As Iowa legislators work “overtime” in Des Moines this session, they’re considering a bill that aims to create a new regulatory and tax system for “event-driven contracts” — better known as prediction markets. While issues like eminent domain for carbon capture pipelines, property tax reform, and reasonable protections on what minors can access from their government remain unfinished, Senate File 2470 has a subcommittee scheduled for Monday, April 27.
The bill is structured to generate significant revenue, requiring a $20 million upfront fee to obtain a state permit, followed by a $100,000 annual renewal. It also includes a 20 percent tax on platform profits and a 20 percent excise tax on each trade. Individual traders will be taxed as well since winnings are treated as Iowa income.
All of this despite the fact that prediction markets are already regulated at the federal level through the Commodity Futures Trading Commission, a framework that has continued under President Donald J. Trump’s administration.
More than that, it seems as though state lawmakers are well aware any movement on this issue is going to wind up in the courts. In fact, at a subcommittee earlier this year, Sen. Dan Dawson outright asked if a certain company would sue the state over the legislation.
In eight years of covering subcommittee meetings, I’m not sure I’ve ever seen or heard a lawmaker just come out and ask about litigation potential during a subcommittee. That’s not a question lawmakers ask unless they know there’s real legal risk.
And the legal risk is significant.
Prediction markets are federally regulated. That opens the door to a preemption argument — that federal law governing these markets overrides Iowa’s attempt to regulate or tax them. If Iowa’s $20 million permit and hefty taxes are viewed as a barrier to operating, it will likely strengthen the preemption argument.
There are already cases working their way through the courts on prediction markets. Instead of waiting for clarity, Iowa lawmakers appear ready to invite another legal fight — one that could ultimately determine whether the state has any authority to regulate these markets at all.
