Is Kalshi legal in Kentucky?

Kentucky's complaint, filed in Franklin Circuit Court on June 17, 2026 (No. 26-CI-00689), names five Kalshi companies before any broker: Kalshi Inc., KalshiEX LLC, Kalshi Klear Inc., Kalshi Klear LLC and Kalshi Trading LLC (p.1). It describes KalshiEX as running "an online sports betting operation" in Kentucky without the approval of the Kentucky Horse Racing and Gaming Commission (¶12, pp.3-4), and says that in 2023 the state legalized sports wagering only through licensed horse racing associations and their service providers (¶¶24, 30-31).

The complaint's picture of Kalshi is of a "closed-loop wagering system" (¶62, p.15). It alleges that 89% of Kalshi's 2025 fees came from sports contracts (¶56, p.14); that Kalshi Trading LLC acts as a market maker that "takes opposing positions" and absorbs imbalances in demand, so that users "never know whether they are betting against other bettors or against a market maker" (¶¶59-60, p.15); and that Kalshi Klear settles the outcomes inside the same group (¶61, p.15). Kalshi's own description is different: Kalshi Trading "participates on and provides liquidity at times" as an exchange member subject to its rules, and Kalshi Klear has been a CFTC-registered clearing organization since August 2024 (notice of removal, ECF 1, pp.2-3, ¶¶4, 6).

Four counts name Kalshi companies (pp.34-39):

• two under the Kentucky Consumer Protection Act against Kalshi Inc. and KalshiEX, one for conveying "the false, deceptive, and misleading impression" that its sports wagers "are lawful, and not void, in Kentucky" (¶121), one for the unauthorized offering of sports gambling, each with a civil penalty of up to $2,000 a willful violation (¶¶125, 134);
• one under the Loss Recovery Act against all five, treating the four that take a fee as "winners" on every Kentucky sports trade and Kalshi Trading as a winner where it traded against Kentuckians, and seeking treble the money lost (¶¶141-143);
• one under KRS 528.100, which calls the Kalshi website and apps "gambling devices" and seeks $25,000 for each and an order stopping their operation (¶¶148, 150).

Those are the state's allegations. No court has decided any of them. Robinhood, Webull and Coinbase are sued in the same complaint for offering Kalshi's contracts; Robinhood in Kentucky covers its counts.

The five Kalshi companies removed the case to the Eastern District of Kentucky on June 19, 2026, as No. 3:26-cv-00048, before Judge Robert E. Wier, with Robinhood and Coinbase consenting (ECF 1, p.1). Kentucky moved on July 20 to send it back to Franklin Circuit Court (ECF 29).

Kalshi's opposition, filed August 10, makes three arguments. The state claims raise a substantial federal question, because the CFTC "has sued Kentucky itself" over the same preemption issue (ECF 35, p.3). KalshiEX's designation as a contract market and Kalshi Klear's as a clearing organization are, it argues, "property derived from the CFTC", which supports removal under 28 U.S.C. § 1442(a)(2) (pp.3-4). And Kentucky's civil rules required it to name the CFTC as a party, so leaving the agency out cannot defeat removal (p.4). Kentucky's reply, dated August 31, says Kalshi's federal question rests on "its anticipated defense" of preemption, and "a preemption defense cannot support removal" (p.1). The docket, read through its September 22, 2026 entries, shows no ruling, though our docket source can lag the court's own system.

Two Kentucky decisions on the same removal question, one order and one recommendation, went against the companies that removed. On March 3, 2026, District Judge Gregory F. VanTatenhove sent a private company's Loss Recovery Act suit against Kalshi Inc., Kentucky Gambling Recovery LLC v. Kalshi Inc., No. 3:25-cv-00054, back to state court, reasoning that Kalshi's federal arguments, however strong, "are, nonetheless, defenses." And on October 14 a magistrate judge recommended remanding Kentucky's separate case against Polymarket for the same reason (report, pp.10-11, 13). Neither is a ruling in Kalshi's case; Polymarket in Kentucky follows the second.

Kentucky's federal courts are bound by the Sixth Circuit. On September 25, 2026, in Kalshi's own appeals from Ohio and Tennessee, it held that Kalshi "has not shown that its sports-event contracts satisfy the statutory definition of a 'swap'", and in the alternative that federal law "neither expressly nor impliedly preempts" those states' gambling laws (opinion, p.3). It is a ruling at the preliminary-injunction stage, and it does not decide Kentucky's claims.

Kalshi petitioned on October 9 for rehearing by the panel or by the full court, calling the decision "irreconcilable with recent decisions" of other circuits (p.2). We found no ruling on the petition. In the CFTC's own suit, United States v. Commonwealth of Kentucky, No. 3:26-cv-00049, the court on October 5 canceled an October 9 hearing and asked for briefs on the Sixth Circuit ruling by October 23 (docket, ECF 67). Other circuits have ruled the other way, and the preemption question is before the Supreme Court in petitions that Kalshi at the Supreme Court follows.

Kentucky has also legislated about the operators themselves. Section 71 of House Bill 757 (2026) provides that "On and after January 1, 2027, an excise tax is hereby imposed on a prediction market operator at the rate of fourteen and one-quarter percent (14.25%) of the prediction market operator's transaction fees" (HB 757, Sec. 71(2), p.239), and Section 136 makes that section effective January 1, 2027 (p.386). The bill defines a transaction fee as the fee the operator charges to complete a trade and the amount a consumer pays to buy an event contract.

The tax falls on the operator's fees. It does not tax a trader's gains or losses, and it does not decide the attorney general's suit or whether federal law preempts Kentucky's gambling statutes as applied to Kalshi.

No order or filing we found in the Kentucky case addresses withdrawals, deposits or open positions on Kalshi, and no court has granted the injunctions the state asks for. Two of Kentucky's requests would reach customers' trades if granted: the Loss Recovery Act count says each Kentucky sports trade on Kalshi, and each transfer of money with it, is void (complaint ¶137, p.37), and the state asks for treble the money lost. Those are requests, and no court has ruled on them.

Kentucky says Kalshi's sports contracts are sports wagering that needs a Kentucky license; Kalshi says they are swaps on a federally designated exchange; the Sixth Circuit found Kalshi unlikely to win that argument in Ohio and Tennessee at the preliminary stage. Each is about who licenses the contracts, and HB 757 taxes the operator's fees. None of it rules on a trader's federal income tax, and the IRS has not issued guidance on event contracts.

Of the people we've seen file, three ways are the most common: gambling income under section 165(d), standard capital gains on Form 8949, and the 60/40 split under Section 1256. How Realize rebuilds a Kalshi year from its fills under each is in how to file Kalshi taxes, and every other state's status is on the Kalshi legal page.