all event contract purchases in the state — would be enforced if it becomes law.
SB 2470 passed the state Senate in a 45-1 vote. Republican Sen. Doug Campbell, who represents the state’s 30th District, was the only one to vote no.
The bill would not ban prediction markets, but would detail licensing and tax provisions. However, prediction markets may not be able to operate in the state if a 20% “excise tax” is imposed on all event contract purchases once it takes effect.
Any designated contract market — the category to which Kalshi, Crypto.com and Polymarket’s U.S. sites fall — must pay $20 million to obtain an initial license to operate in Iowa and then pay a 20% Iowa tax on revenue.
In addition, the exchange will pay a 20% tax on each active contract purchase. This would require all prediction market operators to significantly change their fee structures in the state if they want to make money from customers in Iowa. Kalshi currently charges approximately 1.2% in fees
The 20% excise tax was increased through an amendment and passed by voice vote.
The bill now moves to the state House of Representatives.
It’s unclear whether Iowans will actually be able to enforce the bill if signed into law. Prediction markets like Kalshey have argued that they are not subject to state law and that instead, the Federal Commodity Futures Trading Commission has “exclusive jurisdiction.” Courts are still determining whether state law applies to registered prediction markets, an issue that may ultimately need to be resolved by the Supreme Court.
However, there are existing court cases involving whether the federal Commodity Exchange Act (CEA) can preempt state gambling laws. The states argue that while the CEA may veto state laws regarding merchandise transactions, that preemption does not extend to gambling because gambling has traditionally been regulated by the states and is not a direct focus of the CEA.
Even if the court rules that state gambling laws are not preempted, it is unclear whether Iowa can enforce state laws that specifically address event contracts.
Kalshey sued the state of Iowa in federal court on March 11, seeking to bar the state’s gaming regulator from enforcing Iowa gambling laws against the business.