State legislators focused much of their time this week on amending the state constitution, placing two amendments on the ballot for this fall’s election and making progress on approving four other amendments. This week’s policy updates focuses on the potential ways that the proposed income tax cap and property tax levy constitutional amendments could impact the work of nonprofits and about the ways nonprofits can engage on constitutional amendments and other ballot measures. We provide information on other state legislation that moved through the General Assembly this week. We also share details about two new bills in Congress that could affect nonprofit donations and donors.
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State Constitutional Amendment Lowering Income Tax Cap Could Harm Nonprofits
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This week, both the NC Senate and NC House of Representatives approved a bill (S.1080) that will place a constitutional amendment on the November 2026 ballot to lower the cap on income tax rates in North Carolina from 7% to 3.5%. The Center is concerned that this constitutional amendment would be harmful to nonprofits. While the 3.5% cap is higher than the current 2% corporate income tax rate (which is scheduled to phase out altogether by 2030), it is below the 2026 individual income tax rate of 3.99%. The individual income tax rate has historically been much higher than 3.5%; it was 5.25% as recently as 2021.
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Because income tax rates below 3.5% would be new to North Carolina, it remains unclear how these lower rates will affect long-term revenue for the state, particularly during or after an economic recession. With a 3.5% income tax cap, future state legislators would have limited ability to raise needed revenue from income taxes (even temporary tax increases on high-income North Carolinians). This is likely to create pressure to increase revenue from sales tax and governmental fees and to cut state government spending. Ultimately, a lower income tax cap would increase the likelihood of future legislative challenges to nonprofit sales tax refunds and state income tax exemption. It also could lead to significant cuts to state grants and contracts with nonprofits that provide public services and could create the need for the state and local governments to offload certain programs and services onto the nonprofit sector without compensating nonprofits for the full cost of providing these services. The NC Budget and Tax Center has a helpful summary of many of the potential problems with lowering the income tax cap in the state constitution.
Both the NC Senate and NC House of Representatives approved the amendment with 60% supermajority votes, so it now goes on the ballot this fall. If a majority of voters approve it, the amendment would be added to the state constitution. Because voters ultimately determine whether to make constitutional amendments, legislation proposing constitutional amendments does not require the Governor’s approval. |
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Legislators Approves Property Tax Levy Limit Constitutional Amendment
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On Wednesday, both the NC House of Representatives and NC Senate approved a bill (H.B. 1089) that will 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.
As with the income tax cap amendment, both the House and Senate passed the bill with 60% votes supermajority votes, so it now goes to the ballot this fall. Even if a majority of voters approve the constitutional amendment, it is unclear what, if any, practical effect it will have because: |
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Legislators already have the authority to establish levy limits for local government property tax increases;
- While the intent of the constitutional amendment is for legislators to approve of levy limits during the 2027-28 legislative session, it does not include an explicit timeframe for passage of levy limit legislation or consequences if legislators do not pass levy limit legislation; and
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It provides no details for what levy limits would entail.
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Nonprofits Can Advocate For or Against Constitutional Amendments |
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In addition to the tax-related constitutional amendments described in the previous two items, legislators took action this week on several other bills that would add other constitutional amendments to the ballot in this fall’s election. These include: |
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On Wednesday, the Senate approved a bill (S.1082) that would add a “right to work” to the state constitution, prohibiting requirements that workers join labor unions or labor organizations.
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On Tuesday, a Senate committee approved a bill (S.1081) that would protect the right to engage in farming and forestry in the state constitution.
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On Wednesday, the House approved a bill (H.B. 443) that would amend the state constitution to add a provision that if the Governor has to fill a vacancy in a Council of State position, the Governor must appoint someone from the same political party as the person who vacated the position.
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On Tuesday, a House committee approved a bill (H.B. 144) that would amend the state constitution to make the members of the NC Board of Education elected rather than appointed by the Governor.
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In addition, legislators already placed a constitutional amendment (through a bill that passed both chambers in 2024) on the ballot for this fall that would require all voters to provide photo ID when voting. Currently, North Carolina’s voter ID law only applies to in-person voting, not voting by mail.
Charitable nonprofits can take positions on state constitutional amendments and other ballot measures. Efforts by 501(c)(3) nonprofits to advocate for citizens to vote for or against constitutional amendments is treated as direct lobbying for federal tax purposes, which is a legal activity for charitable organizations. With at least three (and quite possibly more) constitutional amendments on the ballot this fall, nonprofits may want to consider whether it makes sense to take a position on these ballot measures. This summer, the Center plans to provide more information (most likely webinars and written guidance) on ways that nonprofits can engage on constitutional amendments.
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New! Legal Compliance Checklist for NC Nonprofits
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This comprehensive checklist outlines the rules and laws that apply to nonprofits’ governance, finances, advocacy, human resources, and fundraising – plus what’s changed and actions your organization may need to take. The 2026 edition has been reformatted to make it easier to navigate and expanded with updates on nonprofit corporate governance, federal tax laws, employment laws, federal and state grant requirements, intellectual property laws, and more.
Center members can access the checklist anytime as part of your member benefits. Non-members can purchase the checklist for $50 (discounts for Center sustainers and associates). Access includes any updates throughout the year. | |
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NC House Unanimously Approves Changes to Affordable Housing Property Tax Exemption
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On Wednesday, the NC House of Representatives gave final, unanimous approval to a bill (H.B. 1042) 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 shorten the period from 10 years to five years for nonprofits to develop property to be used for affordable housing while maintaining property tax exemption. Some nonprofits have expressed concerns that this change could make it more difficult to develop property to be used for affordable housing.
The bill now goes to the NC Senate for consideration. |
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Lawmakers Working on Details of State Budget
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Last week, leaders from the NC Senate and NC House of Representatives announced on Tuesday that they had agreed to the framework of a state budget for FY2025-27, which began on July 1, 2025. North Carolina is currently the only state in the country without a state budget in place. House and Senate leaders have agreed to compromises on three of the biggest differences between their chambers’ budget proposals: pay increases for state employees and public school teachers; future changes to state income tax rates; and funding for a new children’s hospital in the Triangle.
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Legislators are now working on the details of the budget and hope to be able to vote on a budget next month. Lawmakers will have a bit more money to spend in the budget thanks to a revised revenue forecast released last Friday from economists at the NC General Assembly and NC Office of State Budget and Management that project that the state revenue will be about $608 million higher than originally projected for FY2025-26 and about $712 higher than originally projected for FY2026-27.
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NC House Overrides Veto of Bill Authorizing North Carolina to Opt In to New Tax Credit for Contributions to Scholarship Granting Nonprofits |
On Wednesday, the NC House of Representatives voted to override Governor Josh Stein’s veto of a bill (H.B. 87) that would enable North Carolinians to receive a federal tax credit of up to $1,700 per year for contributions to 501(c)(3) nonprofits that qualify as “scholarship granting organizations” as part of a new law that was part of the One Big Beautiful Bill Act. The Senate could vote on the veto override next month. If the Senate votes to override the veto, the new federal tax credit would take effect for contributions made to North Carolina “scholarship granting organizations” beginning in 2027. The federal law requires states to opt in to the provision in order for the tax credit to be available to taxpayers in their states (which is why the NC General Assembly passed the bill).
The federal law provides rules for how nonprofits would qualify as “scholarship granting organizations.” Among other things, scholarship granting organizations would need to: |
- Be 501(c)(3) public charities;
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Provide 10 or more scholarships to students attending more than one school;
- Spend at least 90% of their income on scholarships for eligible students;
- Have systems in place to prevent the co-mingling of contributions that are eligible for a tax credit from other revenue sources and to verify the household income and family size of students eligible for scholarships; and
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Be included on the list of eligible scholarship granting organizations provided by the state each year.
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The state legislation identifies the NC State Educational Assistance Authority (NCSEAA) as the state entity that will identify scholarship granting organizations in North Carolina and provide a list of these to the U.S. Treasury Department every year. That means that North Carolina nonprofits planning to be scholarship granting organizations will need to submit applications to NCSEAA to be eligible to receive contributions that qualify for the new federal tax credit. The Center has heard a number of questions from nonprofits, elected officials, and others about this new federal tax credit. Here are answers to three of the most common questions we have heard: |
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Why does it matter that donations to scholarship granting organizations are eligible for tax credits instead of tax deductions? As noted above, taxpayers will be able to receive a tax credit of up to $1,700 per year for their contributions to scholarship granting organizations. This means that their federal income tax will be reduced on a dollar-for-dollar basis (up to $1,700 per year) for their contributions to scholarship granting organizations. A tax-deductible contribution to another 501(c)(3) nonprofit merely reduces a taxpayer’s taxable income, which means that the amount of their federal income tax will only be reduced by a percentage (the effective tax rate that they pay) of their total contributions. Translation: This new tax credit creates a larger tax incentive to give to scholarship granting organizations than to give to other 501(c)(3) nonprofits.
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Doesn’t North Carolina already have the Opportunity Scholarship program to provide vouchers to help pay for private school tuition? Yes, but unlike the Opportunity Scholarship program, which only covers tuition and required fees at certain private K-12 schools, scholarship granting organizations can provide scholarships that cover a wider range of education-related expenses (including tutoring, certain technology expenses, school uniform costs, and transportation fees) for students attending public or private K-12 schools.
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Can a scholarship granting organization be abused to allow parents to receive a tax credit for a contribution that ultimately goes to a scholarship for their own children? No. The new federal law prohibits “self-dealing” by scholarship granting organizations, prohibiting these nonprofits from awarding scholarships to their donors and other “disqualified persons.” The U.S. Treasury Department is expected to issue proposed regulations in the not-too-distant future with more guidance on self-dealing by scholarship granting organizations, presumably including penalties for organizations and/or their donors or other insiders who attempt to abuse scholarships for their own financial benefit.
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NC House Committee Approves Loosening Restrictions on Some Nonprofit Fundraising Events
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On Tuesday, the NC House Alcoholic Beverage Control Committee approved a bill (H.B. 921) that would make a variety of changes to state alcohol and gaming laws. Three of these changes would make it easier for nonprofits to conduct certain types of fundraising events: |
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One provision would exempt nonprofits from obtaining a one-time alcohol permit for certain types of fundraising events where wine, malt beverages, and spirituous liquor are sold at the event hosted by a retailer with an alcohol license.
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Another provision would allow 501(c)(3) nonprofits to conduct an unlimited number of 50/50 raffles every year and would eliminate the caps on the value of cash prizes or real estate offered in raffles. Currently, nonprofits may only conduct up to five raffles in a year and prizes are limited to $125,000 in cash for any raffle, a total of $250,000 in cash for all raffles conducted during the year, and $2.25 million in appraised value for real estate.
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A third provision would increase the number of game night fundraising events that nonprofits may conduct from four per year to 24 per year.
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The full House could vote on the bill next month. |
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NC Senate Bill Would Shorten Early Voting Period to 10 Days
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A bill (S.1084) filed in the NC Senate on Monday would shorten the early voting period for elections from 17 days to 10 days. Many nonprofits encourage their staff, volunteers, and the people they serve to vote early. It is unclear how a shorter early voting period would impact the logistics of early voting accessibility. Legislators could consider this bill during the short session. If it were to become law, it would take effect for this fall’s general election.
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New Executive Order Focuses on Addressing Housing Issues |
Governor Stein issued an executive order on Tuesday establishing a new Senior Advisor for Housing Policy role in the Governor’s Office that will work with state agencies and nonprofits to address housing affordability issues and to develop a statewide housing strategy. The executive order could bolster state government support for, and partnerships with, nonprofits that provide affordable housing.
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New Bills in Congress Would Expand Options for Retirees to Contribute to Nonprofits
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Last week, the bipartisan Charity Parity Act was introduced in both the U.S. Senate and the U.S. House of Representatives. Under current law (often called the IRA charitable rollover), retirees who are age 70½ or older may make tax-free distributions of up to $111,000 from their individual retirement accounts (IRAs) to most 501(c)(3) nonprofits. Individuals with employer-sponsored 401(k) or 403(b) retirement plans, however, do not have the option of making tax-free distributions from their retirement savings to charitable nonprofits. The Charity Parity Act would expand the IRA charitable rollover to also allow for tax-free distributions to charitable nonprofits from 401(k) and 403(b) retirement plans.
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New U.S. Senate Bill Would Add Donor Privacy Protections |
Last week, the Protecting Charitable Giving Act was introduced in the U.S. Senate to add privacy protections for donors to charitable nonprofits. The bill would increase penalties for disclosure of donor information on Schedule B of IRS Form 990 and would broaden the jurisdictions where lawsuits challenging donor privacy violations can be filed.
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Join Nonprofit Policy Conversation in High Point Next Month |
The Center has hosted a series of Nonprofit Policy Conversations this spring. Registration is open for the next scheduled policy conversation on Monday, June 15 from 10 a.m.-12 noon at Centennial Station Arts Center in High Point. The June 15 policy conversation is being presented in collaboration with Guilford Nonprofit Consortium, HandsOn NWNC, One Sector, One Voice Triad, and High Point Arts Council (Register Now).
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