Several consequential property tax bills have already become law this session, but more might be on the way. I think it is worth keeping an eye on two bills in particular, one targeting the growth in the affordable housing exemption and another that would create additional taxpayer notice obligations for local governments that intend to adopt tax rates above their revenue-neutral rates. Both bills have passed one chamber of the General Assembly and seem to have reasonable chances of becoming law after the legislature returns to Raleigh later in July.
A dozen years ago I blogged about a Court of Appeals decision that I thought might lead to a major expansion of the exemption for low- and moderate-income housing in G.S. 105-278.6(a)(8). The court held that the non-profit ownership requirement in that statute could be satisfied with as little as .01% partial ownership by a non-profit, so long as there was other evidence of control over the housing project by the non-profit.
My premonition about the impact of what is now known as the “Blue Ridge Housing loophole” finally proved true a decade later when counties began to see a substantial increase in affordable housing exemption applications. (“I might be early, but I’m never wrong.” Have you seen “The Big Short”? You should.)
It appears that over the past few years some smart lawyers realized that existing taxable housing developments with low rents (because of poor quality housing, undesirable locations, etc.) could easily qualify for property tax exemptions under the Blue Ridge Housing loophole by granting tiny portions of ownership to non-profits. Property tax officials in five large counties (Wake, Mecklenburg, Durham, New Hanover and Guilford) report that their jurisdictions are losing millions in annual tax revenues due to the recent “snowballing” amount of affordable housing exemptions.
After several committee hearings on the issue, the House passed H1042 to limit the availability of the affordable housing exemption to housing developments that are actually controlled and operated by legitimate non-profits. An existing low-rent housing development would no longer be permitted to obtain a tax exemption by recruiting a non-profit to play a superficial ownership role.
The bill provides for the first time a definition of affordable housing: a rental housing development in which more than 50% of the units are rented to tenants with incomes at or below 80% of area median income with rents that are no more than 30% of those income limits. It creates more stringent requirements for private housing developments than for those receiving government support. (The School’s Legislative Research Service provides an excellent summary of those different requirements here.) The bill would require owners to submit annual certifications of compliance with the requirements of the new exemption (which would be codified at GS 105-278.7A). Owners that were previously receiving affordable housing exemptions under GS 105-278(6)(a)(8) would be required to re-apply for continued exemptions under the new requirements. Finally, the bill would reduce tax deferrals for future sites of affordable housing from a maximum of ten years to five.
General Assembly staffers estimate that if the bill were to become law, it would save local governments over $20 million in lost tax revenue annually.
H1042 passed the House in May 2026 and now sits with the Senate. Given that the House vote in favor of the bill was unanimous, the bill’s future seems bright. But the Senate chose not to move on the bill for three months, so your guess is a good as mine as to what happens next.
2. S992: Truth in Taxation and Revenue-Neutral Rates
Under current law, counties and municipalities must publish their revenue-neutral tax rates in their reappraisal years, but they are not required to adopt those rates. S992 would not change that basic rule. A local government still could adopt a rate above revenue neutral. But if it does, it would have to satisfy new notice, hearing, and vote requirements.
Under S992, the governing body would have to publish notice of its intent to exceed the revenue-neutral rate in a newspaper at least one week before the required public hearing on the proposed new tax rate. It also would have to post notice on its website, if it has one, at least 10 days before the hearing.
The more onerous requirement would be individualized taxpayer notice. At least 14 days before the hearing, the local government would have to send notice to each taxpayer owning real property in the jurisdiction. Notice could be sent by first-class mail to the taxpayer’s last known address or electronically if the taxpayer consents.
The notice must include the proposed amount of property tax revenue needed to balance the budget, the revenue-neutral rate, the proposed tax rate, the current year tax due on the property, the estimated upcoming-year tax due if the revenue-neutral rate is adopted, the estimated upcoming-year tax due if the proposed rate is adopted, and the date, time, and location of the hearing.
The hearing may be held at or before the regular budget hearing required by G.S. 159-12. If held at the same time, the board must dedicate part of the hearing to the issue of exceeding the revenue-neutral rate. The board must vote on the tax rate at the hearing and adopt a resolution or ordinance by majority vote before voting on the full budget ordinance.
A governing body that fails to comply with the new procedures would be required to refund any property taxes collected above the amount that would have been collected under the revenue-neutral rate.
The bill also addresses budget amendments. If a local government initially adopts a rate at or below revenue neutral but later seeks to amend the budget ordinance to increase the rate above revenue neutral because revenues came in substantially lower than expected, the governing body must follow the same procedures before adopting the increased rate. The new procedure would not apply when a court or authorized state agency orders the governing board to alter the levy or taxpayer liability.
The fiscal note estimates that the notice requirements would cost local governments about $2.5 million annually, largely due to the mandated taxpayer notices.
If this bill becomes law, these additional costs should be the subject of discussion between counties and their municipalities which contract with those counties for their property tax billing and collection. Those municipalities might assume that counties will take care of the newly required taxpayer notices; counties might rightfully balk at taking on this new responsibility without additional compensation from those municipalities. These governments should address this issue before a need for the notices arises.
S992 passed the Senate in late June and now sits with the House. As with H1042, this bill received substantial bipartisan support on its initial votes. But as with H1042, nobody can predict its future.
Stay tuned for more news on both bills later this summer.
