Montgomery County Commission, et al v. Federal Housing Finance Agency, et al

Filing

Opinion issued by court as to Appellants Montgomery County Commission and Steven L. Reed in 13-12615, Appellants Athens-Clarke County Unified Government, Augusta Georgia, Butts County GA, Clayton County, Georgia, Sumter County and Upson County, Georgia in 13-12637, Appellant Linda Doggett in 13-13150, Appellants Daniel W Massey and Gabrielle Summe in 13-13267, Appellant Randolph County in 13-13897, Appellant Floyd County, Georgia in 13-14094. Decision: Affirmed. Opinion type: Published. Opinion method: Signed. [13-12615, 13-12637, 13-13150, 13-13267, 13-13897, 13-14094]

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
__________________________
No. 13-12615
__________________________
D.C. Docket No. 2:12-cv-00885-MHT-WC
MONTGOMERY COUNTY COMMISSION, on behalf of
themselves, and all others similarly situated, STEVEN L.
REED, Judge of Probate for Montgomery County,
Plaintiffs-Appellants,
REESE MCKINNEY, JR., Judge of Probate for
Montgomery County, Alabama, on behalf of
themselves and all others similarly situated,
Plaintiff,
versus
FEDERAL HOUSING FINANCE AGENCY, as
conservator for Federal National Mortgage
Association, and Federal Home Loan Mortgage
Corporation, FEDERAL NATIONAL MORTGAGE
ASSOCIATION, a federally chartered corporation,
FEDERAL HOME LOAN MORTGAGE CORPORATION,
a federally chartered corporation,
Defendants-Appellees.

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__________________________
No. 13-12637
__________________________
D.C. Docket No. 5:12-cv-00355-MTT
CHAIRMAN MAURICE RAINES, Upson County
Board of County Commissioners, and on behalf of all
others similarly situated,
Plaintiff,
ATHENS-CLARKE COUNTY UNIFIED GOVERNMENT,
Athens-Clarke County Unified Government, by and
through Nancy Denson, Chair of the Commission and
Mayor, Athens-Clarke County Unified Government, Georgia,
CLAYTON COUNTY, Clayton County, by and through
Eldrin Bell, Chairman, Board of Commissioners, Clayton
County, Georgia, SUMTER COUNTY, Sumter County,
by and through Randy Howard, Chairman, Board of
Commissioners, Sumter County, Georgia, AUGUSTA,
GEORGIA, Augusta, Georgia, by and through Deke
Copenhaver, Chair of the Commission and Mayor,
Augusta, Georgia, BUTTS COUNTY, Butts County, by
and through Roger McDaniel, Chairman, Board of Commissioners,
Butts County, Georgia, UPSON COUNTY, Upson County,
by and through Maurice Raines, Chairman,
Board of Commissioners, Upson County, Georgia,
Plaintiffs-Appellants,
versus
FEDERAL HOUSING FINANCE AGENCY, as
Conservator for Federal National Mortgage
Association and Federal Home Loan Mortgage
Corporation, FEDERAL NATIONAL MORTGAGE
ASSOCIATION, A Federally Chartered Private Corporation,
FEDERAL HOME LOAN MORTGAGE CORPORATION,
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A Federally Chartered Corporation,
Defendants-Appellees.
__________________________
No. 13-13150
__________________________
D.C. Docket No. 2:12-cv-00553-JES-DNF
CHARLIE GREEN, etc.,
Plaintiff,
LINDA DOGGETT, as Clerk of the
Court for Lee County, Florida, and on
behalf of all others similarly situated,
Plaintiff-Appellant,
versus
FEDERAL HOUSING FINANCE AGENCY, as
Conservator for Federal National Mortgage
Association and Federal Home Loan Mortgage
Corporation, FEDERAL NATIONAL MORTGAGE
ASSOCIATION, a federally chartered corporation,
a.k.a. Fannie Mae, FEDERAL HOME LOAN MORTGAGE
CORPORATION, a federally chartered corporation,
a.k.a. Freddie Mac,
Defendants-Appellees.
__________________________
No. 13-13267
__________________________
D.C. Docket No. 4:12-cv-00102-DHB-GRS
DANIEL W. MASSEY,
as Clerk of the Superior Court of
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Chatham County, Georgia, individually, and
on behalf of all others similarly situated,
Plaintiff-Appellant,
GABRIELLE SUMME,
as Clerk of the Kenton, County, Kentucky,
Interested Party-Appellant,
versus
FEDERAL HOUSING FINANCE AGENCY,
Intervenor-Appellee,
FEDERAL NATIONAL MORTGAGE ASSOCIATION,
a.k.a. Fannie Mae, FEDERAL HOME LOAN MORTGAGE
CORPORATION,
Defendants-Appellees.

__________________________
No. 13-13897
__________________________
D.C. Docket No. 3:12-cv-00886-WKW-SRW

RANDOLPH COUNTY, a duly organized county of the
State of Alabama, on behalf of itself and all others
counties in the state of Alabama similarly situated,
Plaintiff-Appellant,
versus
FEDERAL NATIONAL MORTGAGE ASSOCIATION,
a federally chartered private corporation, FEDERAL
HOME LOAN MORTGAGE CORPORATION, a
federally chartered private corporation, FEDERAL
HOUSING FINANCE AGENCY, as conservator for Federal
National Mortgage Association and Federal Home Loan Mortgage
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Corporation,
Defendants-Appellees.
__________________________
No. 13-14094
__________________________
D.C. Docket No. 1:13-cv-00056-TWT
FLOYD COUNTY, GEORGIA, a Political Subdivision
of the State of Georgia,
Plaintiff-Appellant,
versus
FEDERAL HOUSING FINANCE AGENCY, a Conservator for
Federal National Mortgage Association and Federal Home Loan
Mortgage Corporation, FEDERAL NATIONAL MORTGAGE
ASSOCIATION, a Federally Chartered Corporation,
FEDERAL HOME LOAN MORTGAGE CORPORATION,
a Federally Chartered Corporation,
Defendants-Appellees.

________________________
Appeals from the United States District Court
for the Middle District of Florida, the Southern District of Georgia, the Middle
District of Alabama, the Middle District of Georgia, and the Northern District of
Georgia
________________________
(January 16, 2015)

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Before MARTIN and ANDERSON, Circuit Judges and MORENO, ∗ District
Judge.
MORENO, District Judge:
This consolidated appeal arises from six district court actions in this circuit.
In each of the six cases, the district court ruled in favor of the Appellees, the
Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan
Mortgage Corporation (“Freddie Mac”), and the Federal Housing Finance Agency
(collectively referred to as the “federal entities”). Appellants’ position in this
appeal is that the state taxes normally imposed on real estate transfers apply when
the federal entities transfer real property in their respective states. The federal
entities have not paid the transfer taxes, citing their Congressional charter
exemptions from “all taxation.” These statutory exemptions contain an exception
allowing states to impose real estate taxes on the federal entities, and Appellants
contend their transfer taxes fall into that exception. Appellants also make the
constitutional argument that even if the exemptions preclude the states from
imposing the transfer taxes, the exemptions themselves are unconstitutional under
the Commerce, Necessary and Proper and Supremacy Clauses. The district court

∗

Honorable Federico A. Moreno, United States District Judge for the Southern District of
Florida, sitting by designation.
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in each case, as have several Circuit Courts of Appeal,1 found the federal entities
are exempt from paying transfer taxes, and the statutes are otherwise constitutional.
We agree and affirm.
I. Factual Background
A. The Federal Entities and the Statutory Charter Exemption from Taxation
During the Great Depression, Congress created Fannie Mae to “establish
secondary market facilities for residential mortgages,” to “provide stability in the
secondary market for residential mortgages,” and to “promote access to mortgage
credit throughout the Nation.” 12 U.S.C. § 1716.

Later, Congress chartered

Freddie Mac for substantially the same mission, including to provide ongoing
assistance to the secondary market for residential mortgages, to strengthen and
support mortgages on housing for low and moderate income families, by
increasing the liquidity of the market, and to promote access to mortgage credit.
Id. at § 1451 et seq. These federally chartered entities purchase and securitize
residential mortgages, which generates additional liquidity for mortgage lending.

1

See Bd. of County Comm’rs of Kay County, Okla. v. Fed. Housing Fin. Agency, 754 F.3d
1025 (D.C. Cir. 2014); Vadnais v. Fed. Nat’l Mortg. Ass’n, 754 F.3d 524 (8th Cir. June 6, 2014);
Delaware County v. Fed. Housing Fin. Agency, 747 F.3d 215 (3d Cir. 2014); Hennepin County
v. Fed. Nat’l Mortg. Ass’n, 742 F.3d 818, 824 (8th Cir. 2014); Montgomery County, Md. v. Fed.
Nat’l Mortg. Ass’n, 740 F.3d 914, 917 (4th Cir. 2014); DeKalb County v. Fed. Housing Fin.
Agency, 741 F.3d 795, 800 (7th Cir. 2013); County of Oakland v. Fed. Housing Fin. Agency, 716
F.3d 935 (6th Cir. 2013); Town of Johnston v. Fed. Housing Fin. Agency, 765 F.3d 80 (1st Cir.
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See id. at §§ 1452(c), 1454(a)(1), 1717(b)(1), 1719(d). During the 2008 financial
crisis, Congress created the Federal Housing Finance Agency to regulate Fannie
Mae and Freddie Mac, among other entities. Id. at § 4511. The Federal Housing
Finance Agency is an independent federal agency, created by the Housing and
Economic Recovery Act of 2008. Id. at §§ 4511, 4617 et seq. In the wake of the
2008 financial crisis, Fannie Mae and Freddie Mac were placed into the Federal
Housing Finance Agency's conservatorship. Id. at § 4617. As the conservator, the
Federal Housing Finance Agency has the statutory power to "operate" Fannie Mae
and Freddie Mac with the statutory mission of "preserv[ing] and conserv[ing]
the[ir] assets and property." Id. at § 4617(b)(2)(B)(iv). The Federal Housing
Finance Agency, as conservator, has the authority to “transfer or sell any asset or
liability of the regulated entity.” Id. at § 4617(b)(2)(G).
Congress enacted statutory exemptions from taxation for all three entities.
The statutes are as follows:

1. Fannie Mae’s Exemption at 12 U.S.C. § 1723a(c)(2)
[Fannie Mae], including its franchise, capital, reserves,
surplus, mortgages, or other security holdings, and
income shall be exempt from all taxation now or
2014); City of Spokane v. Fed. Nat’l Mortg. Ass’n, No. 13-35655, 2014 WL 7384311 (9th Cir.
Dec. 30, 2014).
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hereafter imposed by any State, . . . or by any county, . . .
except that any real property of the corporation shall be
subject to State. . .county. . . or local taxation to the same
extent as other real property is taxed.
2. Freddie Mac’s Exemption at 12 U.S.C. § 1452(e)
[Freddie Mac], including its franchise, activities, capital,
reserves, surplus, and income, shall be exempt from all
taxation now or hereafter imposed . . . by any State [or]
county, . . .except that any real property of the
Corporation shall be subject to State. . .county, . . . or
local taxation to the same extent according to its value as
other real property is taxed.
3. The Federal Housing Finance Agency’s Exemption at 12 U.S.C. §
4617(j)(2)
[The Federal Housing Finance Agency], including its
franchise, its capital, reserves, and surplus, and its
income, shall be exempt from all taxation imposed by
any State [or] county, . . . except that any real property of
the Agency shall be subject to State, . . .county, . . .or
local taxation to the same extent according to its value as
other real property is taxed. . .
B. The Transfer Taxes
Alabama, Florida, and Georgia impose taxes upon the transfer of real
property.

In Alabama, upon the presentation of any instrument for record, a

mandatory real property transfer tax is owed by the grantor to the judge of probate
based upon the actual purchase price or the actual value of the property. See Ala.
Code. §§ 40-22-1(d), 40-22-2. Similarly, Georgia’s transfer tax is imposed “on
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each deed, instrument, or other writing” by which any property is transferred, so
long as the consideration or value of the property conveyed exceeds $100. See Ga.
Code Ann. § 48-6-1. Georgia’s transfer tax is owed to the Clerk of the Superior
Court in the county in which the real property is situated “prior to and as a
prerequisite to the filing for record of any deed, instrument, or other writing”
subject to the tax. Id. at § 48-6-4(a). Florida’s transfer tax works in much the
same way. Florida Statute § 201.02 states that a transfer tax of 70 cents shall apply
on each $100 of consideration when there is a transfer of real property.
C. The District Court Proceedings
The six cases consolidated in this appeal are as follows: Montgomery County
Commission v. Federal Housing Finance Agency, App. No. 13-12615 (on appeal
from the Middle District of Alabama); Athens-Clarke County v. Federal Housing
Finance Agency, et al., App. No. 13-12367 (on appeal from the Middle District of
Georgia); Doggett v. Federal Housing Finance Agency, et al., App. No. 13-13150
(on appeal from the Middle District of Florida) (Lee County); Massey v. Federal
Housing Finance Agency, et al., App. No. 13-13267 (on appeal from the Southern
District of Georgia) (Chatham County); Randolph County v. Federal Housing
Finance Agency, et al., App. No. 13-13897 (on appeal from the Middle District of

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Alabama); Floyd County v. Federal Housing Finance Agency, et al., App. No. 1314094 (on appeal from the Northern District of Georgia).
In the Randolph County action, the county filed a motion for summary
judgment as to liability asserting that the charter exemptions from taxation were an
unconstitutional interference with its right as a sovereign to impose nondiscriminatory transfer taxes on Fannie Mae and Freddie Mac, and that in any
event, the statute’s own exception for real estate taxes applied to allow the local
government to impose the tax.

The federal entities also filed a motion for

summary judgment and opposed Randolph County’s motion. The district court
granted the entities’ motion finding that “Congress has the power to exempt
Defendants statutorily” and that “[t]he Commerce Clause permits Congress to
regulate activities that have a substantial relation to interstate commerce, and the
availability of capital in the national mortgage market bears such a substantial
relationship.” Randolph County v. Fed. Nat’l Mortg. Ass’n, No. 3:12-CV-886WKW, 2013 WL 3947614, *6 (M.D. Ala. July 31, 2013). The district court in the
Randolph County case held the statutory exception that allows for taxation on real
property did not apply to the Alabama transfer tax. Id.
Likewise, the Georgia district court’s order dismissing the amended
complaint in the Athens-Clarke County matter found that as federally chartered
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private corporations, Fannie Mae, and Freddie Mac may be shielded from paying
state taxes based on a congressional exemption. Athens-Clarke County Unified
Gov’t v. Fed. Housing Fin. Agency, 945 F. Supp. 2d 1401(M.D. Ga. 2013). The
district court reasoned that “[the county is] essentially ask[ing] the Court, based on
broad principles of federalism and dual sovereignty, to read new limits into the
Commerce Clause that would rein in Congressional authority to exempt private
entities from state taxation. However, [the district court] while respecting these
principles, decline[d] the Plaintiffs’ expansive invitation to redraw the outer
boundaries of Congress’s commerce power.” Id. at n.18. The Georgia district
court similarly held the statutory exception for taxation of real property did not
apply to except the transfer tax from the scope of the entities’ statutory exemption
from taxation. Id., 945 F. Supp. 2d at 1410.
The other four actions that are part of this consolidated appeal met the same
disposition in their respective district courts. The Alabama district court entered
judgment in favor of the federal entities in the Montgomery County action.
Montgomery County Comm’n v. Fed. Housing Fin. Agency, No. 2:12-CV-885,
2013 WL1896256 (M.D. Ala. 2013). In the Lee County action, the Florida district
court dismissed the complaint. (App. to Brief of Plaintiff-Appellant Linda Doggett
at 329). The Georgia district court also dismissed the Chatham County action and
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entered judgment in favor of the federal entities in the Floyd County action.
(Record in Chatham County Action at 82); Floyd County v. Fed. Housing Fin.
Agency, No. 1:13-CV-56-TWT, 2013 WL 4670668 (N.D. Ga. Aug. 30, 2013).
II. Standard of Review
This Court reviews questions of statutory interpretation de novo. See Black
Warrior Riverkeeper, Inc. v. Black Warrior Minerals, Inc., 734 F.3d 1297, 1300
(11th Cir. 2013). This Court reviews a district court’s grant or denial of a motion
for summary judgment, as in the Randolph County action de novo. Swanson v.
Worley, 490 F.3d 894, n.8 (11th Cir. 2007). Accepting all of the well-pleaded
allegations in the complaint as true and drawing all reasonable inferences in favor
of the plaintiff, the standard of review on the grant of a 12(b)(6) motion to dismiss,
as in the Athens-Clarke action, is also de novo. Simmons v. Sonyika, 394 F.3d
1335, 1338 (11th Cir. 2004).
III. Analysis
This consolidated appeal arises out of six actions in five United States
District Courts in this Circuit. The appeal arises out of a Congressional exemption
from taxation granted to the federal entities. The six district court opinions found

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the statutory exemptions 2 do apply to preclude taxation and are constitutional.
Additionally, the district courts found the statutory exceptions for taxation of real
property contained in the federal statutes did not apply to allow Appellants to
impose the transfer taxes. We affirm the district courts and agree with our sister
Circuit Courts, who have held the charter exemptions do apply in this context, and
are constitutional. See Bd. of County Comm’rs of Kay County, Okla. v. Fed.
Housing Fin. Agency, 754 F.3d 1025 (D.C. Cir. 2014); Vadnais v. Fed. Nat’l
Mortg. Ass’n, 754 F.3d 524 (8th Cir. June 6, 2014); Delaware County v. Fed.
Housing Fin. Agency, 747 F.3d 215 (3d Cir. 2014); Hennepin County v. Fed. Nat’l
Mortg. Ass’n, 742 F.3d 818, 824 (8th Cir. 2014); Montgomery County, Md. v. Fed.
Nat’l Mortg. Ass’n, 740 F.3d 914, 917 (4th Cir. 2014); DeKalb County v. Fed.
Housing Fin. Agency, 741 F.3d 795, 800 (7th Cir. 2013); County of Oakland v.
Fed. Housing Fin. Agency, 716 F.3d 935 (6th Cir. 2013); Town of Johnston v. Fed.

2

The statutory provisions exempt the federal entities from “all [state and local] taxation,”
except taxes to which their real property is subject. 12 U.S.C. §§ 1452(e), 1723a(c)(2),
4617(j)(2) (i.e. the exemption provisions).
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Housing Fin. Agency, 765 F.3d 80 (1st Cir. 2014); City of Spokane v. Fed. Nat’l
Mortg. Ass’n, No. 13-35655, 2014 WL 7384311 (9th Cir. Dec. 30, 2014). 3
A. Do the Statutory Exemptions Prohibit the States from Charging Transfer
Taxes?
“It is well settled that ‘the starting point for interpreting a statute is the
language of the statute itself.’” Gwaltney of Smithfield, Ltd. v. Chesapeake, 484
U.S. 49, 57 (1987) (Consumer Product Safety Comm'n v. GTE Sylvania, Inc., 447
U.S. 102, 108 (1980)). “When [a] statute's language is plain, the sole function of
the courts. . . is to enforce it according to its terms.” Dodd v. United States, 545
U.S. 353, 359 (2005) (quoting Hartford Underwriters Ins. Co. v. Union Planters
Bank, N. A., 530 U.S. 1, 6, (2000)). The federal charters state that they “shall be
exempt from all taxation . . . imposed by any State.” 12 U.S.C. §§ 1723a(c)(2);
1452(e); 4617(j)(2). These statutes proceed to identify real property as the sole
exception to the general rule. Id. A straightforward interpretation of the provisions
is that the federal agencies are exempt from all state taxation, other than taxes on

3

In addition to those cases analyzed by the various Circuit Courts, several district courts
have also reviewed the issues and found in favor of the Fannie Mae, Freddie Mac, and the
Federal Housing Finance Agency. See City of Bridgeport v. Fed. Nat’l. Mortg. Ass’n, No. 3:12cv-1218, 2014 WL 1612589 (D. Conn. April 22, 2014); County of Erie v. Fed. Housing Fin.
Agency, No. 13-CV-284S, 2014 WL 795967 (W.D.N.Y. Feb. 27, 2014); Griffith v. Fed. Nat’l.
Mortg. Ass’n, No. 12-02083, 2014 WL 2573329 (S.D.W. Va. June 9, 2014); Butts v. Fed. Nat’l
Mortg. Ass’n, No. 9:12-1912 (D.S.C. May 23, 2013).
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their own real estate holdings. See Kay County, 754 F.3d at 1029 (“all taxation
clearly encompasses all taxation, including the Transfer Tax”).
Against this argument, Montgomery and Floyd Counties argue the district
court erred in holding that all taxation prohibited the imposition of the transfer
taxes. Rather, Montgomery and Floyd Counties cite United States v. Wells Fargo,
485 U.S. 351 (1988), where the Supreme Court stated:
[A]n exemption of property from all taxation ha[s] an
understood meaning: the property [is] exempt from direct
taxation, but certain privileges of ownership, such as the
right to transfer the property, [can] be taxed. Underlying
this doctrine is the distinction between an excise tax,
which is levied upon the use or transfer of property even
though it might be measured by the property's value, and
a tax levied upon the property itself.
Id., 485 U.S. at 355. Using this language, the counties argue that an exemption
from “all taxation” has a technical, “understood meaning” that does not provide an
exemption from indirect taxes such as transfer taxes. Id.

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As the Seventh Circuit explained in DeKalb County, 741 F.3d at 800, the
flaw in the counties’ argument is that Wells Fargo involved an exemption of
specific property from all taxation, whereas this case involves exemptions of
entities. The Supreme Court in Wells Fargo was considering an estate tax, an
excise tax on the transfer of property at death, and the transfer of Project Notes 4 in
particular, which it held could be taxed at transfer. DeKalb, 741 F.3d at 800;
Delaware County, 747 F.3d at 222 (3d Cir. 2014).
In DeKalb, the court found Bank of St. Paul v. Bismarck Lumber Co., 314
U.S. 95 (1941) to be more squarely on point and this Court agrees. “Had the
Supreme Court meant to hold that the term ‘all taxation’ means just property
taxation – a very strange reading, equivalent to interpreting ‘all soup’ to mean ‘all
lobster bisque’ – it would have had to overrule [Bismarck].” DeKalb, 741 F.3d at
800. In Bismarck, the Supreme Court analyzed a statute that stated “every Federal
land bank . . . shall be exempt from Federal, State, municipal, and local taxation,
except taxes upon real estate held, purchased or taken.” Bismarck, 314 U.S. at 96

4

The Housing Act of 1937 gave state and local housing authorities the power to issue
tax-free financing instruments, termed “Project Notes.” These notes were property issued by
the state and local housing authorities during the housing shortage of the 1930s. Wells Fargo,
485 U.S. at 353.
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n.1. The tax exemption here applies to the federal entities, like the federal land
banks in Bismarck, and “not just its property, which was the issue in Wells
Fargo.” DeKalb, 741 F.3d at 801 (“The important point is that, as is plain from
reading Wells Fargo, and plainer still when it is read in conjunction with
Bismarck, the Fannie Mae statute exempts Fannie from real estate transfer taxes
levied by state or local government. . .”); Delaware County, 747 F.3d at 222
(“Wells Fargo involved an exemption of specific property from all taxation,
whereas this case involves exemptions of entities”); Kay County, 754 F.3d at 1029
(“But that case [Wells Fargo] is not on point. The statute at issue in Wells Fargo
exempted specific property. The statute at issue in this case exempts specific
entities. This is a distinction with a difference.”); Hennepin County, 742 F.3d at
822 (holding the issue was akin to that in Bismarck, and distinguishing Wells
Fargo); County of Oakland, 716 F.3d at 94-41 (finding Bismarck applies).
Bismarck is not the only Supreme Court case on point to support the
holding that the exemption encompasses transfer taxes. In Pittman v. Home
Owners’ Loan Corp. of Washington, DC, 308 U.S. 21, 33 (1939), the Supreme
Court held that a federal statutory exemption from “all taxation” granted to the
Home Owners’ Loan Corporation prohibited a Maryland stamp tax upon the
recording of mortgages. The Supreme Court consistently held in Laurens Fed.
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Savs. & Loan Ass’n v. S.C. Tax Comm’n, 365 U.S. 517, 524 (1961) that a federal
statutory exemption from “all taxation” granted to federal home loan banks
prohibited South Carolina from collecting a similar stamp tax imposed on
transfers to or from such banks. Based on the Supreme Court precedent, the Court
agrees with our sister Circuit Courts that the statutory exemption from “all
taxation” applies to excise taxes like the transfer taxes here.
1. The Real Estate Exceptions
The federal charter exemptions each contain an exception that states that
“any real property” of the entities “shall be subject to [state and local] taxation to
the same extent . . . as other real property is taxed.” 12 U.S.C. §§ 1452(e),
1723a(c)(2), 4617(j)(2). Appellants argue that the district courts erred in limiting
the real estate exception to ad valorem taxes. Their position is that “taxation is the
rule -- exemption is the exception” and thus, the real estate property exception
should be broadly construed to include an exception for transfer taxes, in addition
to ad valorem taxes. Yazoo & M.V.R. Co. v. Thomas, 132 U.S. 174 (1889). More
specifically, Appellants argue that property ownership is a “bundle of sticks” and
the right to transfer is one stick in the property tax bundle. Taking the argument
one step further, Appellants argue that any privilege associated with property
ownership is tantamount to a real property tax, falling within the statutes’
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Our sister Circuit Courts to have reviewed this argument have

disagreed with Appellants' position. Here is why. Although transfer taxes are
imposed on the exercise of privileges stemming from the ownership of real
property, they are not taxes on the property itself, and thus do not qualify for the
real property exception. To put it another way, “A deed is not real estate, any
more than car title is a car.” DeKalb, 741 F.3d at 801; see Hennepin County, 742
F.3d at 822 (“deed transfer tax is a tax imposed by the state on the transfer of real
property, not on the real property itself.”); Kay County, 754 F.3d at 1030 (“The
Transfer Tax, which is measured by the value of the property but triggered only at
its transfer, is clearly an excise tax. Wells Fargo, upon which the County relies
establishes the difference: excise taxes . . . are levied upon [the property’s] use or
transfer and not upon its existence.”); Town of Johnston, 765 F.3d at 83 (“[T]his
distinction between direct taxes on real property and indirect taxes is reflected in
both Massachusetts and Rhode Island law. Direct taxes on real property. . .are
codified separately from transfer taxes. . .”); City of Spokane, 2014 WL 7384311,
at *2 (“[I]t is clear that the statutory carve-outs allowing for the taxation of real
property as ‘other real property is taxed’ encompass only property taxes, not
excise taxes.”); Delaware County, 747 F.3d at 224; Montgomery County, 740 F.3d

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at 920; County of Oakland v. Fed. Housing Fin. Agency, 716 F.3d 935, 939 n.6
(6th Cir. 2013).
Moreover, “[w]hen Congress provides exceptions in a statute, it does not
follow that courts have authority to create others. The proper inference . . . is that
Congress considered the issue of exceptions, and, in the end, limited the statute to
the ones set forth.” County of Oakland, 716 F.3d at 940 (quoting United States v.
Johnson, 529 U.S. 53, 58 (2000)).

Here, the Court declines to extend the

exception for taxation “as other real property is taxed” to include the states’
transfer taxes.
B.

Are the Statutory Exemptions Constitutional under the Commerce

Clause?
Appellants next make an interesting constitutional argument to invalidate
the statutory tax exemptions.

At issue is whether Congress acted within its

authority under the Commerce Clause and Necessary and Proper Clauses, whether
the entities are federal instrumentalities or private mortgage lenders, and whether
the Tenth Amendment precludes the statutory exemptions.
1. Did Congress violate the Commerce and Necessary and Proper
Clauses?

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The Commerce Clause provides that Congress shall have the power “to
regulate Commerce with foreign Nations, and among the Several States. . ..” U.S.
Const. Art. I, § 8 cl. 3. To that end, the “Necessary and Proper Clause grants
Congress broad authority to enact federal legislation.” United States v. Comstock,
560 U.S. 126, 133 (2010). It gives Congress the authority to “make all Laws
which shall be necessary and proper” to “regulate Commerce . . . among the
several States.” U.S. Const., Art. I, § 8. Typically, when a federal statute is
construed to invalidate a state tax, courts apply the rational basis test to determine
whether Congress had a “rational basis for finding the . . .tax interfered with
interstate commerce.” Ariz. Pub. Serv. Co. v. Snead, 441 U.S. 141, 150 (1979);
Gonzales v. Raich, 545 U.S. 1, 22 (2005); Vadnais v. Fed. Nat’l Mortg., 754 F.3d
524, 527 (8th Cir. 2014).
Appellants contend this Court should review Congress’s authority to
exempt the federal entities under the strict scrutiny standard of review because the
exemptions interfere with the States’ fundamental constitutional rights as separate
sovereigns under the Tenth Amendment. However, under Hodel v. Va. Surface
Mining & Reclamation Ass’n, 452 U.S. 264, 276 (1981) “[t]he task of a court that
is asked to determine whether a particular exercise of congressional power is valid
under the Commerce Clause is relatively narrow. The court must defer to a
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congressional finding that a regulated activity affects interstate commerce, if there
is any rational basis for such a finding.” see also Montgomery County, 740 F.3d at
921 (“The Supreme Court has often recognized Congress’s power to exempt
entities from state taxation, but it has never indicated that such an exercise of
power would be subject to strict scrutiny.”); Town of Johnston, 765 F.3d at 84
(“As the municipalities necessarily concede, there is no precedent in favor of this
wishful argument. . .The district courts saw no reason to depart from a rational
basis analysis, and neither do we.”). Accordingly, in the absence of a particular
constitutional right that triggers strict scrutiny, the Court will evaluate the federal
charter exemptions under a rational basis standard of review.
On the merits, the Appellants contend that Congress overstepped its
authority under the Commerce Clause because the transfer taxes are local
intrastate activity. The Commerce Clause authorizes Congress to regulate “the
channels of interstate commerce, persons or things in interstate commerce, and
those activities that substantially affect interstate commerce.”

Nat. Fed’n of

Indep. Bus. v. Sebelius, – U.S.–, 132 S. Ct. 2566, 2578 (2012) (quoting United
States v. Morrison, 529 U.S. 598, 609 (2000)). Without question, the Supreme
Court has “firmly establishe[d] Congress’ power to regulate purely local activities
that are part of an economic ‘class of activities’ that have a substantial effect on
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interstate commerce.” Raich, 545 U.S. at 1, 17 (citing Perez v. United States, 402
U.S. 146, 150 (1971)). Evaluating a statute’s validity requires this Court to
determine only whether Congress had a rational basis for determining the
regulated activity substantially affects interstate commerce. Id. (citing United
States v. Lopez, 514 U.S. 549 (1995)); Hodel, 452 U.S. at 276-80.
Congress created the federal entities – Fannie Mae, Freddie Mac, and the
Federal Housing Finance Agency – with the intention of stabilizing the secondary
market in home mortgages and to increase the supply of mortgage lending capital.
See 12 U.S.C. § 1716 (Fannie Mae); 12 U.S.C. § 1451 (Freddie Mac). Congress
charged these entitities “with buying mortgages from banks that had made
mortgage loans, thus pumping money into the banking industry that could be used
to make more such loans.” DeKalb, 741 F.3d at 797. For this reason, all the
Circuit Courts to have reviewed this issue have found that Congress rationally
acted in exempting the federal entities from the burden of state and local taxation,
allowing them to reduce transaction costs in the course of buying and selling
mortgages. Delaware County, 747 F.3d at 227 (“It strains credulity to argue that
the transfer taxes, aggregated nationally, do not substantially affect the [national
mortgage market].”); DeKalb, 741 F.3d at 801 (“[I]t is obvious that the home
mortgage market is nationwide, and indeed worldwide, with home mortgages
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being traded in vast quantities across state lines.”); Montgomery County, 740 F.3d
at 923 (“One need only recall the effects on the national economy that the 2008
failure of mortgage markets had in order to recognize that the regulation and
stabilization of those markets lie at the core of the Nation’s interest in promoting
and maintaining a vital economy.”); Vadnais, 754 F.3d at 527 (“This belief could
lead Congress to reasonably conclude state transfer taxes ‘would substantially
affect interstate commerce by burdening’ the federal agencies.”) (quoting
Montgomery County, 740 F.3d at 924); Town of Johnston, 765 F.3d at 85 (“If the
mission of the entities as detailed in their charters is not at the heart of interstate
commerce, it surely resides in one of the main arteries.”); City of Spokane, 2014
WL 7384311, at *4 (“[Congress] has power under the Necessary and Proper
Clause not only to create Fannie and Freddie but also to ensure their preservation
by exempting them from state and local taxes.”). This Court agrees that Congress
did not overstep its authority under the Commerce Clause in exempting the federal
entities from the states’ transfer taxes and the exemptions were a valid exercise
under the Necessary and Proper Clause.
2. Are the Appellees federal instrumentalities?
Appellants do not dispute that Congress can exempt federal agencies from a
state tax, but rather argue the Fannie Mae and Freddie Mac are privately-held
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corporations and not federal instrumentalities. See McCulloch v. Maryland, 17
U.S. (4 Wheat.) 316, 436-37 (1819) (holding a state or local government cannot
tax a federal entity). 5 Recognizing that McCulloch controls, Appellants contend
the constitutional immunity granted by McCulloch and the statutory exemptions
must be identical for a private entity to be exempt. The Seventh Circuit has held
that whether the constitutional and statutory exemptions are identical is
inconsequential. DeKalb, 741 F.3d at 802. This Court agrees that requiring the
constitutional and statutory exemption to be identical would strip Congress’s
power under the Commerce Clause. Id., 741 F.3d at 802 (quoting Ariz. Dep’t of
Revenue v. Blaze Constr. Co., 526 U.S. 32, 35-36).
Against this logic, Appellants urge this Court to find the privatization of
Fannie Mae and Freddie Mac precludes Congress from exempting them from state
taxation. Appellants argue the district courts improperly relied on the decision in
First Agricultural Nat’l Bank v. State Tax Comm’n, 392 U.S. 339 (1968). In First
Agricultural, the Supreme Court held that a national bank had been statutorily
exempted from a state tax, which made it “unnecessary to reach the constitutional
question of whether . . .national banks should be considered nontaxable as federal

5

Fannie Mae was converted into a private entity by Congress, but its charter remained
unchanged. Fannie Mae cannot change its charter, unless Congress does so statutorily. 12
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instrumentalities.” Id., 392 U.S. at 341. The Supreme Court added that “[b]ecause
of pertinent congressional legislation in the banking field, we find it unnecessary
to reach the constitutional question. . ..” Id. Likewise here, Congress had the
authority to provide for “immunity from state taxation irrespective of [the] entity’s
status as a federal instrumentality and because Congress has done so in the present
case, it is unnecessary to address whether Fannie Mae and Freddie Mac indeed
qualify as federal instrumentalities.” Montgomery County, 740 F.3d at 925; see
also Blaze Constr. Co., Inc., 526 U.S. at 36-38 (stating that tax exemption could
stem from constitutional immunity or congressional exemption); Delaware
County, 747 F.3d at 228, n.4. Put another way, “[t]his focus on whether the
entities are federal instrumentalities is off-target. Private entities may be shielded
from paying a state tax by either ‘constitutional immunity or congressional
exemption.’” Town of Johnston, 765 F.3d at 85 (quoting Blaze Constr. Co., Inc.,
526 U.S. at 36-38). Again, it simply does not matter whether Fannie Mae and
Freddie Mac were privatized, as long as they are fulfilling a federal policy found
in their charters. Because that is the case, the Court must honor the Congressional
exemption. DeKalb,741 F.3d at 802 (“Congress’s purpose in creating Fannie in
the first place – to expand home-mortgage lending in the United States – remains
U.S.C. § 1716. Freddie Mac was always private, but its charter like that of Fannie Mae’s, is to
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federal policy, and therefore remains the policy that private Fannie is obligated as
its sole mission, to promote. . .. The objective was governmental and unchanged;
only the means of achieving it was changed.”).
Bismarck also lends support for this position. In Bismarck, the Supreme
Court held that “when Congress constitutionally creates a corporation through
which the federal government lawfully acts, the activities of such corporations are
governmental.” Id., 314 U.S. at 102; see also Pittman, 308 U.S. at 32 (“[T]he
activities of the Corporation through which the national government lawfully acts
must be regarded as governmental functions and as entitled to whatever immunity
attaches to those functions when performed by the government itself.”). The
Bismarck Court ultimately held that Congress had the power to exempt from
taxation the federal land banks, which it viewed as extensions of the federal
government. Bismarck, 314 U.S. at 102. This case is nearly identical to Bismarck.
Hennepin County, 742 F.3d at 823. Congress constitutionally created Fannie Mae
and Freddie Mac to provide access to mortgages and support to the secondary
mortgage market. Like the federal land banks, Congress had the authority to
exempt them from state taxation as these entities are carrying out a federal policy
that their charters require them to pursue. This Court therefore agrees with the
promote federal home financing policy. 12 U.S.C. § 1451.
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sister Circuit Courts to have reviewed this issue that Congress has the authority to
protect these federal entities by exempting from state taxation. DeKalb, 741 F.3d
at 802; Hennepin County, 742 F.3d at 824; Montgomery County, 740 F.3d at 925;
Vadnais, 754 F.3d at 527.
3. Do the exemptions run afoul of the 10th Amendment?
Relying on New York v. United States, 505 U.S. 144 (1992) and Printz v.
United States, 521 U.S. 898 (1997), Appellants argue the federal charter
exemptions run afoul of the 10th Amendment by commandeering state officials to
record deeds from the federal entities free of charge. New York and Printz explain
the general “anti-commandeering” parameters of the Tenth Amendment: (i)
Congress may not require a state legislature to enact any laws or regulations and
(ii) Congress may not command state officers to administer or enforce a federal
regulatory program. New York, 505 U.S. at 162-170; Printz, 521 U.S. at 935.
This Court does not view the exemptions at issue to require the state legislature or
the state officers to take any action to implement a federal program. Rather, the
Court views the exemptions as valid under the Supremacy Clause, which allows
Congress to properly enact statutes under the Commerce Clause, which supercede
state tax law.

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The statutory exemptions are in line with those upheld by the Supreme
Court in South Carolina v. Baker, 485 U.S. 505 (1988), in which the Court found
a federal statute requiring bond registration did not improperly commandeer the
states. In Baker, the Supreme Court wrote: “Any federal regulation demands
compliance.

That a State wishing to engage in certain activity must take

administrative and sometimes legislative action to comply with federal standards
regulating that activity is a commonplace [and] presents no constitutional defect.”
Id., 485 U.S. at 514; see also Reno v. Condon, 528 U.S. 141, 151 (2000). The
federal charter exemptions at issue in this case certainly do not improperly
commandeer the state actors in violation of the 10th Amendment.
In this case, the Supremacy Clause does not set forth a different standard for
legislation enacted under the Commerce Clause, including any legislation such as
the state taxes here at issue. This Court also recognizes the Supreme Court has
required Congress to “speak clearly when it intends to exercise its lawful authority
under the Supremacy Clause to preempt traditional state powers” such as taxation.
Delaware County, 747 F.3d at 225 (citing Dep’t of Rev. of Or. v. ACF Indus., Inc.,
510 U.S. 332, 345 (1994)) (“We will interpret a statute to pre-empt the traditional
state powers only if that result is ‘the clear and manifest purpose of Congress.’”).
Indeed, the Supreme Court has long held that the federal commerce power
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supercedes state tax authority. Brown v. Maryland, 25 U.S. (12 Wheat.) 419
(1827); see also Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1 (1824) (“[The
Commerce Clause] is complete in itself, may be exercised to its utmost extent, and
acknowledges no limitations, other than are prescribed in the constitution.”). In
evaluating this issue, the Seventh Circuit explained, “[n]o provision of the
Constitution insulates state taxes from federal powers granted by the
Constitution.” DeKalb, 741 F.3d at 801; see Delaware County, 747 F.3d at 228
(“A state official’s compliance with federal law and non-enforcement of a
preempted state law– as required by the Supremacy Clause– is not an
unconstitutional commandeering.”); Montgomery County, 740 F.3d at 925 (“The
federal statutes in question, however, do not impose upon the states or local
officers any affirmative obligation.”); City of Spokane, 2014 WL 7384311, at *4
(“The exemptions neither commandeer state and local officials nor transgress
general principles of federalism.”). This Court agrees that the Congressional
exemptions here demonstrate a clear intention by Congress to exercise its lawful
authority under the Supremacy Clause to prohibit the imposition of state taxes on
the federal entities.

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The district courts’ decisions holding that the federal entities are exempt
from paying transfer taxes and that the federal statutes are constitutional are
affirmed.
AFFIRMED.

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