North Carolina lawmakers have unveiled a budget proposal that would significantly change how the state handles sports betting revenue, increasing taxes on operators, creating a new levy on prediction market companies, and expanding the list of universities eligible to receive gambling-related funding.
The plan, released as part of a proposed state budget deal, would work increases tax rate on online sports betting operators from 18% to 23%. If approved by the General Assembly and signed into law, the changes would apply to gross betting revenues generated by licensed operators.
The proposal comes more than a year after legal online sports betting launched in North Carolina in March 2024. Since the market opened, operators have contributed more than $300 million in tax revenue to the state.
Lawmakers are expected to vote on the budget before postponing the Fourth of July holiday, according to WRAL. The spending package must still await final approval in both chambers of the legislature before reaching the Governor’s approval. Josh Stein.
Universities Added to Profit Sharing Formula
One of the most prominent changes is changing the way sports betting tax revenues are distributed among state universities.
Under the existing system, athletic departments at 13 UNC System institutions receive distributions from sports betting taxes, while the University of North Carolina at Chapel Hill and North Carolina State University are excluded despite running two of the largest athletic programs in the state.
The proposed budget would make UNC and NC State eligible for future distributions. Appalachian State University, East Carolina University and the University of North Carolina at Charlotte will also qualify for the new Football Bowl Subdivision category.
Starting July 1, 2027, schools in those classifications can receive up to $2.5 million each through special allocations. Combined with funding available through other university classifications, eligible schools could receive as much as $5.8 million per year, although actual payments would depend on tax revenue collections.
The revised structure creates three categories for public universities. Schools with athletic programs that primarily compete in NCAA Division I can receive up to 2.2% of available revenue, capped at $400,000 per institution. A second category that includes Division I and Division II institutions will receive 19.5% of available funds, with distribution capped at $2.9 million per university. The Football Bowl Subdivision allocation will reach an additional 5.7% starting in 2027.
The budget stipulates that the athletic department must use the money to support athletic operations and cannot divert it to the university’s general fund.
The additional funding comes as colleges face increasing athletic costs related to expanded scholarships and athlete revenue sharing obligations following the NCAA’s recent legal settlement. Both UNC and NC State have reported financial pressures on their athletic departments in recent years.
Before the budget was released, UNC athletics issued a statement saying, “While we await further information on the budget, we are grateful for the General Assembly’s leadership in providing support for our college athletic programs through the potential for additional revenue from sports betting.”
Higher Tax Rates Proposed for Sportsbooks
The budget would increase North Carolina’s sportsbook tax rate by five percentage points, raising it to 23%.
Lawmakers have considered larger increases in the past. The current proposal is still below Pennsylvania’s sports betting tax rate of 36%, Illinois’ progressive structure that could reach 40%, and New York’s rate of 51%.
Supporters of the increase say the change would generate additional state revenue. North Carolina has collected more than $300 million in taxes from about $1.6 billion in online sportsbook profits since legal betting began.
Sports betting operators criticized the proposal, arguing that a higher tax burden could have unintended consequences.
The Sports Betting Alliance, which represents major operators, previously stated: "This tax increase will only penalize licensed and regulated companies that already funnel hundreds of millions in tax revenue to the state and UNC System athletic departments. We urge state leaders to focus on strengthening the legal framework that protects players, supports jobs, and prevents illegal and unregulated operators from coming to North Carolina.”
FanDuel expressed similar concerns in its communications with customers, stating, "Legal sports betting generates real revenue for college athletic departments across the state. Tax increases would threaten that funding and hurt fans.”
Industry representatives have warned that higher taxes on legal operators could encourage some bettors to look for alternatives outside the regulated market.
Including Prediction Markets and Tax Deductions
The proposal will also introduce 6% tax on prediction market operators starting January 1, 2027.
The tax would apply to net trading fee revenue generated from North Carolina users, not overall trading volume. Companies such as Kalshi and Polymarket, which allow users to trade contracts tied to the outcome of future events, will fall under the new tax structure.
According to the budget language, prediction market platforms registered and licensed by the Commodity Futures Trading Commission would be permitted to operate in North Carolina without obtaining a separate state license.
The move places North Carolina among a growing number of states evaluating how to regulate and predict marketplace business taxes. Illinois recently adopted a prediction market tax, while lawmakers in New Jersey have considered legislation targeting such exchanges.
The budget package includes other gambling-related changes affecting individual taxpayers. For the first time, sports bettors will be allowed to deduct gambling losses of gambling winnings on state income tax returns. These changes will apply retroactively to January 1, 2025.
Supporters describe the measure as a fairness issue for taxpayers who currently pay taxes on winnings without being able to offset losses.
Revised Gambling Income Distribution Model
The proposal would also change some existing allocations funded through sports betting taxes.
Under the current system, the first $8.4 million in tax revenue supports administrative costs, gambling addiction treatment and education programs, youth sports initiatives and annual distributions to university athletic departments.
The revised model would continue to provide funding for state administration and gambling addiction programs while restructuring other allocations.
The Department of Revenue can retain up to $500,000 per year for administrative purposes. Gambling addiction treatment and education programs will continue to receive $2 million. Youth sports initiatives will receive dedicated funding, and the Major Events, Games and Attractions Fund will continue to receive support, with a cap of $30 million per year. Any remaining revenue after required distributions will be directed to the North Carolina General Fund.
The budget represents the most sweeping set of sports betting policy changes proposed in North Carolina since legal online betting launched in 2024. If approved, new tax rates, university funding structures and prediction market provisions would change how gambling-related revenue is collected and distributed across the state.
