North Carolina Property Tax Reform

North Carolina has significantly strengthened its taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. competitiveness over the past decade by aligning its state tax code more closely with the principles of sound tax policy—simplicity, transparency, neutrality, and stability. Yet property taxes, the primary revenue source for local governments that fund schools, infrastructure, and essential services, deserve careful scrutiny in any reform discussion.

Across the state, homeowners are confronting sharply higher tax bills associated with rising property valuations and periodic county reappraisals—increases that frequently outpace inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spendin and occur without corresponding improvements in the quantity or quality of local services. These burdens extend indirectly to renters through elevated housing costs, creating a disconnect that undermines the very fairness and efficiency the state’s broader tax reforms have sought to achieve.

Evaluating reform proposals through this lens is essential: only changes that restore balance—without distorting investment or shifting costs unfairly—will ensure North Carolina’s local tax system supports, rather than hinders, continued prosperity.

Property Taxes Should Not Be Eliminated, but There’s Room for Improvement

In a way, North Carolina homeowners may have fallen victim to the state’s economic success. Strong in-migration and business expansion have driven rapid increases in property values. Many localities have welcomed these higher valuations as a means to generate additional revenue, resulting in higher tax bills for homeowners even when incomes have not risen at the same pace. Other counties, on the other hand, have elected to adjust their rates downwards and declined to reap the windfall from these higher valuations.

Lately, public opinion has soured on property taxes, with a number of jurisdictions being in favor of outright abolition. However, economists generally view property taxes favorably among major revenue sources, especially for local governments. Land has a fixed supply, and built-up real estate has a low elasticity of supply and demand; thus, taxing it creates relatively little economic distortion, or deadweight loss, compared to taxes on labor, capital, or consumption. Local services—schools, roads, public safety—capitalize directly into property values, making the tax a reasonable proxy for benefits received. High visibility also promotes accountability: excessive increases quickly generate public opposition (as they have recently), encouraging fiscal restraint. Nationwide, property taxes comprise more than 70 percent of local government tax revenue and over 30 percent of combined state and local tax collections, according to US Census Bureau data. In North Carolina, they fund core local services, so reforms must preserve this stable base while responsibly addressing recent pressures.

Data show that North Carolina home values have grown faster than the national average. The inflation-adjusted Federal Housing Finance Agency House Price Index indicates stronger appreciation in the state from 2018 to 2025, reflecting economic success but also affordability challenges. Crucially, however, rising values have not produced automatic, one-to-one increases in tax bills. Analysis of North Carolina Department of Revenue data reveals a Pearson Coefficient of Correlation of 0.52 between changes in home values and property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. revenues across counties. This means only about half the time when we see big changes in home prices in a county, we also see fairly similar-sized changes (in the same direction) in property tax revenue. There is a moderate positive connection between how much home values go up (or down) in a North Carolina county and how much the county’s property tax revenue changes. The only other variable that determines property tax revenue is the levy rate. Therefore, local rate-setting decisions explain much of the variation in revenue growth.

Data Show Home Values Are Not to Blame for Rising Levies

From fiscal year 2018 to 2023, statewide real property values rose an average of 12.26 percent, yet property tax revenues grew by only 5.27 percent. Local governments offset more than half of the potential revenue gain through lower tax rates. This demonstrates that rapid value growth need not produce commensurate tax increases when policymakers exercise restraint.

Outcomes vary significantly by county. In 64 of the 100 counties in the state, revenue growth exceeded value growth. Among the five counties with the fastest-rising property values, only three saw inflation-adjusted revenue increases; Mecklenburg County, the largest and fastest-growing, recorded a decline in real property tax collections. The top 10 counties for revenue growth were Johnston, Cherokee, Watauga, Cabarrus, Transylvania, Chatham, Camden, Onslow, Lincoln, and McDowell, with several exceeding 20 percent growth. These disparities highlight that high tax bills in certain jurisdictions often reflect local policy choices rather than inevitability.

Therefore, reform should deliver meaningful relief to overburdened homeowners while avoiding penalties on efficient governments. Policies must remain neutral, objective, and administratively straightforward to minimize unintended consequences.

Of the Multiple Avenues for Reform, One Stands Out

Several avenues have been explored by local governments around the country. Assessment limits cap annual growth in assessed values, often at 3 to 5 percent. They may shield current owners temporarily, but they create a lock-in effect that discourages current homeowners from moving to a different home when their purchasing power increases or needs change, disadvantaging new entrants to the market and younger buyers. Assessment caps also disincentivize major home renovation and new construction, both of which often trigger a new assessment. Governments can also offset constraints by raising rates, and the resulting inequities and market distortions frequently undermine long-term effectiveness.

Targeted relief programs, such as homestead exclusions or circuit breakers that cap taxes as a percentage of income for seniors, disabled residents, or low-income households, already operate in North Carolina. These measures provide direct help to vulnerable groups and can serve as useful supplements to more meaningful reform, particularly when narrowly tailored. However, they address symptoms rather than root causes, cover only subsets of taxpayers, and can shift burdens onto non-qualifying owners, and in some cases renters, without slowing overall revenue growth.

Truth-in-taxation requirements improve transparency by mandating public notices and hearings before tax increases. Clear notices, as used in Arizona, show residents the dollar impact on a typical home and compare proposed bills to what they would be absent the increase. Utah’s experience demonstrates benefits when paired with stronger limits, though data from some states, such as Nebraska, suggest revenues continued rising when the legislation was not paired with additional constraints. Transparency alone lacks enforcement power but becomes highly effective when combined with structural limits.

Rate caps mandate an upper bound to the levy rate that can be charged by a jurisdiction on the value of property, but are ineffective in an environment of surging property valuations and may hamstring local governments when property values fall.

Levy limits stand out as the most effective and least distortive option. These policies cap annual growth in total property tax revenue (the levy) from existing properties, typically adjusting the cap for inflation and population growth. New construction and development are excluded, allowing revenue to expand with population and economic growth. When values rise faster than the cap, tax rates automatically decline. This approach directly constrains the overall tax burden, enforces fiscal discipline, and maintains uniform, market-based assessments free of artificial caps or resets.

Unlike assessment limits, levy limits impose no penalties on home sales, renovations, or new buyers. They provide broad, neutral protection to all property owners against unlegislated tax hikes driven by market surges. They target the core issue—excessive revenue growth—rather than individual bills, while preserving local flexibility through voter-approved overrides for genuine needs.

Other states demonstrate the effectiveness of levy limits. Washington’s levy limits have protected taxpayers amid sharply rising values while accommodating new growth. New York’s two percent annual levy limit (or inflation, whichever is lower) has moderated tax growth and improved alignment with economic conditions. Both cases show slower per-capita tax increases and better fiscal outcomes without sacrificing essential services.

What Would a Levy Limit in North Carolina Look Like?

For North Carolina, a statutory or constitutional levy limit on revenue growth from the existing property base, excluding new construction, would represent sound tax policy. Pairing it with truth-in-taxation would maximize transparency. Overrides should remain available via voter approval or declared emergencies to maintain local flexibility and responsiveness.

A practical revenue formula is straightforward:

Maximum Levyt+1 = Prior Year Levyt × (1 + Inflation Ratet)

The tax rate is then calculated as:

This means that the maximum revenues a local government may collect in any given year from existing properties cannot be more than the previous year’s revenues, adjusted for inflation. The corresponding levy rate is then calculated on the value of the existing real estate.

Once calculated, however, this rate applies uniformly to all properties, old and new. This way, new properties generate revenue outside the cap, supporting growth-related demands.

As an example, a prior year levy of $1,000,000 with an inflation of two percent would allow a maximum collection of $1,360,000 this year on assessments worth $20,000,000, out of which new construction is $5,000,000. This scenario implies a uniform rate of 6.8 percent of home values.

Such a structure aligns with ongoing legislative efforts to balance taxpayer relief and local service needs. It avoids extreme measures like outright repeal, which could destabilize local funding while forgoing the economic advantages of a low-distortion tax.

North Carolina’s property tax pressures stem from local responses to valuation growth outpacing income growth in many areas. A well-designed levy limit, supported by truth-in-taxation, offers comprehensive, neutral relief that promotes efficiency, protects homeowners fairly, and sustains the state’s competitive tax environment. Such reforms would reinforce North Carolina’s attractiveness for investment and residency while also maintaining accountability at the local level.