North Carolina Law Review

University of North Carolina School of Law

160 Ridge Road

Chapel Hill, NC 27514

North Carolina's Nonprofit Property Tax Exemption Conundrum

October 3, 2018

96 N.C. L. Rev. 1769 (2018) 

Thomas A. Kelley & Christopher B. McLaughlin


Disputes between nonprofit organizations and local governments over property tax exemptions have been on the increase in North Carolina and beyond. There are two paramount reasons. First, since the Reagan Revolution of the 1980s eliminated block grants and other sources of funding, local governments have struggled to pay their bills and have been compelled to look for new sources of revenue, including stricter application of property tax laws. Second, the nonprofit sector has been transformed by the rise of social entrepreneurship. Responding to the same financial pressures that have squeezed local governments since the 1980s, increasing numbers of nonprofit organizations have adopted fee-generating strategies that, in some cases, make them almost indistinguishable from for-profit enterprises. For local governments, the fact that some nonprofits act like for-profits makes it easier to claim that they do not deserve generous property tax exemptions.


The result is a property tax conundrum in North Carolina and beyond. Is it fair that governments’ financial books should be balanced on the backs of legitimate charities just because their operations include entrepreneurial elements? On the other hand, how are local governments supposed to fund needed services if they cannot collect taxes on property used for seemingly commercial activities?


The authors of this Article approach the property tax conundrum from different angles. Tom supervises a law school-based clinic that sometimes represents entrepreneurial nonprofits that, in his view, are being unfairly and unpredictably hit with property tax bills. Chris, who advises local governments on property tax matters, sympathizes with their need to maximize revenues and their difficulty in distinguishing between entrepreneurial nonprofits and for-profits. However, they agree on the need for greater consistency in the application of North Carolina’s property tax laws. They also agree that entrepreneurial, fee-generating nonprofit organizations should not be forced to pay property taxes in instances where there is a tight nexus between the fee-generating activity and the nonprofit organization’s charitable, educational, or religious purpose.


This Article illustrates North Carolina’s inconsistent treatment of these questions and proposes guidelines that will lead to more consistent and fair application of property tax exemption laws in the future.




Please reload