North Carolina Joins Broader Shift Away from State Agency Deference

Senate Bill (S.B.) 445 codifies the North Carolina Supreme Court's 2025 decision in Mitchell v. University of North Carolina Board of Governors, 388 N.C. 341 (2025), which rejected judicial deference to an agency's interpretation of its own rules and required courts to apply "traditional de novo review." Earlier North Carolina Court of Appeals decisions had applied a more deferential standard. S.B. 445 codifies the Mitchell standard for reviewing courts and expressly requires administrative law judges (ALJs) to apply traditional de novo review when interpreting state rules and regulations.

Key Changes

For reviewing courts, the legislation provides that a court "may be informed by the agency's interpretation of its own rules or regulations but shall apply traditional de novo review to the interpretation of State rules and regulations." Thus, an agency's interpretation may inform the analysis, but the court independently determines the meaning of the regulation.

For ALJs, the statute draws a distinction between agency expertise and legal interpretation. An ALJ "may be informed by the demonstrated knowledge and expertise of the agency" regarding facts and inferences within the agency's specialized knowledge but must apply "traditional de novo review" to regulatory interpretation. In practice, ALJs may consider an agency's factual and technical expertise but not defer to the agency's interpretation of its own rules.

Broader National Context

S.B. 445 comes amid a broader national reassessment of agency deference. At the federal level, the U.S. Supreme Court's 2024 decision in Loper Bright Enterprises v. Raimondo, 144 S.Ct. 2244 (2024), overruled Chevron deference and required federal courts to exercise independent judgment when interpreting statutes. States also have increasingly reconsidered the degree of deference afforded to administrative agencies.

States have pursued reform through legislative and judicial action. On the legislative front, Arizona amended its judicial-review statute to require courts in certain proceedings to decide questions of law and fact without deference to prior agency determinations. Indiana similarly amended its Administrative Orders and Procedures Act in 2024 to require courts to decide questions of law, including interpretations of statutes and agency rules, without deference to prior agency interpretations. Texas also has enacted legislation providing that courts are not required to defer to state agency legal determinations regarding the construction, validity or applicability of laws or agency rules.

These developments are part of a broader wave of legislative activity. In 2025, 21 states considered 34 bills or resolutions addressing judicial deference, with five states enacting measures limiting deference and requiring some form of de novo review. The trend has continued in 2026. Kansas, for example, enacted legislation requiring courts and administrative hearing officers to interpret statutes, rules and regulations de novo without deferring to agency interpretations.

State courts have moved in a similar direction. Courts in Arkansas, Wisconsin and Mississippi have rejected or curtailed deference to agency interpretations under state law. North Carolina itself illustrates the judicial and legislative dimensions of this trend. In 2025, the North Carolina Supreme Court rejected judicial deference in Mitchell, and the General Assembly followed in 2026 by codifying the de novo standard for reviewing courts and expressly applying it to ALJs through S.B. 445.

The trend is not uniform. Some jurisdictions continue to preserve forms of agency deference. The District of Columbia, for example, enacted legislation in 2025 preserving deference to reasonable agency interpretations in specified circumstances. Proponents of deference argue that agencies possess specialized technical knowledge that courts lack and that consistent deference to agency interpretations promotes regulatory stability and predictability.

Nevertheless, the broader movement toward independent review has practical implications for regulated entities and agencies. As deference recedes in many jurisdictions, the text of statutes and regulations assumes greater importance. Agency guidance, policy statements and other informal interpretations may remain relevant or persuasive but increasingly must be grounded in the underlying legal text rather than rely on institutional authority.

Implications for State and Local Tax

In states that have enacted legislation or issued judicial rulings limiting agency deference, taxpayers may have greater ability to challenge agency interpretations that are not firmly grounded in the governing statutory or regulatory text. In North Carolina, S.B. 445 specifically requires courts and ALJs to apply traditional de novo review when interpreting state rules and regulations, rather than deferring to the agency’s interpretation of those rules.

For state and local tax disputes, the change may be particularly significant where a taxing authority relies on regulations, administrative guidance or other interpretations to support an assessment or deny an exemption or other tax benefit. Although agency guidance and technical expertise may remain relevant or persuasive, S.B. 445 makes clear that when the meaning of a state rule or regulation is at issue, the taxing authority's interpretation does not control. The reviewing court or ALJ must independently determine the meaning of the rule or regulation.

For questions about the potential impact to your business, please reach out to the authors.

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