TO: NC House Select Committee on Property Tax Reduction and Reform
FROM: Office of the Hyde County Tax Administrator, Donnie Shumate
DATE: March 18, 2026
RE: Valuation Challenges – Ocracoke Short-Term Rentals (STRs)

1.   The Challenge: Market Distortion in Ocracoke

Following the recent reappraisal, Ocracoke has experienced significant increases in property values. Analysis suggests this is driven by the Short-Term Rental (STR) market. Investors are paying premiums for residential properties because the projected rental income allows them to “outbid” traditional year-round residents.

Under the Sales Comparison Method, these high-dollar investment sales become the “comparable sales” for all surrounding homes, effectively pricing local residents out of their tax brackets.

2.   Legal Analysis: The Income Method

A common proposal is to value STRs using the Income Method (treating them like commercial hotels) while valuing owner-occupied homes using the Sales Comparison Method. While logically sound, this approach faces severe legal obstacles under North Carolina law:

• The Uniformity Clause: The NC Constitution (Art. V, Sec. 2) requires that all property within a single class (Residential) be valued uniformly. Valuing two identical side-by-side cottages using two different methodologies would likely be ruled “arbitrary and illegal” by the NC Property Tax Commission.
  • Highest and Best Use (HBU): G.S. 105-283 requires that property be valued at its “True Value” in money. If the most profitable use for a cottage in Ocracoke is as an STR, that becomes the “Highest and Best Use” for all similar cottages in that market, regardless of whether the current owner chooses to rent it or live in it.
  • UNC School of Government Guidance: Legal experts at the UNC School of Government have consistently cautioned that residential property cannot be reclassified as “commercial” simply because it is rented. Current statutes do not provide a “business use” carve-out for residential property taxes.

3.    Recommendation to the NC General Assembly

We respectfully urge the North Carolina General Assembly, particularly the House Select Committee on

Property Tax Reduction and Reform, to specifically examine the impact of the high-intensity short-term rental (STR) market on residential property valuations. In coastal jurisdictions like Hyde County, the current legal framework—governed by the Uniformity Clause and the Machinery Act—effectively mandates that year-round residential homes be valued based on the investment-driven premiums paid for income-producing STRs. This creates an unsustainable ‘valuation trap’ that threatens the housing stability of local workforces and long-term residents.

We recommend the General Assembly address this discrepancy as part of their property tax reform efforts, exploring legislative pathways that would allow local assessors to distinguish between primary residential use and commercial-scale investment use within the residential property class.