Last updated: February 24 at 4:23 p.m.
By: David Heinen, Vice President for Public Policy and Advocacy
In many parts of North Carolina, property tax burdens are increasing dramatically for individuals, businesses, and some nonprofits, as many counties have increased property tax rates and/or have reassessed property values in recent years.
Property taxes are the largest source of revenue for local governments in North Carolina, accounting for about 44% of counties' overall budgets and about 22% of the overall budgets of municipalities. Local governments use property tax revenue to pay for a wide variety of public services, including public safety, trash collection, water treatment, libraries, and parks. Many counties use tax revenue, including property taxes, to pay for a portion of the costs of public schools. And local governments will soon have even higher expenses, as several recent federal policy changes will shift more costs to local governments in North Carolina. For example, changes to Medicaid and the Supplemental Nutrition Assistance Program (SNAP) in the 2025 One Big Beautiful Bill Act (OBBBA) will require the state of North Carolina and all 100 counties of the state to bear a greater share of the administrative and programmatic costs of these programs. Counties will soon need to come up with significant new revenue and/or cuts to other programs and services to pay for these federal costs shifts.
With this context, property tax reform is likely to be a major priority for the NC General Assembly during its 2026 short session. The NC House of Representatives formed a Select Committee on Property Tax Reduction and Reforms in December 2025 "to study options to reduce the property tax burden on taxpayers in North Carolina.” A group of 10 NC Senators is also looking into property tax reforms.
Changes to state property tax laws will likely have a variety of impacts on charitable nonprofits across North Carolina. This blog post provides an analysis of some of the ways that property tax reforms could affect nonprofits.
Nonprofit property tax exemptions
Many charitable nonprofits that own their property are exempt from paying property tax on it if they use their property (or distinct parts of it) “wholly and exclusively” for their nonprofit’s mission-related purposes. North Carolina’s nonprofit property tax exemption law is somewhat complicated, with seven different statutes that provide for property tax exemption for certain types of 501(c)(3) nonprofits:
- Property owned by religious nonprofits, including houses of worship;
- Property owned by educational nonprofits, including many private K-12 schools and private colleges and universities;
- Property owned by religious educational assemblies;
- Property owned by certain specific types of charitable nonprofits, including YMCAs, nonprofit "homes for the aged, sick, or infirm," nonprofit orphanages, Society for Prevention of Cruelty to Animals organizations, and affordable housing nonprofits;
- Property owned by nonprofit continuing care retirement communities;
- Property owned by most 501(c)(3) nonprofits (other than those specifically exempted by other statutes); and
- Property owned by nonprofit hospitals.
The North Carolina Constitution requires property tax exemptions to be enforced uniformly in all 100 counties of the state. County assessors determine whether nonprofits are exempt from property tax, and each county assessor has its own process for making this determination. Municipalities (cities and towns) generally follow the decisions of county assessors in determining whether nonprofits are exempt from municipal property taxes, but they are not required to do so.
Rented property that is used by 501(c)(3) nonprofits is not exempt from property tax in North Carolina, even if the property is owned by another 501(c)(3) nonprofit. Consequently, some nonprofits that lease their property wind up paying higher rents to cover their landlords’ property tax bills. This means that nonprofits that lease their property often bear the cost of property tax increases through higher rental rates.
If you want to learn (a lot) more about nonprofit property tax exemption in North Carolina, check out a comprehensive 2018 article on the topic from the North Carolina Law Review.
Potential changes to nonprofit property tax exemptions (and other nonprofit tax exemption)
About 12% of all real property values in the state are exempt from property tax. The five largest types of property tax exemption (by property tax value) are:
- Property owned by federal, state, and local governments (51% of the overall exempt property);
- Property owned by religious nonprofits, including churches and other houses of worship (12% of overall exempt property);
- Property owned by educational nonprofits, including private K-12 schools and private colleges and universities (9% of overall exempt property);
- Property owned by nonprofit hospitals and health systems (6% of overall exempt property); and
- Property owned by affordable housing nonprofits (3% of overall exempt property).
During its meetings in January 2026 and February 2026, the House Select Committee on Property Tax Reduction and Reforms focused its discussion on two of these types of exempt property: property tax exemption for nonprofits providing affordable housing and nonprofit hospital property tax exemption.
Affordable housing property tax exemption. During its January 2026 meeting, the House property tax committee had a lengthy discussion about the nonprofit low and moderate income housing property tax exemption. The use of that exemption has increased significantly over the past three years, leading to declining property tax revenue for many counties and municipalities around the state. Legislative staff explained to the committee that a 2013 NC Court of Appeals decision found that joint ventures between affordable housing nonprofits and for-profit businesses could be exempt from property tax, even if the nonprofit only had legal ownership of a very small percentage of the exempt property. Committee members appeared interested in legislation that would require nonprofits to own all or most of the low or moderate income housing that is exempt from property tax. Because the statute the provides for property tax exemption for nonprofits providing affordable housing also covers some other types of 501(c)(3) nonprofits, it is possible that legislative proposals to make changes to property tax exemption for affordable housing nonprofits also could impact other charitable nonprofits.
Nonprofit hospital property tax exemption. During its February 2026 meeting, the House property tax committee discussed property tax exemption for nonprofit hospitals and health systems. The presentation from legislative staff on nonprofit hospital property tax exemption focused on foregone local government revenue from property tax exemption and sales tax refunds from nonprofit hospitals and nonprofit health systems and hinted at proposals to limit state and local tax exemption for large nonprofits. During the discussion, several committee members noted that nonprofit hospitals and other charitable organizations provide important services to communities and would be harmed by legislation to limit or eliminate their state and local tax exemption. However, it is possible that the committee could recommend limiting or eliminating property tax exemption for nonprofit hospitals and health systems, perhaps tying property tax exemption to the amount of community benefit and/or charity care that nonprofit hospitals provide.
Nonprofit sales tax refunds. In North Carolina, charitable nonprofits pay sales tax when they purchase goods and services. Most 501(c)(3) nonprofits are eligible for semiannual refunds of the sales taxes that they pay, although any individual nonprofit is limited to $45 million in sales tax refunds (including a cap of $37.7 million in state sales tax refunds and $13.3 million in the local portion of sales tax refunds) per year. The House property tax committee's discussion of nonprofit hospital tax exemption highlighted the amount of sales tax refunds that nonprofit hospitals and health systems receive, which is about three-fourths of the $400 million in sales tax refunds that nonprofits receive each year. It is possible that the committee could recommend lowering the $45 million annual cap on individual nonprofits' sales tax refunds and/or applying the cap to related nonprofit entities rather than to individual nonprofits. Either or both of these changes could ultimately create new taxes not only for nonprofit hospitals and health systems but also for other charitable nonprofits.
The Center's position: The Center is opposed to any legislation that would limit or eliminate property tax exemption (or other forms of tax exemption) for 501(c)(3) organizations, including nonprofit hospital or educational institutions. Challenges to the tax exemption of some charitable nonprofits – even very large ones – can set precedents that could undermine tax exemption for other 501(c)(3)s in the future. Furthermore, new taxes on any charitable nonprofits ultimately harm the entire sector by diverting financial resources away from nonprofits’ purposes and by creating more competition for already limited philanthropic support for nonprofits. And limitations on some nonprofits’ state and local tax exemption also can force large tax-exempt institutions to cut back on their financial and in-kind support for other nonprofits in their communities. On sales tax refunds, the Center has long held the position that all 501(c)(3) nonprofits in North Carolina should be fully exempt from paying sales tax.
Possible proposals to limit property tax burdens
State lawmakers are likely to consider proposals to reduce future increases in property tax costs for individuals, families, and businesses. Proposals could include:
- Caps on annual increases in assessed values of property;
- Limitations on property tax rate increases; or
- Levy limits, which are laws that prevent local governments from increasing property tax collections more than the rate of inflation unless voters approve higher property taxes.
At its February 2026 meeting, the House property tax committee appeared to favor levy limits as a mechanism for limiting future property tax increases. Levy limits could force many counties and municipalities to make budget cuts if local needs outpace inflation, particularly as more of the costs of Medicaid, SNAP, and public education are being shifted to local governments. If the NC General Assembly decides to pursue levy limits, there are a variety of ways that these could be structured. Typically, levy limit laws allow local governments to increase property tax collections at a greater rate than the prescribed limits if voters approve of higher property taxes in a referendum.
Levy limits - or other proposals to lower the growth of property taxes - could affect nonprofits in several ways:
- They could minimize future property tax increases for North Carolinians, helping with affordability issues for nonprofit employees and for people who receive services from nonprofits.
- They could mitigate future spikes in commercial real estate prices (which are affected by property owners' tax bills), which could help keep down rental costs for nonprofits that lease their property.
- They could limit local governments' revenue, forcing some counties and municipalities to reduce or eliminate their grants to local nonprofits.
- The could force local governments to cut back on public services, shifting the responsibility for providing these services onto local nonprofits.
- They could create more frequent local referenda as counties and/or municipalities seek to get voters to approve of higher property taxes than the formulas of levy limits would otherwise allow. Because of some combination of the first four items on this list, many nonprofits may want to advocate for voters to support or oppose these referenda. Note that charitable nonprofits are allowed to advocate for the public to vote for or against referenda and other ballot initiatives (it is treated as direct lobbying, which is permissible for 501(c)(3) public charities), but that a nonprofit may need to register as referendum committee if it is supporting or opposing a property tax referendum.
Conclusion
Property tax reform is likely to be a priority for state lawmakers in 2026, and legislative proposals could affect nonprofits in a wide variety of ways. The Center encourages all nonprofits to follow legislative developments on property tax reform by reading the Center's weekly Nonprofit Policy Update newsletter. We will keep you informed of the details of proposed property tax reform legislation that could impact 501(c)(3) nonprofits, and we will let you know when there are opportunities for your nonprofit to take action, particularly if there are threats to nonprofits' tax exemption.
