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Iowa lawmakers are no longer content to watch the prediction market fight from the sidelines.
A new bill introduced at the Statehouse would require these platforms to answer to state regulators, even as operators argue that federal oversight already allows them to operate nationwide.
Senate File 2085 places Iowa squarely in the middle of a growing conflict between states and prediction market operators, particularly those offering contracts tied to sports, elections and other real-world events.
State lawmakers challenge claims of federal preemption
Platforms such as Kalshi and Robinhood have spent months arguing that regulation by the Commodity Futures Trading Commission puts them beyond the reach of state gambling laws. Their argument is simple: These are financial contracts, not bets.
Iowa lawmakers see it differently. SF 2085 would make it illegal for prediction market operators to offer contracts to Iowa residents without first securing a state permit. Federal registration alone would not suffice. From the state’s perspective, contracts tied to sports scores or election results resemble gambling, regardless of how they are labeled.
A price tag that changes the math
The bill does not ease operators into compliance. Instead, it sets a high bar for entry. Any company seeking to operate legally in Iowa would be required to pay a $10 million upfront licensing fee, followed by $100,000 annually to renew its permit. Oversight would fall to the Iowa Department of Revenue, with permits expiring each year on June 30.
Those costs could quickly reshape the market. Smaller platforms may conclude Iowa is not worth the investment, while larger companies would need to weigh whether access to Iowa traders justifies the expense and increased scrutiny.
New taxes target platforms — and traders
Licensing is only part of the proposal. SF 2085 also imposes a 20% tax on adjusted revenues generated from Iowa-based prediction market activity. The calculation subtracts payouts to traders from total fees collected, then applies the tax to the portion attributable to Iowa participants. All revenue would be directed to the state’s general fund.
Traders would feel the impact as well. Winnings exceeding $600 would be treated as taxable income in Iowa, with operators required to withhold state income taxes before payouts are made. The bill also moves Iowa away from the federal Section 1256 tax treatment that typically applies to certain derivatives. Traders would be required to recompute gains and losses, with deductions for losses capped at 90% of profits.
Supporters see structure; critics see gaps
Supporters argue the bill brings structure to a fast-growing industry that has operated in a legal gray area. A formal permitting system, they say, creates accountability and ensures Iowa captures a share of the revenue generated within its borders.
Opponents focus on what the bill does not include. Common consumer protections found in regulated gambling markets — such as age verification, self-exclusion programs and responsible gaming tools — are absent. That omission has raised concerns about addiction risks and potential harm to players.
