Illinois Appeals Kalshi Injunction That Also Bars Its Prediction Market Tax

A Chicago federal judge has barred Illinois from licensing, taxing or prosecuting CFTC-regulated exchanges over sports event contracts, and the state appealed the same day. The tax question left open in October closed because Illinois agreed its levy reaches only licensees.

• US District Judge Martha M. Pacold entered a preliminary injunction on 30 October in three cases brought by Kalshi, Coinbase and the federal government, giving effect to her 2 October ruling
• Illinois may not enforce its sports wagering, gambling and criminal laws against swaps, including sports event contracts, traded through CFTC-regulated exchanges and brokers
• The order covers "associated fees, taxes" and subpoenas, so the exchange wager tax of 1.75% and 3.5% cannot be collected from those platforms
• Attorney General Kwame Raoul and Illinois Gaming Board officials appealed to the Seventh Circuit the same day
• The same court is already hearing the federal appeal from Wisconsin, where a judge refused a similar injunction in July

A Two-Page Order Settles What the October Opinion Left Open

Pacold signed the preliminary injunction on Friday 30 October in Coinbase Financial Markets, Inc. v. Raoul, United States v. State of Illinois and KalshiEX LLC v. Raoul, in the US District Court for the Northern District of Illinois. She adopted the parties' proposed order and set 12 November for a status report on next steps.

The order bars the defendants from enforcing Article 25 of the Sports Wagering Act, section 28-1(a) of the Criminal Code, section 18(a)(1) of the Illinois Gambling Act and Gaming Board rule 1900.1210(a) "as related to the trading of swaps, including sports event contracts", on designated contract markets and futures commission merchants regulated by the Commodity Futures Trading Commission (CFTC). That extends to "licensing requirements, associated fees, taxes, and related criminal provisions", to criminal or civil enforcement, and to subpoenas or other compulsory investigative process.

Pacold's 2 October opinion found title contracts, such as one on whether the Chicago Cubs win the 2026 World Series, likely to be swaps under the Commodity Exchange Act. Applying Seventh Circuit precedent, she rejected express and field preemption and held that Illinois' licensing regime likely conflicts with federal law.

Illinois Conceded That the Tax Rides on the Licence

The opinion held over the challenge to the exchange wager tax that SB 3019, the FY2027 budget law, added to the Sports Wagering Act: 1.75% on a licensee's first five million exchange wagers in a fiscal year and 3.5% after that. In a joint status report on 8 October, every party, Illinois included, told the court further briefing was "not necessary at this time". Because the Act's taxes apply only to licensees, they said, the injunction "necessarily will restrain Illinois officials from enforcing the Sports Wagering Act's tax provisions" against CFTC-registered exchanges and intermediaries. Whether a standalone tax on federally regulated entities would survive was left open.

Notices of Appeal Filed the Same Day

Raoul and the Gaming Board defendants filed a notice of appeal in the Coinbase case on 30 October, according to the docket. In the federal government's case the notice was also filed for Governor JB Pritzker and the State of Illinois, and the clerk transmitted the short record to the Seventh Circuit on 2 November. A notice of appeal does not suspend an injunction, and neither docket shows a motion for a stay.

The Seventh Circuit already has the Wisconsin dispute, in which Judge William C. Griesbach denied the CFTC an injunction in July. That appeal, No. 26-2636, is being briefed with two related appeals; Wisconsin filed its consolidated brief on 28 October, and Kalshi has filed an amicus brief supporting the federal government.

The Tax Fell Without a Fight Over It

The most consequential phrase in the order is "associated fees, taxes". Pacold had signalled in October that taking a share of revenue might not amount to regulating a federal market, which made the fee Illinois' strongest remaining ground. Illinois chose not to argue it, accepting that its tax is a charge on licensees and falls with the licence. That avoids an adverse ruling on its taxing power, but costs it the revenue while the injunction stands. Other states have a clear lesson: a prediction-market tax tied to a licence shares the licence's fate.

Illinois Now Needs the Seventh Circuit to Side With Wisconsin

Two district judges in one circuit have reached opposite answers on whether sports contracts are swaps. The Sixth Circuit and the Ninth Circuit have ruled against Kalshi, while the Third Circuit ruled for it in April. If the Seventh Circuit follows Griesbach, the Illinois injunction is unlikely to survive in its present form. Absent a stay, Illinois lives with it until then.

The Order Reaches Beyond the Contract Argued

The opinion addressed a championship contract; the injunction covers "the trading of swaps, including sports event contracts" generally. It does not say which contracts are swaps, so whether a player prop or novelty market falls inside it remains arguable. The subpoena bar also denies Illinois the tool the New York State Gaming Commission is using against Kalshi. The meaning of "swap" is where this fight will be decided.

Illinois has given up the tax argument to concentrate on the one that decides everything else. The Seventh Circuit, with Wisconsin and Illinois before it at once, will now answer it for both.