The Iowa Senate has signed off on a bill that would bring new rules and taxes to a fast-expanding corner of finance often called prediction markets. Lawmakers approved Senate File 2470 on Tuesday (March 31), making it the first time a state legislative chamber has moved to formally regulate this type of trading.
The proposal lays out a structure for companies offering what it calls event-driven contracts. These are financial products that pay out based on whether a specific future event happens or not. The bill spells out a wide range of qualifying events, including sports contests, lotteries, elections, legislative decisions, and key economic data points.
Under the measure, companies would need a state-issued permit before operating in Iowa. That entry comes at a steep cost, with an initial fee set at $20 million and annual renewals priced at $100,000.
Prediction markets to face new taxes and regulatory framework under Iowa bill
A central piece of the legislation is a new tax aimed at platform operators. The bill sets a 20% tax on adjusted yearly revenue generated from these contracts. The legislation defines adjusted revenues as “the total charges and fees collected…less payouts made to traders,” with further adjustments based on the share of activity tied to Iowa users.
All of that tax money would flow into the state’s general fund.
The proposal also shifts responsibility onto companies to handle tax withholding for users. It treats payouts as Iowa-earned income and requires operators to withhold and send those taxes directly to the state. On top of that, it changes how traders calculate gains and losses for state taxes, forcing them to recompute certain figures rather than rely on federal tax treatment.
Lawmakers added a fallback plan in case the primary tax structure runs into legal trouble. If courts strike it down or block enforcement, the state would instead impose a 20% tax on each contract purchase. This would only kick in after a final court ruling and all appeals are exhausted.
The bill sets its first tax period from July 1 through the end of 2026, with standard calendar-year taxation after that.
The move comes as legal and political pressure builds around prediction markets. Kalshi, a federally regulated exchange, has already sued Iowa, arguing that federal oversight through the Commodity Futures Trading Commission preempts state-level restrictions.
At the same time, Iowa lawmakers are advancing a separate effort to strengthen gambling enforcement. It would target unlicensed or unregulated betting-like activities.
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