Josh Stein, the Governor of North Carolina, officially approved the state’s budget for fiscal 2025-26, totaling $34 billion, on Tuesday. This budget includes an increased tax rate on online sports betting and a distinct tax for prediction market platforms.

“Following comprehensive discussions, I am signing the state budget into law this morning,” Stein announced on Tuesday.

Senate Bill 257 raises the tax imposed on online sports betting from 18% to 23% of gross wagering revenue, effective immediately. This adjustment impacts North Carolina’s seven online sportsbooks and marks the first tax increase since the legalization of sports betting in March 2024. This new rate elevates North Carolina above major sports betting markets like Massachusetts, Ohio, and New Jersey.

The tax increase culminated after months of discussions. In April 2025, the State Senate had suggested a tax hike to 36%, positioning North Carolina among the top five states with the highest flat sports betting tax rates in the U.S. However, that proposal did not garner enough support, and lawmakers ultimately agreed on a more modest rise to 23%.

The budget passed the House of Representatives with an 88-21 vote and subsequently went through the Senate by a vote of 35-10. While sports betting operators like FanDuel and DraftKings were against the state’s prolonged efforts to raise the tax, lawmakers viewed it as a necessary step to mitigate a $2.8 billion budget shortfall.

Under the previous 18% tax rate, North Carolina bettors contributed over $300 million in tax revenue. The budget also revises the distribution of sports betting proceeds.

Starting July 2027, both UNC Chapel Hill and North Carolina State University will be eligible to receive tax proceeds. Currently, NC State enrolls approximately 37,300 students, while UNC Chapel Hill has about 32,200 students, making them the two largest universities in the state by enrollment.

Institutions within the UNC System already benefit from annual payments derived from sports betting tax revenue and may be allocated 20% of the remaining tax revenues after all required state distributions. Initially, annual payments to each institution are capped at $2.9 million, though this budget allows for additional support for specific schools.

Funding is also directed toward youth sports initiatives, gambling addiction treatment programs, and the state’s general fund. The budget enforces a cap of $30 million annually on the Major Events, Games, and Attractions Fund, which falls short of the previously anticipated $45.3 million for fiscal year 2026-27 as per the May 2026 Consensus Revenue Forecast.

Beginning January 1, 2027, North Carolina will implement a tax of 6% on prediction markets, which includes platforms like Kalshi and Polymarket. A fiscal report estimates this tax will yield approximately $2 million in revenue during 2027.

The budget does not establish any licensing, registration, or regulatory burdens on prediction markets, thereby allowing trading exchanges that facilitate sports contracts to operate without state oversight or licensing.

North Carolina joins Kentucky and Illinois in enacting legislation related to prediction market taxation, although similar measures have faced legal scrutiny involving prediction market platforms and the Commodity Futures Trading Commission.