After Minnesota broke the ice on states codifying new statutes affecting prediction market exchanges, the earliest signs of Minnesota playing the role of trendsetter have emerged. Illinois’ budget for the next fiscal year includes the text of a bill that compels prediction market exchanges to obtain licensure from the Illinois Gaming Board and assesses a tax equating to half of the exchanges’ revenue from trades originating within Illinois.

Multiple parties already have active lawsuits challenging Illinois’ attempts to enforce state law on prediction market platforms. The budget provision could escalate the gravity of that litigation, though.

The Illinois legislature finalized its budget on Monday, and the package includes the text of a bill that changes the status of prediction market exchanges. SB4168, The Prediction Markets Regulation and Taxation Act, creates a new category of license that the Illinois Gaming Board (IGB) is responsible for granting and overseeing.

Knowingly offering prediction market trading without this “master prediction market license” is tantamount to illegal gambling in Illinois under the statute. Acquisition of the license costs $1 million and the fee is the same for an annual renewal.

The statute also imposes a 50% tax on licensees’ “adjusted gross receipts derived from qualifying prediction market contracts placed by or with Illinois residents.” As the law charges the IGB with drafting rules for the activity, those regulations may address whether revenue from trades that Illinois residents make while outside the state is subject to that tax.

That is if this part of Illlinois’ budget is allowed to actually take effect. The courts may have something to say about that.

Illinois officials were already named as defendants in multiple lawsuits prior to the enactment of the state’s FY2027 budget. Coinbase sued Illinois Attorney General Kwame Raoul and others in December 2025 to circumvent any enforcement action.

The United States Commodity Futures Trading Commission (CFTC) and the Department of Justice (DOJ) followed that in April with litigation of their own with the same goal. However, those actions were based on the IGB sending cease-and-desist demands to prediction market exchanges, citing statutes that already existed at the time.

With the new law in place, the stakes are higher. If Illinois and Minnesota are allowed to enforce their laws, the CFTC’s insistence that it has exclusive jurisdiction over prediction market exchanges will be effectively inconsequential.

At the heart of the legal dispute between state governments like Illinois and Minnesota and prediction market exchanges like Kalshi is whether the US Commodity Exchange Act (CEA) plus other federal laws preempt state laws affecting exchanges. Minnesota passed its law targeting prediction markets in mid-May.

In disputes with other states, the preemption discussion has focused on state gambling laws that law enforcement and regulators have applied to prediction market trading. Illinois’ and Minnesota’s situations are different because these statutes explicitly regulate prediction market trading.

From one perspective, that makes the preemption question clearer. A state law that directly contradicts a federal statute in the US can be a violation of the US Constitution’s Supremacy Clause.

At the same time, legal precedent denotes that the mere existence of a state law governing the same activity that federal law addresses does not guarantee a conflict between the two. In any litigation, it would be on the claimant to establish to the court that a conflict exists.

These issues will be central to the proceedings in federal district courts for Illinois and Minnesota moving forward. Many other state governments will be watching closely.

The post Illinois Becomes Second US State to Enact Law Regulating Prediction Markets appeared first on DeFi Rate.

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