May 1, 2026

In this week's issue...

Yesterday was the filing deadline for most bills during the 2026 short session of the NC General Assembly, so this week’s (very long) policy update focuses on some of these newly-filed bills that could affect nonprofits. In particular, we highlight a bill to expand nonprofit tax exemption, three bills that could create challenges for nonprofit hospitals, and several bills that would make changes to state property tax laws. We also share details of the new state law providing funding and program changes for Medicaid. Apart from state legislation, we share information about the appeal of the Johnson Amendment litigation, a Supreme Court decision on nonprofit donor privacy, and the end of the DHS shutdown.

NC Senate Bill Would Exempt Most 501(c)(3) Nonprofits from Paying Sales Tax

A bill (S.860) filed in the NC Senate on Tuesday would make three significant improvements to state laws related to nonprofit tax exemption.

The bill would exempt most 501(c)(3) nonprofits from paying sales tax on their purchases. Under existing law, nonprofits must pay sales tax when they buy goods and services, but they can apply for semi-annual refunds from the NC Department of Revenue. The Center has long advocated for nonprofit sales tax exemption based on feedback we have received from hundreds of nonprofits that the current sales tax refund system is a financial and administrative burden for nonprofit organizations.
The bill would clarify that nonprofits are not required to collect and remit sales tax on the ticket prices of fundraising events where entertainment is provided. Current law is unclear on whether nonprofits need to charge sales tax on the ticket prices to these events, and several nonprofits have told the Center that they have lost fundraising revenue because of this ambiguity in the law.
The bill would expand property tax exemption by affordable housing nonprofits to include property leased by these nonprofits rather than only applying to property owned by these nonprofits (as is generally the requirement for nonprofit property tax exemption in North Carolina).

The Center is appreciative of Senator Jim Burgin (R-Harnett) for introducing the bill and of Senators Kevin Corbin (R-Macon) and Tom McInnis (R-Moore) for joining as primary sponsors of the bill.

Three New Bills Target Nonprofit Hospitals

Three bills filed in the NC General Assembly this week could create financial challenges for nonprofit hospitals’ finances and operations.

A Senate bill (S.895) would limit property tax exemption and sales tax refunds of nonprofit hospitals to the amount of charity care that they provide. As drafted, the bill appears to define charity care fairly narrowly and in a way that does not include many investments that nonprofit hospitals make in other charitable nonprofits in their communities. The Center is concerned about the bill for three reasons: (1) it could set a precedent of limiting nonprofits’ property tax exemption and sales tax refunds, which is essentially imposing new taxes on nonprofits; (2) it could reduce the ability of nonprofit hospitals (which are already preparing for financial challenges as a result of federal Medicaid changes) to invest in the work of nonprofits serving their communities through grants, partnerships, and in-kind contributions of goods and services; and (3) it uses a fairly narrow charity care definition rather than broader “community benefit” standard to measure the ways that nonprofit hospitals support their communities.
A Senate bill (S.978) would create new penalties for nonprofit hospitals whose chief executive officers have compensation greater than 400% of the minimum compensation of employees at their hospital. This would effectively create a higher state standard (meaning requiring lower salaries) for executive compensation at nonprofit hospitals than the standard that is applicable for all 501(c)(3) nonprofits in federal tax law and could create a precedent of the state penalizing nonprofits based on executive compensation. The bill also would expand authority of the State Auditor, Attorney General, and State Treasurer to review and regulate mergers and consolidations of hospitals, including nonprofit hospitals.
A House bill (H.B. 1175) that also would expand authority of the State Auditor, Attorney General, and State Treasurer to review and regulate mergers and consolidations of hospitals, including nonprofit hospitals.

Legislators Approve Medicaid Funding and Program Changes

On Tuesday, both the NC Senate and NC House of Representatives gave final approval to a bill (H.B. 696) that provides about $319 million in additional Medicaid funding for FY2025-26. Governor Josh Stein signed the bill into law yesterday. Last year, the NC General Assembly did not approve full Medicaid rebase funding, which is essentially adjusting Medicaid funding to reflect increased enrollment and costs. Because of this funding shortfall, the NC Department of Health and Human Services (DHHS) implemented Medicaid rate cuts effective October 1, 2025. DHHS retroactively rescinded these rate cuts in December 2025 after a variety of Medicaid providers sued DHHS. Without the $319 million in funding, DHHS would have been forced to make further cuts to Medicaid this month.

The bill also makes several changes to Medicaid that are required and/or necessitated by the One Big Beautiful Bill Act (OBBBA) that Congress passed last summer, including:

Directing DHHS to establish work requirements for Medicaid participants;; and
Providing funding (essentially through increased hospital assessments) for the administrative costs of Medicaid work requirements and semi-annual verification of Medicaid participants’ eligibility. (Note: If you are a health care financing wonk and want to know more about the state’s financing of new OBBBA-related Medicaid expenses, you can read Appendix A on pages 6-8 of the bill’s conference committee report.)

Additionally, the bill makes several other changes to Medicaid in North Carolina, including making eligibility reviews monthly instead of quarterly, directing the State Auditor to conduct a performance audit of the Medicaid program, requiring DHHS to provide legislators with annual reports on efforts to limit fraud, waste, and abuse, and working to identify future Medicaid costs savings.

Although the bill passed with nearly unanimous support (only three members of each chamber voted against it), Governor Stein, several legislators, and some nonprofit advocates have expressed concerns about some of the Medicaid changes in the bill. In signing the bill, Governor Stein explained: “Yet, this bill has serious flaws that I call on the General Assembly to fix during this Short Session. It will eliminate health care coverage for nearly 27,000 pregnant women and children who are lawfully present in the United States, including victims of human trafficking, green card holders, and refugees. Women in need will be cut off from care in the middle of their pregnancies and children during their most vulnerable years. It is wrong. Fortunately, I believe that it is the General Assembly's intent to fix this issue. The bill also layers onerous red tape that will force some North Carolinians to wait up to three months, longer than nearly every other state to get the health care benefits they are eligible to receive. And at a time when health care costs continue to burden working families, this bill makes Medicaid expansion recipients' co-pays for certain health services more expensive.”

Legislators Introduce and Consider Property Tax Law Changes

Property tax reform is a major priority for the NC General Assembly during its 2026 short session. This week, legislators introduced a variety of bills that would make changes to state property tax laws.

A House bill (H.B. 1089) that would place a constitutional amendment on the November 2026 ballot that would require the NC General Assembly to establish limits on how much counties and municipalities may increase property tax levies. If the constitutional amendment were to pass, legislators would then work on the details of these levy limits next year. Proposals to limit local governments’ ability to increase property tax collections could help keep lease prices down for nonprofits that rent their property but also could force many counties and municipalities to cut back on expenses, potentially meaning fewer local government grants for nonprofits and reductions to local government investment in other community priorities that are important to many nonprofits. The House Select Committee on Property Tax Reduction and Reform recommended this bill last month, and it is expected to be a House priority during the short session.
A Senate bill (S.889) that would impose a moratorium on many counties reappraising the value of properties for the purpose of property taxes. The bill is intended to freeze property tax payments this year so that legislators can consider other property tax changes next year. The Senate Finance Committee approved the bill on Wednesday. It is expected to be a Senate priority during the short session.
A House bill (H.B. 1092) that would several changes to state property tax laws. Among the provisions in the bill is one that would make changes to property tax exemption for affordable housing purposes. Currently, joint ventures between affordable housing nonprofits and for-profit businesses that own affordable housing units are exempt from property tax exemption, regardless of how the joint ventures are funded, how much of the property is owned by the nonprofit, and whether the joint venture intends to develop new affordable housing. The use of the affordable housing property tax exemption has increased significantly over the past three years, leading to declining property tax revenue for many counties and municipalities around the state. Under the proposed legislation, there would essentially be two types of affordable housing property that would be eligible for property tax exemption: (1) property that is 100% owned and managed by a nonprofit providing affordable housing services, regardless of how it was financed; or (2) property that is financed through federal Low-Income Housing Tax Credits (LIHTC) or other government funding like bonds, even if it is owned by a joint venture where a nonprofit only has partial ownership. The bill also would provide property tax relief for homeowners who are seniors or have disabilities.
Two House bills (H.B. 1179 and H.B. 1181) that would make several changes to property tax laws to provide relief to homeowners who are seniors or have disabilities.
A Senate bill (S.992) that would create “truth in taxation” rules for local governments that would require greater transparency for counties and municipalities when they increase property tax rates.

NC Senate Committee Considers Zero-Based Budgeting Bill

Yesterday, the NC Senate Appropriations Committee considered a bill (S.800) that would implement a “zero-based budgeting” process for state government. “Zero-based budget” plans would require state agencies to plan for the most cost-effective way of meeting their goals, starting from scratch rather than using the previous year’s budget as a starting point. Under a “zero-based budget” approach, state agencies could recommend ending some longstanding contractual partnerships with nonprofits but also could recommend contracting with nonprofit service providers for programs and services that traditionally have been provided by the state agencies themselves. The bill would require state agencies to submit “zero-based budget” plans every eight years. Under the proposal, agencies would rotate in when they had to submit these plans, with several divisions within the NC Department of Health and Human Services (DHHS) submitting their plans this year and other agencies submitting their first plans in 2026 and 2028 and other state agencies submitting their plans in 2030 and 2032. The Senate could vote on the bill later in this year’s short session.

Separately, a newly-filed bill (S.972) in the Senate would require a 10% reduction in funding for all state agencies by June 30, 2028. Under the bill, all state agencies would need to make plans for these 10% reductions in their overall funding by January 1, 2027. While the bill is intended to help foster administrative efficiencies in state agencies, it could potentially lead to cuts to grants to nonprofits, administrative support for nonprofit grant programs, and investment in state programs that complement the work of nonprofits.

Dozens of New State Bills Could Affect Nonprofits

Yesterday was the deadline for most new bills to be filed during the NC General Assembly’s 2026 short session. This week, lawmakers filed 409 new bills, including 174 in the NC House of Representatives and 235 in the NC Senate. In addition to legislation mentioned earlier in today’s policy update, many of these newly-filed bills could impact the work of charitable nonprofits, including:

Several bills that would make changes to the Opportunity Scholarship program, which provides vouchers to (mostly nonprofit) private K-12 schools. Newly-filed legislation include a Senate bill (S.842) that would prioritize lower-income families and those currently receiving Opportunity Scholarships in the process for awarding vouchers in future years, a Senate bill (S.866) to expand Opportunity Scholarships to support homeschooling families, two House bills (H.B. 1076 and H.B. 1066) to reduce funding for Opportunity Scholarships and to eliminate eligibility for many middle and high income families, a House bill (H.B. 1184) to add a variety of new accountability and transparency requirements for (mostly nonprofit) schools that offer Opportunity Scholarships, and a House bill (H.B. 1066) that would expand Opportunity Scholarships to cover pre-kindergarten in addition to K-12 (alert readers will note that this bill was referenced twice in this bullet point!).
Several bills would increase support for and investment in child care and early childhood programs. Newly-filed legislation include a House bill (H.B. 1158) to increase child care subsidy rates, a House bill (H.B. 1160) to reduce family copays for subsidized child care, a House bill (H.B. 1148) to provide $200 million in funding to ensure that all income-eligible families with four-year-olds have access to NC Pre-K, a House bill (H.B. 1086) that would make a variety of new investments in the NC Partnership for Children (NCPC) and local Smart Starts to help prepare early childhood educators and expand child care mental and behavioral health services and to study liability insurance improvements for child care providers, and a House bill (H.B. 1066) that would (re)establish a child care tax credit on state income taxes, would make permanent the Tri-Share Child Care Program (a public-private partnership managed by NCPC to increase investment in child care), increase child care subsidy rates, and implement a variety of measures to improve the child care work force (alert readers will recognize this bill from two mentions in the previous bullet point!).
A Senate bill (S.945) that would establish new permitting and safety requirements for youth camps, including many camps run by nonprofits and would limit the permitting of youth camps with cabins located within floodplains. Most of the new requirements in the bill would not apply to camps operated by religious child care providers.
House (H.B. 1139) and Senate (S.954) bills to invest $19.5 million in a new grant program for afterschool programs. Potentially, this grant program would provide funding for many nonprofits.
A Senate bill (S.944) that would provide $6 million in funding for nonprofit food banks operating in North Carolina.
Two Senate bills (S.917 and S.982) that would provide $4 million in funding to nonprofits providing legal services to immigrant populations.
A House bill (H.B. 1120) that would eliminate $6.75 million in state funding for nonprofit crisis pregnancy centers and redirect these funds to evidence-based programs. The bill also would require future state funding for nonprofit crisis pregnancy centers to require certain accountability and transparency measures for funded nonprofits.
The annual MOMnibus bill (this year’s bill is version 3.5) in the House (H.B. 1195) and Senate (S.906), which would provide for a wide range of new investments in maternal and perinatal care and would include policy changes to help address implicit bias among perinatal health care providers. Rep. Monika Johnson-Hostler (D-Wake), a long-time nonprofit leader, is the primary sponsor of the House version of this year’s MOMnibus bill.
A Senate bill (S.863) that would streamline inspections for adult care homes, including many nonprofits.
House (H.B. 1071) and Senate (S.904) bills that would provide $16 million in additional funding to the NC Department of Health and Human Services and $69 million in additional funding to counties to cover new administrative costs for the federal Supplemental Nutrition Assistance Program (SNAP) that state and local governments will incur because of changes to SNAP funding in the One Big Beautiful Bill Act (OBBBA).
Another House bill (H.B. 1057) that would provide the same funding for state and county SNAP administration services as the bill in the previous bullet point and would also provide other investment to strengthen food security. Among other things, the bill would provide: (a) $11 million for additional state food security programs to supplement SNAP benefits; (b) $140 million for a new grant program for organizations providing food assistance to military families and veterans; and (c) $8 million for a new grant program for food banks and other nonprofits providing food assistance in rural and underserved communities in North Carolina.
A Senate bill (S.950) to provide universal school lunch and breakfast in public schools.
A House bill (H.B. 1032) that would eliminate the 2% local sales tax on groceries. The bill is designed to address affordability issues for low-income and working families, including many people served by nonprofits.
A Senate bill (S.853) that would establish a new cabinet-level NC Department of Housing and Community Development, which would likely partner with a wide variety of nonprofits engaged in affordable housing, economic development, and disaster response work.
A bill (S.852) that would authorize the NC Department of Insurance to establish and operate a state-run health benefit exchange. In 2013, as the federal government was implementing the Affordable Care Act (ACA), the NC General Assembly passed a law (S.4 from 2013) that prohibited North Carolina from forming its own health benefit exchange under the ACA. As a result, North Carolina individuals, nonprofits, and businesses have had to use the federal ACA marketplace to search for, and enroll in, ACA subsidized health insurance plans. In 2013, some health policy analysts suggested that a state-run health benefit exchange could provide better and clearer information to individuals and employers, helping nonprofits, businesses, and individuals find better quality and more affordable options for health insurance. It is unclear whether these potential benefits would still exist today if North Carolina established a state-run health benefits exchange.
One House (H.B. 1082) and three Senate (S.882. S.924, and S.942) bills to (re)establish a refundable earned income tax credit (EITC) on state taxes in North Carolina. The EITC provides tax relief to many working families that receive services from nonprofits.
A House bill (H.B. 1059) that would increase the state’s minimum wage from $7.25 per hour to $15 for hour for large employers (including many nonprofits) and to $11 per hour for smaller employers (including nonprofits) with gross annual receipts under $400,000 and to adjust the minimum wage for inflation in the future. The bill also would create a short-time employment program that would allow employers (including nonprofits) to reduce their employees’ pay and hours of work during challenging economic times and receive partial unemployment benefits for their reduced hours and wages. Nonprofits that pay state unemployment taxes could see higher tax rates if they participate in this program, and nonprofits that elect to reimburse the state for unemployment claims could be liable for the payment of these benefits.
Another (slightly different) House bill (H.B. 1149) that would create a short-time employment program. As with the bill mentioned in the previous bullet point, nonprofits that participated in this program could see higher unemployment tax rates if they pay state unemployment taxes and could be liable for the payment of benefits if they reimburse for unemployment.
A House bill (H.B. 1083) that would enable businesses and nonprofits to offer “voluntary portable benefit plans” for their independent contractors. These voluntary portable benefit plans, which would not count as taxable income for contractors, could include health insurance, retirement benefits, and unemployment insurance. Potentially, these could be helpful for nonprofits that use independent contractors to provide some of their services.
A House bill (H.B. 1072) that would direct the NC Housing Finance Agency to establish a below-market interest rate loan program to help 501(c)(3) nonprofits that develop affordable housing purchase additional land and infrastructure and prepare for development of new affordable housing.
A Senate bill (S.849) that would regulate third party sales of tickets to entertainment events. This could help protect nonprofits that sell tickets to athletics and performing arts events from having third parties use deceptive practices that undermine their organizations’ ability to effectively sell tickets to their own events.
A Senate bill (S. 943) to repeal the scheduled phase-out of the state corporate income tax (which is scheduled to end after 2029) and to increase the corporate income tax rate from 2% to 5%. This could help alleviate the projected state revenue shortfall that state economists anticipate will happen in the next few years.
A Senate bill (S.967) that would prevent scheduled individual income tax rate reductions to take effect if the NC General Assembly has not enacted a state budget. Currently, North Carolina is the only state in the country without a state budget in place for the fiscal year ending June 30, 2026.
A Senate bill (S.1063) that would require all bills considered by the NC General Assembly to have a fiscal note prepared by nonpartisan legislative staff. Fiscal notes provide estimates for the projected costs and cost savings of legislation over the next five years and often provide the nonprofits and legislators a better sense of the financial impact of legislative proposals.
A House bill (H.B. 1153) that would increase transparency of the legislative budget process by requiring lawmakers to seek public comments on the state budget, by making the state budget available to the public and all legislators for at least five legislative days prior to votes on the budget, and by expanding public records laws to cover communications that legislators have related to budget provisions. Potentially, these transparency measures could strengthen nonprofit advocacy by enabling nonprofit organizations to have better access to, and more input in, the development of the state budget.
A Senate bill (S.856) that would place a constitutional amendment on the November 2026 ballot to make several structural changes to the NC General Assembly, including: (1) increasing legislators’ salaries to the average starting salaries of public school teachers; (2) setting 16 year term limits for service in the NC House of Representatives and NC Senate; (3) extending terms of NC Senators from two years to four years; and (4) providing that state legislators will not be paid if they are unable to pass a state budget.

Note: Many other bills that were filed this week could impact the work of certain nonprofits, and some bills that were not included in this item would provide appropriations for individual nonprofits.

Plaintiffs File Notice to Appeal Dismissal of Johnson Amendment Case

Last week, the plaintiffs in a case challenging the applicability of the Johnson Amendment to two churches in Texas filed a notice that they plan to appeal in the U.S. Court of Appeals for the Fifth Circuit of the recent dismissal of the case by a federal district court in Texas. Last month, trial court dismissed the case in which the Internal Revenue Service and two churches in Texas sought approval of a consent judgment that would have allowed the churches to make political endorsements to members of their congregations. Like other 501(c)(3) tax-exempt organizations, churches may not “participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.” The court ruled that it did not have jurisdiction to decide the case under the Tax Anti-Injunction Act since the case involved the potential revocation of the churches’ 501(c)(3) tax-exempt status, which would create tax liability for them. The court noted, however, the parties could consider bringing the lawsuit in a different federal court – the U.S. Tax Court, the U.S. Court of Federal Claims, or the U.S. District Court for the District of Columbia – if the IRS were to make a determination about the churches’ 501(c)(3) status as a result of their violation of the Johnson Amendment.

Essentially, the IRS was seeking a court ruling that this nonpartisanship requirement (sometimes known as the Johnson Amendment) has a narrow exemption for communications from churches and other houses of worship to their congregations “through [their] customary channels of communication on matters of faith in connection with religious services.” As the Center has explained, by undermining the Johnson Amendment, the consent judgment would have set a precedent that could have troubling consequences for the charitable nonprofit sector.

The appellate court will likely rule on the applicability of the Tax Anti-Injunction Act, not the underlying Johnson Amendment claims.

U.S. Supreme Court Issues Unanimous Ruling in Nonprofit Donor Privacy Case

On Wednesday, the U.S. Supreme Court issued a unanimous decision finding that the New Jersey Attorney General violated the First Amendment rights of a charitable nonprofit by issuing a subpoena requiring the organization to submit personal information about its donors. This week’s decision in First Choice Women’s Resource Centers, Inc. v. Davenport is consistent with other Supreme Court rulings that have found that state laws, regulations, and enforcement limiting nonprofits’ donor privacy are unconstitutional.

U.S. House Approves DHS Funding Bill

Yesterday, the U.S. House of Representatives approved a bill (H.R. 7147) to fund all of the U.S. Department of Homeland Security (DHS) except for Immigration and Customs Enforcement (ICE) and Border Patrol. Once President Trump signs the bill into law, all of the federal government except for ICE and Border Patrol will be fully funded through September 30.

Join Nonprofit Policy Conversations This Spring

The Center is hosting a series of Nonprofit Policy Conversations this spring. Registration is open for the next two policy conversations:

Monday, May 11 from 10 a.m.-12 noon at the CCF Community Room in Fayetteville in collaboration with Cumberland Community Foundation (Register Now); and
Monday, June 15 from 10 a.m.-12 noon at Centennial Station Arts Center in High Point in collaboration with Guilford Nonprofit Consortium, HandsOn NWNC, High Point Arts Council, and One Sector, One Voice Triad (Register Now).

At each policy conversation, the Center will provide a public policy briefing that includes the latest information about recent federal executive actions that could affect nonprofits and an update on nonprofit issues during the 2026 short session of the NC General Assembly. We will also have a discussion for participants to share their insights about important state and federal policy issues for 2026.

Nonprofit Policy Update is the weekly newsletter on state and federal policy issues affecting 501(c)(3) nonprofits. Learn more about the Center's public policy agenda.
©2026 North Carolina Center for Nonprofits

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