Iowa Lawmakers Propose Licensing and Tax for Prediction Markets
Iowa lawmakers have proposed a sweeping regulatory and tax package aimed at bringing prediction markets under state control.
LISTEN TO THIS ARTICLE:Senate File 2085, introduced this legislative session, would require platforms that offer event-based contracts to obtain an annual permit from the Iowa Department of Revenue and submit to a new state tax regime. The bill sets an initial licensing fee of $10 million for market operators seeking authorization to serve Iowa residents, with annual renewals priced at $100,000. Permits would expire at the end of June each year.
Under the proposal, platforms would also face a 20% levy on “adjusted revenues” – a calculation defined by the bill that starts with total fees collected from traders, subtracts payouts, and allocates the resulting figure to Iowa users. Revenue from both licensing and the new tax would be deposited into the state’s general fund, according to bill language.
Trading Tax Changes and Compliance Burden
Beyond platform-level charges, SF 2085 would alter how individual traders report and pay state taxes on prediction market gains. The bill removes the option to follow certain federal derivative tax treatments for these contracts when calculating Iowa taxable income. Traders would be required to separately compute state-level profits tied to event contracts, add those gains back to taxable income, and – if itemizing – limit deductible losses to 90% of gains arising from these products. Platforms would be responsible for withholding state income tax on payouts that exceed $600.
Several elements of the tax changes are scheduled to take effect at the start of 2026, a timeline that could retroactively affect people who traded earlier in the year. The combination of heavy licensing costs, a substantial platform tax, and changes to individual tax treatment has raised immediate questions about compliance burdens and market viability.
“This legislation seeks to create a clear state framework for products that increasingly resemble gambling, but it imposes an unprecedented upfront cost on firms that want to serve Iowa customers”, said the senate sponsor of SF 2085. “We intend to protect consumers and capture revenue from an expanding digital activity that has so far fallen into regulatory gaps.”
Industry lawyers warn that the fee structure could reshape the market. “A $10 million entry fee and 20 percent adjusted-revenue tax will effectively price many smaller innovators out of the business”, said an attorney who advises trading platforms and fintech startups. “The bill will likely narrow competition and concentrate activity among larger, well-capitalized firms.”
More Regulation News
Industry Response and Wider State Trends
Supporters of stronger oversight argue that state action is necessary because prediction markets now offer contracts on elections, legislation, macroeconomic indicators and sports outcomes – categories that can mirror traditional gambling products. Opponents counter that the bill lacks the consumer-protection measures commonly included in regulated gaming regimes, such as self-exclusion tools, mandatory affordability checks, or clear addiction support pathways.
“You can’t simply treat these platforms as another form of taxable activity without building in safeguards to minimize harm”, said a former Commodity Futures Trading Commission official. “A patchwork of state rules also risks regulatory friction with federal authorities that oversee derivative and exchange activity.”
Iowa’s effort follows similar moves in other states: lawmakers in New York have proposed oversight measures targeting sports-related prediction contracts, and recent court decisions in Massachusetts and Tennessee have tested whether prediction platforms fall within state gambling statutes. Market operators such as Kalshi, Polymarket and PredictIt have already navigated varied regulatory responses, from CFTC engagement to state-level litigation and enforcement actions.
Legal scholars note potential conflict points between state regulation and federal oversight. Platforms regulated by the Commodity Futures Trading Commission may argue that federal law preempts state rules that have the practical effect of regulating futures or swaps. At the same time, states are asserting their taxation authority and police powers in the absence of explicit federal directives.
Legal Risks and Next Steps
Senate File 2085 remains subject to committee review and amendment. If enacted, the law would likely trigger rapid industry responses: platforms may limit access for Iowa users, challenge the statute in court, or seek negotiated compliance paths. Traders should be alert to the proposed 2026 tax changes and consult tax professionals if they have exposure to event-contract trading this year.
As states continue to debate how to categorize and tax prediction markets, the outcome in Iowa will be watched closely as a potential template – or cautionary example – for legislators elsewhere.
RELATED TOPICS: Regulation
Latest News
Casinos & Games
Giuseppe Iadisernia Wins Seminole Hard Rock Lucky Hearts Poker Open Championship
Jan 28, 2026
Responsible Gambling
Irish Study Links Childhood Gambling with Higher Adult Addiction Risk
Jan 28, 2026Most Read
Must Read
Interviews
Exclusive Interview: Levon Nikoghosyan Shares AffPapa Winning Formula for Successful iGaming Events
Dec 03, 2025
Interviews
Review this New Post
Leave a Comment
User Comments
Comments for Iowa Lawmakers Propose Licensing and Tax for Prediction Markets