In North Carolina, local zoning ordinances typically have rules about what commercial accessory uses are permitted in residential zoning districts. They set standards for home occupations like the accountant running a small accounting firm out of their home, the artist or designer with a commercial studio in their home, and the computer repair technician working from their garage. In the past, regulations about home occupations were a local policy decision, and different communities might make different decisions.
State law now limits municipal authority to regulate certain “no-impact home-based businesses.” Municipalities must align their local regulations and permitting processes in this area to comply with this state preemption.
This blog explores the meaning of the new law and the impact on municipal ordinances.
Scope of the Law
Session Law 2026-51 (HB 372) added a new statutory section, G.S.160A-205.8, requiring that municipalities must allow certain qualifying home-based businesses. Any municipal regulations for qualifying businesses must be narrowly tailored for specific purposes, and the municipality may not require permits or approvals for the qualifying no-impact home-based businesses.
It is prudent to highlight a few details about the scope of this law. First, the law went into effect on July 7, 2026, the day it was signed by the Governor. Second, the law is specific to municipal authority; it does not impact county ordinances. Third, it is codified in Chapter 160A (the laws generally applicable to municipalities), but it also impacts municipal zoning authority under Chapter 160D of the General Statutes. Finally, the new statute does not affect private covenants, deed restrictions, or other property owner agreements.
Definition of “No-Impact Home-Based Business”
The new rules apply to no-impact home-based businesses, as defined at G.S. 160A-205.8(d). There are a couple of layers to this definition. First, the law defines home-based business as “[a]ny business owned and operated by the owner or occupant of the residential dwelling that manufactures, provides, or sells goods or services.” Then, no-impact home-based business is further defined as one that meets all of the following conditions:
- The total number of on-site employees and clients do not exceed the city's occupancy limit for the residential property.
- The business activities are characterized by all of the following:
- Are limited to the sale of lawful goods and services.
- Do not generate on-street parking or a substantial increase in traffic through the residential area.
- Occur inside or in the yard of the residential dwelling.
- Are not visible from the street.
- Do not store merchandise, equipment, products, supplies, or materials outside of the premises.
The statute also defines goods as “[a]ny merchandise, equipment, products, supplies, or materials.” The statute does not define services, but the scope of that term will be essential for determining the scope of this law.
No Municipal Permits or Approvals
Under the new law a municipality may not prohibit “no-impact home-based businesses” and may not “require a person to apply, register, or obtain any permit, license, variance, or other type of approval to operate” the business. Additionally, under this new 160A-205.8(b), municipal regulations may not require the owner or occupant to seek a rezoning to commercial zoning as a condition of operating a no-impact home-based business.
Municipalities may still regulate no-impact home-based businesses, as discussed below, but those regulations must be narrowly tailored to accomplish specific, public purposes. Because no-impact home-based businesses will not require upfront permitting or approval, municipalities may want to spread the word about local regulations through public outreach and education, and municipalities may need to be proactive with enforcement.
Limits on Municipal Regulations
The state law does allow municipalities to impose some regulations on no-impact home-based businesses. Notably, though, the regulations must be “narrowly tailored” for specific purposes. Narrowly tailored is an important legal phrase. When courts apply their highest level of review—strict scrutiny—in cases involving fundamental rights like free speech, religious liberty, and equal protection, the government must demonstrate that its actions or regulations are narrowly tailored to further a compelling government interest. In Reed v. Town of Gilbert, 576 U.S. 155 (2015), for example, the court demands that the government regulation of noncommercial signs must be narrowly tailored to further a compelling government interest.
To be sure, these home occupation regulations are not necessarily subject to strict scrutiny in court, but the General Assembly’s choice of the phrase “narrowly tailored” is noteworthy. It sets a heightened standard for the fit between the regulation and its purpose. Black's Law Dictionary (12th ed. 2024) defines “narrowly tailored” as “being only as broad as is reasonably necessary to promote a substantial governmental interest that would be achieved less effectively without the restriction; no broader than absolutely necessary” (emphasis added).
So then, what purposes would justify the regulations? The new law directs that municipal regulations for no-impact home-based businesses must be narrowly tailored to serve one or more of the following purposes:
- Ensuring the protection of public health and safety, as allowed by law.
- Ensuring that the business activity meets all of the following:
- Is compatible with the residential use of the property and surrounding residential use.
- Is secondary to the use of the property as a residential dwelling.
- Complies with State and federal law, including the payment of applicable taxes.
- Prohibiting or limiting the use of no-impact home-based businesses for the purpose of selling illegal drugs, liquor, operating or maintaining a structured sober living home, pornography, obscenity, or nude or topless dancing or other adult-oriented businesses.
With regard to public health and safety, the state law prohibits municipal regulations from requiring the owner or occupant to install fire sprinklers in any building subject to the Residential Code.
What businesses are protected, and which are not?
There is no simple, universal answer to these questions. The answer will depend on the specifics of the business and the specifics of the property. Some common home occupations will likely qualify as no-impact home-based businesses under the state law— an accountant running the business out of their home, an artist working out of a home studio, and a computer repairman working out of a garage. But, even those will need to meet the requirements (comply with occupancy limits, no substantial traffic, no on-street parking, comply with narrowly tailored local regulations, etc.).
The rules for no-impact home-based businesses are aimed at businesses, not necessarily individual working from home. Work-from-home employees—working a computer-based job for an employer elsewhere—probably are not addressed by the state rules. But also, such work-from-home activities typically are not subject to local regulation if there is no traffic and no external impacts.
Beyond the work-from-home employee, a wide range of businesses may qualify as no-impact home-based businesses if they meet the criteria. A small salon in the basement? Baseball and softball hitting lessons in the garage? A catering business in the kitchen? These could potentially meet the law’s criteria, as could many other businesses. The following section draws together the questions municipalities must consider.
Questions to Determine Applicability
Putting all of the law’s provisions together, here is a checklist of questions to determine if an activity is permitted as a no-impact home-based business:
- Is the business based at a residential dwelling?
- Is the business owned and operated by the owner or occupant of the residential dwelling?
- Is the business manufacturing, providing, or selling goods? Or, is the business providing or selling services?
- Are the business activities limited to the sale of lawful goods or services?
- Do the total number of on-site employees and clients fall within the city's occupancy limit for the residential property?
- Do the business activities avoid generating on-street parking or a substantial increase in traffic through the residential area?
- Do the business activities occur inside the residential dwelling or in the yard?
- Are the business activities not visible from the street?
- Do the business activities avoid storing merchandise, equipment, products, supplies, or materials outside of the premises?
- Do the business activities meet municipal regulations narrowly tailored to ensure public health and safety?
- Do the business activities meet municipal regulations narrowly tailored to ensure the activities are compatible with residential use of the property and surrounding residential use?
- Do the business activities meet municipal regulations narrowly tailored to ensure the activities are secondary to the use of the property as a residential property?
- Do the business activities meet municipal regulations narrowly tailored to ensure the activities meet applicable State and federal law, including taxes?
- Do the business activities meet municipal regulations narrowly tailored to prohibit selling drugs or alcohol, operating a sober living home, or adult businesses?
Under the state law, if a business meets these criteria for a no-impact home-based business, the municipality must allow it and may not require permitting or approval for it, and any regulations applicable to no-impact home-based businesses must be no more restrictive than necessary to achieve limited public purposes.
