The Iowa Senate has become the first U.S. legislative chamber to pass a bill that would attempt to regulate and tax online prediction market platforms at state level.
Senators approved an amended version of Senate File 2470 on Tuesday by a vote of 45-1, but not before it was significantly amended to increase the proposed licensing fees and clarify certain parameters. In short, the bill would attempt to render prediction markets illegal unless the platform offering them obtains a license from the state Department of Revenue and pays tax on its event contract activity.
SF 2470 now moves on to the state House of Representatives. Iowa’s 2026 legislative session is scheduled to adjourn in three weeks’ time, on April 21.
Changes double licensing fees, add excise tax
The original form of the bill, filed under the number SF 2085 by Sen. Mike Klimesh in January, was approved by the state Senate Ways and Means Committee in mid-March, despite Chair Sen. Dan Dawson noting his uncertainty about whether Iowa would even have the right to try to regulate products that currently fall under the federal oversight of the Commodity Futures Trading Commission (CFTC).
A fiscal note published after the committee approved the bill projected that the bill’s initial permit fees and tax revenues would increase General Fund revenue by $20m in fiscal year 2027, with smaller incremental annual increases in subsequent years.
However, before it was approved by the Senate, a floor amendment was adopted that doubled the proposed licensing fees from $10m to $20m for the initial licenses. Licenses would expire on June 30 every year and operators would have to pay $100,000 to renew them.
The amendment also clarified that the bill would specifically apply to designated contract markets (DCMs), entities like Kalshi, Crypto.com and Polymarket that directly allow users to buy and sell event contracts on their sites. The event contracts that the legislation targets are financial derivatives “that provide a fixed binary payout” related to sports, lotteries, elections, legislative actions, and economic indicators.
As in the original bill, prediction markets would be taxed at 20% of adjusted revenue from event contracts, defined as the total dollar amount of charges and fees collected from all trading activities, minus payouts, multiplied by the location percentage.
But the amended version includes a new section titled “event-driven contract excise tax”, which would levy a 20% tax on the price of buying an event contract on licensed DCMs “for the privilege of doing business in the state”.
Amendment references court battles
The amended version of the bill also appears to reference the ongoing court battles between prediction market companies and state gaming regulators and Attorneys General.
Kalshi is involved in active litigation against Iowa Attorney General Brenna Bird and the Iowa Racing and Gaming Commission after filing a pre-emptive lawsuit on March 11. Kalshi claimed to believe there was a “substantial risk” that Bird would pursue enforcement action against Kalshi on behalf of the IRGC with the intent to stop the company from offering event contracts in the state.
The Senate-approved version of the Iowa bill notes that the terms of the legislation would apply to a DCM offering event contracts “until such time a court of competent jurisdiction, after all appeals have been exhausted, determines that event-driven contracts are subject to regulation under chapter 99F [Iowa’s sports betting law].”
In other words, in the event that a firm and authoritative court decision rules that sports event contracts are a sports betting product that should be regulated by the state, Iowa would tax them as it does online sports wagering.
