Montgomery County v. Federal National Mortgage Association et al
Filing
32
MEMORANDUM OPINION. Signed by Chief Judge Deborah K. Chasanow on 4/30/13. (sat, Chambers)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
:
MONTGOMERY COUNTY, MARYLAND
:
v.
:
Civil Action No. DKC 13-0066
:
FEDERAL NATIONAL MORTGAGE
ASSOCIATION, et al.
:
MEMORANDUM OPINION
Presently pending and ready for review in this tax dispute
are two motions:
(1) the motion to dismiss filed by Defendants
the Federal National Mortgage Association (“Fannie Mae”), the
Federal Home Loan Mortgage Corporation (“Freddie Mac”), and the
Federal Housing Finance Agency (“the Agency”) (ECF No. 14); and
(2) the motion for partial summary judgment as to liability
filed by Plaintiff Montgomery County, Maryland (ECF No. 24).
The issues have been fully briefed, and the court now rules, no
hearing being deemed necessary.
Local Rule 105.6.
Because
Fannie Mae’s and Freddie Mac’s charters exempt them from the
state and local taxes at issue in this case, Montgomery County’s
statutory claim seeking payment of such taxes will be dismissed,
and
a
declaratory
Defendants.
judgment
will
be
entered
in
favor
of
I.
Background
The
state
of
Maryland
imposes
recordation
and
taxes when parties transfer title to real property.
Code. Ann., Tax-Prop. §§ 12-101 & 13-201 et seq.
transfer
See Md.
The state of
Maryland also permits its counties to impose their own transfer
taxes, subject to certain conditions.
See id. § 13-401 et seq.
Pursuant to this authority, Montgomery County imposes transfer
taxes.
the
See Montgomery County Code § 52-19 et seq.
transfer
and
recordation
taxes
imposed
by
Together,
the
state
of
Maryland and the transfer taxes imposed by Maryland counties
(including Montgomery County) pursuant to Section 13-402.1 will
be referred to herein as “the Transfer Taxes.”
Fannie Mae is a private corporation chartered by Congress
to
“establish
secondary
market
facilities
for
residential
mortgages,” to “provide stability in the secondary market for
residential
mortgages,”
and
to
credit throughout the Nation.”
“promote
access
12 U.S.C. § 1716.
to
mortgage
Freddie Mac
is also a congressionally chartered private corporation with a
similar
mission:
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 throughout the Nation.”
§ 1451 note.
Id.
Congress created the Agency to oversee Fannie Mae
2
and Freddie Mac and, in 2008, appointed the Agency to serve as
their conservator.
See id. § 4617.
Fannie Mae and Freddie Mac (together, “the Entities”) are
generally exempt from taxation by states and localities.
The
federal statute chartering Fannie Mae provides as follows:
The corporation, including its franchise,
capital, reserves, surplus, mortgages or
other security holdings, and income, shall
be exempt from all taxation now or hereafter
imposed by any State, territory, possession,
Commonwealth, or dependency of the United
States, or by the District of Columbia, or
by any county, municipality, or local taxing
authority, except that any real property of
the corporation shall be subject to State,
territorial, county, municipal, or local
taxation to the same extent as other real
property is taxed.
12 U.S.C. § 1723a(c)(2).
Freddie Mac’s charter is much to the
same effect:
The Corporation, including its franchise,
activities, capital, reserves, surplus, and
income, shall be exempt from all taxation
now or hereafter imposed by any territory,
dependency, or possession of the United
States
or
by
any
State,
county,
municipality, or local taxing authority,
except that any real property of the
Corporation shall be subject to State,
territorial, county, municipal, or local
taxation to the same extent according to its
value as other real property is taxed.
Id.
§ 1452(e).
These exemption clauses will be referred to
3
collectively herein as “the Charter Exemptions.”1
On January 7, 2013, Montgomery County filed a class action
complaint
in
participated
Montgomery
this
in
court,
thousands
County
and
alleging
of
that
real
elsewhere
in
the
estate
Maryland
Entities
have
transactions
involving
in
the
transfer of title to real property, but have refused to pay both
the
Transfer
Taxes
and
the
agricultural
land
transfer
taxes
imposed by Washington County pursuant to Section 13-502 of the
Maryland
Code
on
Agricultural Taxes”).
Tax-Property
(“the
Washington
(ECF No. 1 ¶¶ 24-26).2
County
The complaint
alleges that the Entities have negligently, intentionally, or
fraudulently claimed exemptions to these taxes under both state
and federal law.
Specifically, Montgomery County argues that
1
The Agency’s chartering statute includes a similar
exemption provision.
See 12 U.S.C. § 4617(j)(1) (explaining
that the Agency “shall be exempt from all taxation imposed by
any State, county, municipality, or local taxing authority,
except that any real property of the Agency shall be subject to
State, territorial, county, municipal, or local taxation to the
same extent according to its value as other real property is
taxed . . . ); see also id. § 4617(j)(2) (making the exemption
provisions applicable “in any case in which the Agency is acting
as a conservator or a receiver”).
2
Unlike the general allowance for county transfer taxes
established by Md. Code Ann., Tax-Prop. § 13-401 et seq.,
Section 13-502 is specific to Washington County and provides, in
relevant part, that “[t]he Board of County Commissioners of
Washington
County
may . . . levy
and
impose
a
county
agricultural land transfer tax on an instrument of writing for
property located in the county if the instrument is subject to
the State agricultural land transfer tax under Subtitle 3 of
this title.” Md. Code Ann., Tax-Prop. § 13-502(a)(1).
4
the
statutory
language
of
the
Charter
Exemptions
does
not
relieve the Entities from their obligation to pay the Transfer
Taxes
and
that,
in
unconstitutional
Montgomery
as
County
any
event,
applied.
names
the
the
In
Charter
addition
Agency
as
a
to
Exemptions
the
are
Entities,
Defendant,
alleging
that, as the Entities’ conservator, the Agency stands in the
shoes of Fannie Mae and Freddie Mac.
(Id. ¶ 32).
Montgomery
County purports to bring this action on behalf of itself and a
putative class of 18 Maryland counties that impose their own
transfer taxes.
In
its
(Id. ¶¶ 11-23).
first
count,
Montgomery
County
seeks
a
judgment
pursuant to 28 U.S.C. § 2201 declaring that the Entities are not
exempt from payment of the Transfer Taxes or the Washington
County Agricultural Taxes under state or federal law.
Pursuant
to 28 U.S.C. § 2202, Montgomery County seeks additional relief
in the form of payment (in an unspecified amount) of previously
unpaid Transfer Taxes and Washington County Agricultural Taxes,
plus
applicable
statutory
penalties
and
interest.
Plaintiff
also asserts a second count directly under the statutes creating
the Transfer Taxes and the Washington County Agricultural Taxes,
alleging that Montgomery County and the other putative class
members have been damaged by the Entities’ refusal to pay and
seeking payment (again in an unspecified amount), plus interest
and penalties.
5
On February 4, 2013, Defendants filed a motion to dismiss
the complaint pursuant to Fed.R.Civ.P. 12(b)(6).
(ECF No. 14).
On March 1, Montgomery County moved for partial summary judgment
on liability pursuant to Fed.R.Civ.P. 56(a) (ECF No. 24) and
also filed an opposition to Defendants’ motion (ECF No. 26).
On
March 26, Defendants filed a consolidated brief in opposition to
Montgomery County’s partial motion for summary judgment and in
reply to its motion to dismiss.
(ECF No. 29).
Defendants then
filed a “Notice of New Authority” submitting several recently
decided
federal
district
court
decisions
involving
similar
disputes (ECF No. 30), and Montgomery County filed a reply in
support of its partial summary judgment motion (ECF No. 31).
II.
Standard of Review
As noted, Defendants seek dismissal of Montgomery County’s
complaint
12(b)(6).
for
In
failure
addition
to
to
state
a
opposing
claim
this
pursuant
motion,
to
Rule
Montgomery
County also seeks partial summary judgment as to liability on
its
claims
pursuant
to
Rule
56.
Although
these
competing
motions seemingly implicate two different standards of review,
they raise identical issues and turn on purely legal questions
that can be resolved without resort to matters outside of the
6
pleadings.3
County’s
Accordingly, it is appropriate to resolve Montgomery
statutory
claim
for
payment
of
the
Transfer
Taxes
pursuant to the well-established standards for a Rule 12(b)(6)
motion
to
dismiss.
In
other
words,
Montgomery
County’s
statutory claim will be dismissed if it fails, as a matter of
law, to state a claim upon which relief can be granted.
e.g.,
Sager
F.Supp.2d
v.
524,
Housing
544
Com’n
(D.Md.
of
2012)
Anne
(“A
Arundel
Rule
See,
Cnty.,
12(b)(6)
855
motion
constitutes an assertion by the defendant that, even if the
facts that the plaintiff alleges are true, the complaint fails,
as a matter of law, to state a claim upon which relief can be
granted.” (internal quotation marks omitted)).
By contrast, resolution of Montgomery County’s claim for
declaratory relief pursuant to 28 U.S.C. § 2201 is not properly
decided under Rule 12(b)(6).
As is evident from the complaint
and the parties’ briefs, there is an actual, ongoing controversy
between them as to whether the Entities are exempt from the
Transfer
Taxes.
The
parties
disagree
controversy should be resolved.
only
as
to
how
this
In such circumstances, a motion
3
Montgomery County does attach certain exhibits in
connection with its partial motion for summary judgment. (See
ECF Nos. 25-2 through 25-8). Only those documents that excerpt
portions of federal statutes and congressional records (i.e.,
ECF Nos. 25-5, 25-6, & 25-7) will be considered. See Philips v.
Pitt Cnty. Mem. Hosp., 572 F.3d 176, 180 (4th Cir. 2009)
(explaining that matters of public record may be considered in
ruling on a Rule 12(b)(6) motion).
7
to dismiss for failure to state a claim is not the appropriate
means of resolving a declaratory judgment claim:
“Where a bill of complaint shows a subject
matter that is within the contemplation of
the relief afforded by the declaratory
decree statute, and it states sufficient
facts to show the existence of the subject
matter
and
the
dispute
with
reference
thereto, upon which the court may exercise
its declaratory power, it is immaterial that
the ultimate ruling may be unfavorable to
the plaintiff. The test of the sufficiency
of the bill is not whether it shows that the
plaintiff is entitled to the declaration of
rights or interest in accordance with his
theory, but whether he is entitled to a
declaration at all; so, even though the
plaintiff may be on the losing side of the
dispute, if he states the existence of a
controversy which should be settled, he
states a cause of suit for a declaratory
decree.”
Charter Oak Fire Ins. Co. v. Am. Capital, Ltd., No. DKC 09–0100,
2011 WL 856374, at *18 (D.Md. Mar. 9, 2011) (quoting 120 W.
Fayette Street, LLLP v. Mayor & City Council of Baltimore City,
413
Md.
309,
355-56
(2010));
see
also,
e.g.,
22A
Am.Jur.2d
Declaratory Judgments § 232 (2013 supp.) (“A motion to dismiss
is seldom an appropriate pleading in actions for declaratory
judgments, and such motions will not be allowed simply because
the plaintiff may not be able to prevail.”).
Accordingly, with respect to Montgomery County’s claim for
declaratory relief, the parties’ motions will be construed as
competing cross-motions for a declaration in their favor as to
8
Entities’ obligation to pay the Transfer Taxes.
See McKinsey &
Co., Inc. v. Olympia & York 245 Park Ave. Co., 433 N.Y.S.2d 802,
802 (N.Y.App.Div. 1980) (“In the absence of a holding that a
dispute is not ripe for adjudication, a court should not dismiss
the
complaint
in
a
declaratory
judgment
action,
but
should
declare the parties’ rights.”); Diamond v. Chase Bank, No. 110907-DKC,
2011
WL
3667282,
(construing
a
defendant’s
plaintiff’s
declaratory
at
Rule
judgment
*5
(D.Md.
12(b)(6)
claim
as
Aug.
motion
a
19,
to
motion
2011)
dismiss
for
a
declaration in its favor).
III. Analysis
A.
Montgomery County’s Standing to Enforce the Washington
County Agricultural Taxes
Before turning to the heart of the parties’ dispute about
the
reach
necessary
and
to
validity
address
of
the
Defendants’
Charter
argument
Exemptions,
–
raised
it
is
via
a
footnote (ECF No. 14-1, at 23-24 n. 12) – that Montgomery County
lacks authority to pursue an action seeking enforcement of the
Washington County Agricultural Taxes.4
4
Defendants contend that
Initially, Defendants also argued that Montgomery County
lacked authority to seek payment of the transfer and recordation
taxes imposed by the state of Maryland. (ECF No. 14, at 23-24
n. 12).
In response, Montgomery County noted that Md. Code
Ann., Tax-Prop. § 14-864 permits combined actions to collect
state and county taxes where such taxes are owed to the same
collector – a situation that exists here, given that Md. Code
Ann., Tax-Prop. § 13-208 allows the transfer and recordation
9
the agricultural land transfer tax permitted by Md. Code Ann.,
Tax–Prop. § 13-502 is unique to Washington County, such that
Washington County is the only entity empowered to bring suit
seeking to collect taxes imposed under that section.
also ECF No. 29, at 39 n. 39).
(Id.; see
Montgomery County does not
directly respond to this argument other than to observe that it
filed this case as a putative class action and that Washington
County will be eligible to join the proposed class.
26, at 33-34).
Pursuant
(ECF No.
This response is unavailing.
to
Maryland
law,
the
named
plaintiff
“for
an
action to collect county tax” must be either the “governing body
of the county” or “the county collector with a designation of
authority.”
Md.
Code
Ann.,
Tax-Prop.
§
14-868(2).
Here,
however, neither the governing body of Washington County nor its
collection
agent
has
been
named
as
a
plaintiff.
Although
Montgomery County can properly bring suit to enforce its own
transfer taxes imposed pursuant Md. Code Ann., Tax-Prop. § 13401 et seq., and can seek certification of a class of counties
with
similar
transfer
taxes,
it
cannot
acquire
standing
to
enforce an altogether different category of tax that is unique
taxes imposed by the state to be collected either by the state
or by the Clerk of the Circuit Court of the county where the
instrument is recorded.
(ECF No. 26, at 33).
Apparently
recognizing the persuasiveness of this authority, Defendants
abandoned this additional standing argument in their combined
opposition/reply brief. (See ECF No. 29, at 39 n. 39).
10
to
Washington
County
“merely
by
virtue
of
bringing
a
class
action” and serving as the putative class representative.
Haney
v. USAA Cas. Ins. Co., 331 F.App’x 223, 227 (4th Cir. 2009)
(unpublished); see also Simon v. E. Ky. Welfare Rights Org., 426
U.S. 26, 40 n. 20 (1976).
Accordingly, Montgomery County’s
complaint will be dismissed for lack of standing to the extent
it
seeks
relief
with
respect
to
the
Washington
County
Agricultural Taxes.
B.
The Entities’ Claimed Exemptions
Montgomery County advances three arguments as to why the
Entities cannot avoid liability for the Transfer Taxes by virtue
of their Charter Exemptions.
First, Montgomery County asserts
that, if the Transfer Taxes are deemed to be excise taxes, they
are
not
encompassed
by
the
“all
taxation”
language
in
the
Charter Exemptions because the United States Supreme Court has
interpreted that phrase to apply only to direct taxes.
26,
at
11-21;
Montgomery
ECF
County
No.
25,
contends
at
14-26).
that,
if
In
the
the
(ECF No.
alternative,
Transfer
Taxes
are
encompassed within “all taxation” in the first instance, they
are nonetheless excepted by the Charter Exemptions’ carve-out
referencing “real property of the [Entities].”
22-25;
ECF
No.
25,
at
26-30).
Finally,
(ECF No. 26, at
Montgomery
County
asserts that Congress lacks constitutional authority to exempt
the Entities from taxation by state and local authorities.
11
(ECF
No. 26, at 26-34; ECF No. 25, at 10-14).
arguments
fails
as
statutory
claim
a
for
matter
payment
of
of
Because each of these
law,
the
Montgomery
Transfer
County’s
Taxes
must
be
dismissed, and a declaration that the Entities are exempt from
the Transfer Taxes must be entered.
1.
The Meaning of “All Taxation” in the Charter
Exemptions
The first issue that must be resolved is the meaning of the
phrase “all taxation,” as used in the Charter Exemptions, and
specifically
whether
the
phrase
encompasses,
in
the
first
instance, the Transfer Taxes at issue here.5
“[A]ll statutory interpretation questions . . . must begin
with the plain language of the statute.”
555 U.S. 511, 542 (2009).
Negu’sie v. Holder,
The first step in analyzing statutory
language is to “determine whether the language at issue has a
plain and unambiguous meaning.”
U.S. 337, 340 (1997).
Robinson v. Shell Oil Co., 519
A determination of ambiguity is guided
“by reference to the language itself, the specific context in
which that language is used, and the broader context of the
statute as a whole.”
Id. at 341.
“If the language is plain and
‘the statutory scheme is coherent and consistent,’” no further
inquiry is needed.
In re Coleman, 426 F.3d 719, 725 (4th Cir.
5
Whether the Transfer Taxes are subject to the Charter
Exemptions’
carve-out
referencing
“real
property
of
the
[Entities]” is addressed below in Section III.B.2.
12
2005) (quoting United States v. Ron Pair Enters., 489 U.S. 235,
240-41 (1989)).
In that scenario, “‘the sole function of the
courts is to enforce [the statute] according to its terms.’”
Id.
(quoting
Caminetti
v.
United
States,
242
U.S.
470,
485
(1917)).
As Defendants argue in their motion to dismiss (ECF No. 141,
at
7),
the
plain
language
of
the
Charter
Exemptions
unambiguously establishes that the Entities “shall be exempt”
from “all” state and local taxation, save a single exception
(the meaning and applicability of which is discussed below).
“‘All’ is an inclusive adjective that does not leave room for
unmentioned
F.Supp.2d
(W.D.Mich.
exceptions.”
----,
Hertel
v.
No.
Sept.
1:11–cv–757,
18,
2012);
see
Bank
2012
also
of
WL
Am.,
N.A.,
4127869,
Merriam-Webster
at
--*3
Online
Dictionary, 2013 (defining “all” as “the whole amount, quantity,
or extent of”; “every”).
Thus, as Defendants aptly summarize,
“‘all taxation’ means just that – all taxation” (ECF No. 14-1,
at 7), and the Transfer Taxes are encompassed, in the first
instance,
within
the
broad
and
unambiguous
language
of
the
Charter Exemptions.
Montgomery County nonetheless argues that the United States
Supreme Court’s decision in United States v. Wells Fargo Bank,
485
U.S.
351,
355
(1988),
establishes
that
the
phrase
“all
taxation” is a term of art that applies only to forms of direct
13
taxation and does not apply to excise taxes.
Thus, Montgomery
County maintains that, if the Transfer Taxes are indeed excise
taxes as Defendants posit, they are not protected by the Charter
Exemptions.
Defendants
respond
that
the
controlling
Supreme
Court decision is not Wells Fargo but Federal Land Bank of St.
Paul v. Bismarck Lumber Co., 314 U.S. 95, 100 (1941), which
confirms that unqualified statutory tax exemptions of entities
must be read broadly according to their plain meaning.
As a
growing number of courts have recognized, Defendants have the
better argument.
In
Wells
Fargo,
the
Court
considered
whether
“Project
Notes,” a form of municipal bonds issued by state and local
housing
authorities
to
finance
local
exempted from federal estate tax.
housing
projects,
were
Wells Fargo, 485 U.S. at 353.
The relevant statute provided that “[Project Notes], including
interest thereon, . . . shall be exempt from all taxation now or
hereafter imposed by the United States.”
U.S.C. § 1437i(b)).
exempts
Project
Id. at 355 (quoting 42
In deciding whether this statutory language
Notes
from
estate
taxation,
the
Wells
Fargo
Court acknowledged “the settled principle that exemptions from
taxation
are
provided.”
not
Id.
to
be
implied;
they
must
be
unambiguously
The Court went on to hold as follows:
Well before the Housing Act was passed, an
exemption of property from all taxation had
an understood meaning:
the property was
14
exempt from direct taxation, but certain
privileges of ownership, such as the right
to transfer the property, could 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.
The former has historically been
permitted even where the latter has been
constitutionally or statutorily forbidden.
The estate tax is a form of excise tax.
Consistent with this understanding, on the
rare occasions when Congress has exempted
property
from
estate
taxation
it
has
generally adverted explicitly to that tax,
rather than generically to “all taxation.”
Placed in context, then, [the statute at
issue] does not stand for [the] proposition
that Project Notes were intended to be
exempt from estate taxes; it stands for
exactly the opposite.
Id. at 355–56 (internal citations omitted).
To
addressed
date,
at
least
six
federal
whether
Wells
Fargo
district
redefined
the
courts
have
phrase
“all
taxation” for purposes of the Entities’ Charter Exemptions.
See
Hennepin Cnty. v. Fed. Nat’l Mortg. Ass’n, --- F.Supp.2d ----,
No. 12-cv-2075, 2013 WL 1235589 (D.Minn. Mar. 27, 2013); Vadnais
v. Fed. Nat’l Mortg. Ass’n, No. 12-cv-1598, 2013 WL 1249224
(D.Minn.
Mar.
27,
2013);
Delaware
Cnty.
v.
Fed.
Hous.
Fin.
Agency, 12-cv-4554, 2013 WL 1234221 (E.D.Pa. Mar. 26, 2013);
Fannie Mae v. Hamer, No. 12-cv-50230, 2013 WL 591979 (N.D.Ill.
Feb. 13, 2013); DeKalb Cnty. v. Fed. Hous. Fin. Agency, No. 12cv-50227 (N.D. Ill. Feb. 14, 2013); Nicolai v. Fed. Hous. Fin.
15
Agency,
---
(M.D.Fla.
F.Supp.2d
Feb.
12,
----,
2013);
No.
Hertel
12-cv-1335,
v.
Bank
2013
of
Am.
WL
899967
N.A.,
---
F.Supp.2d ----, No. 11-cv-757, 2012 WL 4127869 (W.D.Mich. Sept.
18, 2012); District of Columbia ex rel. Hager v. Fed. Nat’l
Mortg. Ass’n, 882 F.Supp.2d 107 (D.D.C. 2012); Oakland Cnty. v.
Fed. Hous. Fin. Agency, 871 F.Supp.2d 662 (E.D.Mich. 2012).6
Save one, each of these courts has rejected the reading of Wells
Fargo
advanced
overwhelming
here
by
majority
Montgomery
of
courts
County.7
have
construed
Instead,
Wells
the
Fargo
(1) as establishing the meaning of “all taxation” for statutes
that exempt a particular type of
(2) as
having
no
relevance
to
property
from taxation and
interpreting
the
Charter
6
These six district courts have issued a total of eight
opinions on the issue. Judge David S. Doty of the District of
Minnesota decided both Hennepin and Vadnais on the same day and
issued largely identical opinions in the two cases.
Compare
Hennepin, 2013 WL 1235589, with Vadnais, 2013 WL 1249224.
Likewise, in DeKalb – a copy of which Defendants submit in
support of their motion (ECF No. 29-1) – Judge Frederick J.
Kapala of the Northern District of Illinois adopted his previous
decision in Hamer by reference.
7
Judge Victoria A. Roberts of the Eastern District of
Michigan agreed with Montgomery County’s interpretation of Wells
Fargo. See Oakland Cnty., 871 F.Supp.2d at 669 (“Wells Fargo is
dispositive of Plaintiff’s case” because it “dictates that [the
Entities’] statutory exemptions do not cover the Transfer
Taxes.”).
The United States Court of Appeals for the Sixth
Circuit will hear oral arguments in the Agency’s appeal of
Oakland County on May 2, 2013.
See Oakland Cnty. v. Fed Hous.
th
Fin. Agency, Case No. 12-2135 (6 Cir. filed Sept. 5, 2012).
16
Exemptions, which are statutes that exempt a specific entity
from taxation.
Illustrative is the reasoning of the Nicolai court:
The operative word in the Supreme Court’s
reasoning [in Wells Fargo] is “property.”
An exemption of property from “all taxation”
has an understood meaning that does not
include exemption from excise taxes like
[the transfer tax imposed by the state of
Florida].
The reason exempted property is
not also exempted from excise taxes is
simply because such taxes “are not levied
upon the property itself,” and it is the
property itself that is exempted by statute
from taxation. However, as Defendants point
out, Wells Fargo and the cases it relies on
do “not redefine ‘all taxation’ to mean
‘some
taxation
but
not
excise
taxes.’
Instead, [those cases] acknowledge that for
an exemption to apply, [the exemption] must
match the tax - exemptions of property from
taxation do not preclude excise taxes,
because excise taxes are not imposed on
property.”
However, the [Charter Exemptions] do not
exempt property from taxation; they exempt
the [E]ntities from taxation. Accordingly,
the [transfer tax] — a tax on the [E]ntities
for engaging in a particular action —
triggers the exemption found in the [Charter
Exemptions].
[Thus,] . . . the controlling
decision is not Wells Fargo, but [Bismarck].
Nicolai, 2013 WL 899967, at *4-5 (internal citations omitted);
see also Hager, 882 F.Supp.2d at 112 (holding that “Wells Fargo
did not mandate an atextual reading of ‘all taxation’; it simply
considered
the
inherent
limitations
of
exempting
property,
rather than its owner, from taxation” and instead relying on
17
Bismarck); Hertel, 2012 WL 4127869, at *5-6 (concluding that
Wells Fargo is not dispositive because the Charter Exemptions
“exempt
the
entities,
not
just
the
property
involved,”
the
situation presented by Bismarck).8
In Bismarck, a national bank created by Congress pursuant
to the Federal Farm Loan Act acquired real property in North
Dakota during the course of its normal business.
U.S. at 98.
Bismarck, 314
The bank made improvements and repairs to the
property that involved the purchase of lumber and other building
materials.
Id.
The bank refused to pay state sales tax on such
materials, invoking the following language in Section 26 of the
Federal Farm Loan Act:
national
farm
loan
“‘every Federal land bank and every
association,
including
the
capital
and
reserve or surplus therein and the income derived therefrom,
shall
be
exempt
from
Federal,
taxation,
except
taxes
upon
real
8
State,
estate
municipal,
held,
and
local
purchased,
or
The Maryland Court of Appeals also recently indicated that
Wells Fargo does not control the meaning of the phrases “all
taxation” or “any taxation” in a statute that exempts an entity
from paying taxes.
See Md. Econ. Dev. Corp. v. Montgomery
Cnty., --- A.3d ----, 2013 WL 1405293, at *5 (Md. Apr. 9, 2013)
(concluding that the “use of the modifier ‘any’ unrestricted by
qualifiers” demonstrated that the state legislature did not
restrict the statutory tax exemption of an entity to direct
taxes and thus implicitly agreeing with the entity’s argument
that Wells Fargo does not apply where the statute exempts a
specific entity, as opposed to a type of property, from
taxation).
18
taken by said bank or association . . .’”
Id. at 97 n. 1
(quoting 12 U.S.C. § 931 et seq. (repealed 1971)).
The
bank
sued
the
retailer
and
the
North
Dakota
tax
commissioner, seeking a declaratory judgment that it was not
liable for the sales tax based on the exemption language of
Section 26.
The Supreme Court viewed the case as presenting two
questions:
(1) whether Section 26 “include[s] within its ban a
state
sales
tax”;
Constitution,
and
Congress
(2)
whether,
can
activities from state taxation.
under
immunize
the
United
States
land
banks’
federal
Id. at 99.
With respect to the
statutory construction issue, the Bismarck Court held that “the
unqualified
term
‘taxation,’
used
in
[Section
26]
clearly
encompasses within its scope a sales tax such as the instant
one.”
Id.
The Court further held that the protection afforded
by this “plain language” could not “be frittered away” by virtue
of
the
statute’s
“including”
clause
(i.e.,
“including
the
capital and reserve or surplus therein and the income derived
therefrom”), which serves not as an “all-embracing definition”
but
instead
as
“an
illustrative
principle” of exemption.
application
Id. at 99-100.
of
the
general
With respect to the
second issue, the Bismarck Court held that Congress acted within
its constitutional powers in enacting Section 26.
04.
19
Id. at 101-
As the Hager and Nicolai courts observed, Wells Fargo did
not
overturn
Bismarck
because
Bismarck
addressed
a
distinct
issue – namely, whether a statute that exempts an entity from
taxation without qualification applies to taxes imposed on the
entity for engaging in certain types of activities or exercising
certain privileges.
Hager, 882 F.Supp.2d at 112-13; Nicolai,
2013 WL 8999967, at *5.
Because this case likewise involves the
applicability of the Charter Exemptions to taxes imposed on the
Entities for engaging in certain activities, Bismarck is more
apposite than Wells Fargo, which addressed the separate issue of
whether a statutory provision exempting a particular type of
property
result
from
of
taxation
activities
can
reach
involving
excise
the
taxes
imposed
property.
applicable rule is the first holding from Bismarck:
provision
that
exempts
an
entity
from
Thus,
as
a
the
a statutory
taxation
without
qualification includes within its ban all taxes, including the
Transfer Taxes.
Montgomery
County
insists
that
Hager
and
its
progeny
misapplied Bismarck, a decision that, according to Plaintiff,
turned on the bank’s status as a federal instrumentality rather
than on statutory construction.
argument
misapprehends
Bismarck.
(ECF No. 26, at 12-14).
The
Bismarck
Court
This
very
clearly divided its opinion into a statutory analysis, which
examined whether the plain language of Section 26 encompassed a
20
state sales tax, and a constitutional analysis, which addressed,
inter
alia,
the
bank’s
status
as
a
federal
instrumentality.
Although the latter part of the opinion is arguably relevant to
Montgomery
County’s
constitutional
arguments
–
which
are
addressed below in Section III.B.3. – it has no bearing on the
plain
meaning
Exemptions.
of
“all
taxation”
as
used
in
the
Charter
See Delaware Cnty., 2013 WL 1234221, at *5 (“[T]he
Counties’ interpretation of Bismarck to apply only to federal
instrumentalities simply is not supported by the text of that
decision[.]”); Hamer, 2013 WL 591979, at *6 (“[The statutory
analysis
in]
Bismarck
does
not
mention
the
federal
instrumentality status of the Federal Land Banks, instead it
relies
specifically,
and
solely,
on
the
statutory
exemption
written by Congress — a statutory exemption nearly identical to
the ones in this case.”).
Montgomery County also continues to maintain that there is
no basis in Supreme Court precedent for determining the scope of
a
statutory
tax
exemption
by
focusing
on
the
object
of
the
exemption (i.e., a specific type of property versus a specific
entity) as opposed to the type of taxation (i.e., direct versus
excise).
To support this assertion, Montgomery County relies
primarily on the cases cited by the Wells Fargo Court.
25, at 18-19; ECF No. 26, at 15-20).
parenthetical
descriptions
included
21
(ECF No.
Yet, as is clear from the
in
Wells
Fargo,
each
of
those cases involved the scope of a statutory or an implied
constitutional tax exemption for a particular type of property
rather than for a particular entity:
The estate tax is a form of excise tax.
Greiner v. Lewellyn, 258 U.S. 384 (1922)
(municipal bonds subject to federal estate
taxation
notwithstanding
an
intergovernmental tax immunity barring a direct
tax on the bond); Murdock v. Ward, 178 U.S.
139, 148 (1900) (federal tax exemption on
federal bonds did not extend to taxation on
the right to transfer the bonds at death);
Plummer v. Coler, 178 U.S. 115 (1900) (State
may calculate estate tax based on total
value
of
property
passing
through
the
estate, including federal obligations exempt
from direct taxation by the State).
See
also [U.S. Trust Co. of N.Y. v. Helvering,
307 U.S. 57, 60 (1939)] (applying the rule
of Greiner, Murdock, and Plummer to hold
that property subject to a general exemption
from “all taxation” would not exempt it from
excise taxes such as the estate tax).
Wells Fargo, 485 U.S. at 355 (emphases added).
As a result,
there simply was no need in those cases to discuss the entityversus-property distinction that is evident upon a comparison of
Wells Fargo and Bismarck and is dispositive of the meaning of
“all
taxation”
here.
Cf.
Hertel,
2012
WL
4127869,
at
*7
(observing that Murdock and Plummer involve tax-exempt property
rather than tax-exempt entities and therefore have no bearing on
the meaning of “all taxation” in the Charter Exemptions).9
9
Montgomery County also cites to Pittman v. Home Owners’
Loan Corp. of Washington, D.C., 308 U.S. 21 (1939) and Laurens
22
Montgomery County’s remaining efforts to avoid the plain
meaning of the phrase “all taxation” require little discussion.
First, Montgomery County contends that if Congress had wanted to
exempt the Entities from the Transfer Taxes, it could have done
so expressly.
(ECF No. 25, at 20-22).
In support, Plaintiff
points to Congress’ decision in 1941 to amend the charter of the
Reconstruction Finance Corporation (“RFC”) to specify that the
entity’s
exemption
from
“all
taxation”
“shall
be
deemed
to
include” certain types of taxes (e.g., sales taxes, use taxes).
Act of June 10, 1941, Pub. L. No. 108, 55 Stat. 248.
This
argument ignores that “including” clauses serve an illustrative
purpose only and cannot function either to expand or to limit
the
scope
of
the
exemption
it
is
describing.
See,
e.g.,
Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 577 (1994)
Federal Savings & Loan Association v. South Carolina Tax
Commission, 365 U.S. 517 (1961), in support of its argument that
the scope of a statutory tax exemption enacted by Congress
always turns on the type of tax at issue.
Neither of those
cases, however, discusses the distinction between direct taxes
and excise taxes.
Rather, both cases support a broad
interpretation of provisions exempting entities from “all
taxation.” See Pittman, 308 U.S. at 32 (holding that a federal
mortgage bank had no obligation pay state stamp taxes on its
mortgages because its charter exempted the entity, “including
its franchise, its capital, reserves and surplus, and its loans
and income,” from “all taxation” (emphasis added)); Laurens, 365
U.S. at 519 (holding that a federal savings and loan association
had no obligation to pay state documentary stamp taxes on
promissory notes it executed because its charter exempted the
entity, “including its franchise, its capital, reserves, and
surplus, its advances, and its income” from “all taxation”
(emphasis added)).
23
(noting
that
use
of
the
term
“including”
indicates
“the
illustrative and not limitative function of the examples given”)
(internal citations and quotation marks omitted); Bismarck, 314
U.S. at 100 (“[T]he term ‘including’ is not one of all-embracing
definition, but connotes simply an illustrative application of
the general principle.”).10
Indeed, the Bismarck Court observed
that, in passing the amendment to the RFC’s charter relied on by
Plaintiff,
“Congress
sought
only
to
confirm
understanding of the scope of the exemption.”
10
its
original
Id. at 100 n. 7.
The illustrative function of the word “including” is
likewise fatal to Montgomery County’s attempt to distinguish
between the reach of Fannie Mae’s Charter Exemption and Freddie
Mac’s Charter Exemption.
As Plaintiff observes, Freddie Mac’s
Charter Exemption states that “[t]he Corporation, including its
franchise, activities, capital, reserves, surplus, and income,
shall be exempt from all taxation now or hereafter imposed by
. . .
any
State,
county,
municipality,
or
local
taxing
authority.” 12 U.S.C. § 1452(e) (emphasis added). Fannie Mae’s
Charter Exemption, by contrast, does not specifically mention
“activities” in its “including” clause:
“the corporation,
including its franchise, capital, reserves, surplus, mortgages
or other security holdings, and income, shall be exempt from all
taxation . . .”
Id. § 1723a(c)(2).
Montgomery County argues
that, to the extent that the word “activities” in Freddie Mac’s
Charter Exemption is construed as the basis for exempting excise
taxes notwithstanding Wells Fargo, the omission of the word in
Fannie Mae’s Charter Exemption “is dispositive as to Fannie
Mae’s liability for excise taxes (and the Maryland Transfer
Taxes at issue).”
(ECF No. 26, at 16 n. 22).
This argument
thus incorrectly presumes that the term “activities” can
function to expand the scope of “all taxation.”
In fact,
however, “all taxation” includes excise taxes in the first
instance, and the inclusion of “activities” in Freddie Mac’s
Charter Exemption simply serves as an illustrative example.
24
Second, Montgomery County argues that, because Congress is
presumed
to
know
interpretation
of
of
and
“all
adopt
the
taxation”
Supreme
in
the
Court’s
1988
narrow
Wells
Fargo
decision, the legislature’s decision to include nearly identical
“all
taxation”
indicates
language
that
in
“Congress
the
did
Agency’s
not
charter
intend
to
in
2008
exempt
the
Conservator (or the entities for which it is responsible) from
applicable state excise taxes.”
(ECF No. 25, at 23).
This
argument presumes that Wells Fargo controls the meaning of “all
taxation” as used in a statute exempting an entity from taxes –
a
presumption
that
is,
for
the
reasons
explained
above,
erroneous.
Third, Plaintiff asserts that if the Entities were truly
exempt
from
all
taxation
except
for
direct
taxes
on
real
property, Congress would not have needed to specify that the
Agency, as conservator for the Entities, is “not liable for any
amounts in the nature of penalties or fines, including those
arising from the failure of any person to pay any real property,
personal property, probate, or recording tax or any recording or
filing fees when due.”
12 U.S.C. § 4617(j)(4) (emphasis added).
Implicit in this argument is that the reference to “any person”
in Section 4617(j)(4) necessarily means either Freddie Mac or
Fannie Mae.
the
Nothing in the Agency’s charter, however, limits
definition
of
“person”
to
25
the
Entities
or
the
Agency.
Indeed, as Defendants observe, there are factual scenarios in
which Section 4617(j)(4) could insulate the Agency from facing
penalties and fines resulting from the actions or omissions of a
non-exempt predecessor owner (i.e., a predecessor owner other
than the Entities).
(ECF No. 29, at 21-23); see also Nicolai,
2013 WL 899967, at *3 (agreeing that the Agency’s exemption from
“all
taxation”
does
not
render
Section
4517(j)(4)
mere
surplusage); Hertel, 2012 WL 4127869, at *4 (same).
A
final
County’s
point
proposed
that
bears
mentioning
construction
of
“all
is
that
Montgomery
taxation”
would
effectively eviscerate the Charter Exemptions, as “only three
forms of direct taxes exist:
taxes upon real property; taxes
upon personal property, and capitations, which are ‘taxes paid
by every person, without regard to property, profession, or any
other circumstance.’”
Vadnais, 2013 WL 1249224, at *5 (quoting
Nat’l Fed’n of Indep. Bus. v. Sebelius, --- U.S. ----, 132 S.Ct.
2566,
2698-99
(2012)).11
Because
(as
discussed
below)
the
Charter Exemptions already except taxes upon real property from
exemption, Montgomery County’s proposed construction would leave
exempted only personal property and capitations.
Such a result
“would lead to near absurdity” and would leave the “sweeping
11
For its part, Montgomery County urges – without citation
to any authority – that income taxes are direct taxes. (ECF No.
26, at 32 n. 38).
26
‘all taxation’ formulation” of the Charter Exemptions “virtually
meaningless.”
Hager, 882 F.Supp.2d at 113; see also Hamer, 2013
WL 591979, at *6 (“It would be inappropriate to assume that
Congress intended to permit the states to tax the [Entities]
with a virtually unfettered panopoly of tax options where it
wrote they were to be exempt from ‘all taxation[.]’”).
In sum, the plain meaning of “all taxation” in the Charter
Exemptions relieves the Entities of their obligation to pay the
Transfer Taxes in the first instance, and each of Montgomery
County’s attempts to redefine the phrase fails.
2.
The Applicability of the Carve-Out Provisions
Montgomery
County
alternatively
argues
that,
if
the
Transfer Taxes are encompassed by the “all taxation” language in
the
first
instance,
they
are
nevertheless
excepted
by
the
Charter Exemptions’ carve-out referencing “real property of the
[Entities]” because they constitute taxes that are “triggered by
the
ownership
Defendants
of
real
respond
property.”
that
the
(ECF
Transfer
No.
Taxes
25,
do
at
not
26-31).
tax
real
property but instead are triggered only upon the transfer of
real
property
–
a
situation
narrow carve-out clauses.
that
is
not
encompassed
(ECF No. 29, at 22-28).
by
the
Here again,
Defendants’ position is persuasive.
As before, the inquiry must begin with an analysis of the
relevant statutory language.
Fannie Mae’s charter exempts the
27
entity from “all taxation . . . except that any real property of
the corporation shall be subject to State, territorial, county,
municipal, or local taxation to the same extent as other real
property is taxed.”
12 U.S.C. § 1723a(c)(2) (emphases added).
Likewise, Freddie Mac’s charter exempts it from “all taxation
. . . except that any real property of the Corporation shall be
subject
to
State,
territorial,
county,
municipal,
or
local
taxation to the same extent according to its value as other real
property is taxed.”
Pursuant
Id. § 1452(e) (emphases added).
to
the
plain
language
of
these
carve-out
provisions, the relevant question is whether real property “is
taxed” by the Transfer Taxes.
Montgomery County is correct that
the ability to transfer an interest in real property and the
ability to record a deed to perfect an interest in real property
are two important “sticks” in the “bundle” of property rights.
Mere possession of these rights, however, does not trigger the
Transfer Taxes, which are imposed only when these rights are
exercised.
Transfer
Put differently, real property is not taxed by the
Taxes;
participant
1249224,
in
at
*3
the
the
n.
transaction
transaction)
8
(a
(and
is.
Minnesota
deed
by
See
extension,
Vadnais,
transfer
tax
the
2013
WL
is
not
subject to the carve-outs because the tax “only applies when
land is conveyed and is not a tax levied on the ‘real property’
itself”);
Delaware
County,
2013
28
WL
1234221,
at
*6
(a
“straightforward, common sense interpretation” of the Charter
Exemptions
and
apposite
case
law
“makes
clear
that
the
[Pennsylvania] Transfer Tax is a tax on the transaction and not
on the real property itself,” such that it is not excepted by
the carve-outs).
cannot
be
The Charter Exemptions’ carve-outs therefore
interpreted
as
excepting
the
Transfer
Taxes,
and
Montgomery County’s alternative argument must also be rejected.
3.
The Constitutionality of the Charter Exemptions As
Applied to the Entities
As a third ground for its position that Defendants are
obligated to pay the Transfer Taxes, Montgomery County asserts
that any exemption claimed by the Entities is unconstitutional.
As clarified through the extensive briefing undertaken by the
parties, this argument has two components.
First, Plaintiff
contends that the Entities do not have inherent constitutional
immunity
from
publically
held
state
and
local
corporations
instrumentalities.
that
taxation
do
not
because
qualify
they
as
are
federal
(ECF No. 25, at 10-14; ECF No. 31, at 5-10).
Second, Plaintiff asserts that the Entities are not statutorily
immunized from taxation because Congress did not act within the
bounds
of
Exemptions.
its
enumerated
powers
in
(ECF No. 31, at 10-15).
enacting
the
Charter
Defendants respond that
Congress properly conferred statutory immunity upon the Entities
consistent with its enumerated powers under the Commerce Clause
29
and the Necessary and Proper Clause and that, in any event, the
Entities are federal instrumentalities that are constitutionally
immune from state and local taxation.
(ECF No. 29, at 28-39).
Because
the
Defendants
are
correct
that
Charter
Exemptions
represent valid exercises of Congress’ power under the Commerce
Clause, there is no need to address whether the Entities qualify
as
federal
instrumentalities
that
also
enjoy
implied
constitutional immunity under the Supremacy Clause.12
The
“[t]o
Commerce
regulate
Clause
Commerce
delegates
with
to
foreign
Congress
Nations,
several States, and with the Indian Tribes.”
I, § 8, cl. 3.
Commerce
Clause
the
and
authority
among
the
U.S. Const. art.
“Under the [Supreme] Court’s ‘modern era’ of
jurisprudence, . . . Congress
may
broadly
regulate three categories of activity under its Commerce Clause
12
Pursuant to Supreme Court precedent, it is unnecessary to
determine whether a congressionally created entity is a federal
instrumentality
that
qualifies
for
implied
constitutional
immunity from taxation under the Supremacy Clause where that
entity is exempt pursuant to a validly enacted statute.
See
First Ag. Nat’l Bank of Berkshire Cnty. v. State Tax Comm’n, 392
U.S. 339, 341 (1968) (“Because of pertinent congressional
legislation in the banking field [regarding state taxation of
national
banks],
we
find
it
unnecessary
to
reach
the
constitutional question of whether today national banks should
be considered nontaxable as federal instrumentalities.”); cf.
Hamer, 2013 WL 591979, at *6 (given the “broad statutory
exemption” provided for by the Charter Exemptions and the
holding in First Agricultural, “there is no need to detail the
attributes associated with a federal instrumentality, to analyze
how those attributes correspond to the [Entities], or to
correlate that analysis with the scope of the [Charter
Exemptions]”).
30
powers:
(1) ‘the use of the channels of interstate commerce,’
(2) ‘the instrumentalities of interstate commerce, or persons or
things in interstate commerce, even though the threat may come
only
from
intrastate
activities,’
and
(3)
‘those
activities
having a substantial relation to interstate commerce.’”
United
States v. Gibert, 677 F.3d 613, 622 (4th Cir. 2012) (quoting
United States v. Morrison, 529 U.S. 598, 609 (2000)); see also
Gonzales v. Raich, 545 U.S. 1, 17 (2005) (reaffirming that the
Commerce
Clause
empowers
Congress
to
regulate
purely
local,
intrastate activities, provided that such activities “are part
of
an
economic
effect
on
class
interstate
omitted)).
So
concluding
that
long
a
of
activities
commerce”
as
a
regulated
that
have
(internal
“‘rational
activity
a
substantial
quotation
basis
marks
exist[s]
sufficiently
for
affect[s]
interstate commerce,’” a “challenge to Congress’ power under the
Commerce Clause to regulate that activity must fail.”
Gibert,
677 F.3d at 622 (quoting United States v. Lopez, 514 U.S. 549,
557
(1995)).
Furthermore,
federal
statutes
must
be
viewed
“‘with a presumption of constitutionality in mind’” and should
be invalidated “‘only upon a plain showing that Congress has
exceeded
its
constitutional
bounds.’”
Id.
at
618
(quoting
Morrison, 529 U.S. at 607).
Application of this precedent to statutory tax exemptions
for federally chartered entities is illustrated by two cases
31
relied on by Defendants.
See Dep’t of Revenue & Tax. of Wyo. v.
Nat’l R.R. Passenger, No. C82-0320-H, 1982 WL 1584 (D.Wyo. Dec.
15, 1982); SEPTA v. Pa. Pub. Util. Comm’n, 826 F.Supp. 1506
(E.D.Pa. 1993).13
and
Taxation
In Wyoming, the state’s Department of Revenue
challenged
the
constitutionality
of
a
statute
exempting the National Railroad Passenger Corporation (“Amtrak”)
“from any taxes or other fees imposed by any state, political
subdivision of a state, or local taxing authority.”
1584, at *1.
1982 WL
Among other holdings, the Wyoming court concluded
that the statute represented a valid exercise of Congress’ power
to regulate interstate commerce.
Id. at *3.
The court observed
that Congress enacted the tax exemption based on its apparent
conclusion
that
“the
payment
of
state
and
local
taxes
was
diverting some of Amtrak’s federal subsidies away from their
intended
objective
of
improving
rail
service,”
a
form
of
interstate commerce.
Id.
The court then held that Congress’
conclusion
and
that
was
constituted
interference.
a
sound
“reasonable
the
method”
tax
of
exemption
of
eliminating
Amtrak
such
Id. at *4 (internal quotation marks omitted).
Thus, the Commerce Clause conferred Congress with the authority
to enact the exemption.
Id.
13
Although these cases pre-dated the Supreme Court’s
decisions in Lopez and Morrison, their reasoning is still
persuasive.
32
SEPTA
involved
Pennsylvania
Pennsylvania
a
dispute
Transportation
Utility
between
Authority
Commission
certain fees assessed by PUC.
(“PUC”)
the
Southeastern
(“SEPTA”)
over
the
and
the
payment
of
In 1981, Congress had ordered the
“financially-troubled” Consolidated Rail Corporation to transfer
its
commuter
rail
operations
to
local
transportation
authorities, which had the choice either of operating the rail
lines directly or contracting with the Amtrak Commuter Services
Corporation (“Amtrak Commuter”) to do so.
Id.
SEPTA chose to
operate its thirteen commuter rail lines directly.
Around this
same time, Congress passed the statute at issue in
Wyoming,
which exempted Amtrak “from any taxes or other fees imposed by
any State, political subdivision of a State, or a local taxation
authority.”
Id. (quoting 45 U.S.C. § 546b).
In 1988, Congress
enacted legislation providing that “‘any commuter authority that
could have contracted with Amtrak Commuter for the provision of
commuter service but which elected to operate directly its own
commuter service . . . shall be exempt from the payment of any
taxes
or
(quoting
other
45
fees’”
U.S.C.
to
the
same
§ 581(c)(5)).
extent
Based
as
on
Amtrak.
the
Id.
protection
afforded by Section 581(c)(5), SEPTA filed suit against PUC to
challenge three orders requiring SEPTA to make payments toward
the upkeep of several bridge structures in Pennsylvania passing
33
over commuter railway lines owned and operated by SEPTA.
Id. at
1511.
PUC
things)
moved
that
authority
for
summary
Congress
under
did
the
judgment,
not
act
Commerce
contending
within
Clause
the
in
(among
scope
other
of
enacting
its
Section
581(c)(5) “because Congress lacked a rational basis for finding
that an exemption of local commuter authorities from state and
local taxes furthers interstate commerce.”
Id. at 1516.
on
581(c)(5)
both
the
express
text
of
Section
Based
and
the
legislative history of Amtrak’s statutory exemption, the SEPTA
court observed that “Congress evidently believed that . . .
state taxation would diminish the ability of [local commuter
authorities] to provide effective rail service.”
Id. at 1517.
The
“undoubtedly”
court
concluded
that
Congress’
belief
was
reasonable, given that the imposition of taxes and fees could
have “a restrictive effect on [a local commuter authority’s]
ability
to
perform
its
interstate
commercial
functions
effectively” by “diverting funds away from operations.”
Id.
The court further observed that, although SEPTA actually did
operate
its
services
between
Pennsylvania
and
New
Jersey,
“Congress’ authority under the Commerce Clause extends even to a
local transit system engaged in intrastate commerce activity,
provided
commerce.”
that
those
intrastate
Id. at 1517 n. 10.
activities
affect
interstate
Accordingly, the court concluded
34
that
Section
addressing
581(c)(5)
Congress’
represented
reasonable
a
belief
rational
that
means
state
and
of
local
assessments interfered with the provision of interstate commuter
rail services and rejected PUC’s Commerce Clause challenge.
Id.
at 1518.
As in Wyoming and SEPTA, there is clearly a rational basis
for Congress to conclude that the regulated activity in question
(i.e., the payment of Transfer Taxes by the Entities) has a
substantial economic effect on interstate commerce.
Congress
created the Entities to establish (in the case of Fannie Mae) or
to strengthen (in the case of Freddie Mac) “the secondary market
for residential mortgages” and to “promote access to mortgage
credit throughout the Nation.”
See 12 U.S.C. § 1716; id. § 1451
note; accord Pirelli Armstrong Tire Corp. Retiree Med. Benefits
Trust ex. rel. Fed. Nat’l Mortg. Ass’n v. Raines, 534 F.3d 779,
783
(D.C.Cir.
2008)
affordable
housing
purchases
mortgages
lenders
convert
securities.
for
loans,
Mae’s
moderate-
originated
their
home
mission
and
by
is
low-income
other
loans
to
families.
lenders
into
increase
and
It
helps
mortgage-backed
The goal is to provide stability and liquidity to
the mortgage market.
more
(“Fannie
thereby
This allows mortgage lenders to provide
increasing
the
rate
of
homeownership
in
America.”); Am. Bankers Mortg. Corp. v. Fed. Home Loan Mortg.
Corp., 75 F.3d 1401, 1406–07 (9th Cir. 1996) (discussing Freddie
35
Mac’s similar mission).
Based on the plain text of the Charter
Exemptions, Congress apparently believed that any taxation of
the Entities by states and localities could interfere with their
stated missions.14
Such a belief is eminently reasonable, as the
Entities’ diversion of operating funds to pay state and local
taxes
could
constrain
their
ability
to
facilitate
mortgage credit in any number of ways.
access
to
As just one example,
requiring the Entities to pay the Transfer Taxes could reduce
the funds available for the Entities to purchase mortgages from
primary mortgage market institutions – which, in turn, could
limit the amount of mortgage credit made available by those
institutions to potential home buyers.
Relieving the Entities
from any obligation to pay the Transfer Taxes via the Charter
Exemptions
represents
a
rational
means
of
addressing
this
possibility.
Montgomery County nonetheless asserts that Congress cannot
rely
on
because
the
Commerce
such
taxes
Clause
relate
to
regulate
to
the
14
the
transfer
Transfer
of
Taxes
immovable
It does not appear that Congress made any specific
findings regarding the effect of state and local taxation on the
Entities’ participation in the secondary mortgage market. This
omission is not dispositive, because although “congressional
findings are certainly helpful in reviewing the substance of a
congressional
statutory
scheme,
.
.
.
the
absence
of
particularized findings does not call into question Congress’
authority to legislate.” Raich, 545 U.S. at 21.
36
intrastate
real
property
and
the
offering
of
deeds
for
recordation – “quintessential local activit[ies] that do[] not
affect interstate commerce.”
(ECF No. 31, at 10-11).
This
argument ignores that the Commerce Clause empowers Congress to
“regulate purely local activities that are part of an economic
class of activities that have a substantial effect on interstate
commerce.”
Raich, 545 U.S. at 17.
Thus, although the Transfer
Taxes may be “quintessential local activities,” they are also
part of an “economic class of activities” – namely, state and
local taxation of the Entities – that could reasonably have a
substantial effect on the secondary mortgage market.
Moreover,
despite Montgomery County’s conclusory efforts to distinguish
the activities of the Entities from “the inherently interstate
activities of railroads, hotels, or Free Trade Zones” (ECF No.
31, at 10), there can be no serious doubt that participation in
the secondary mortgage market to increase the availability of
credit “throughout the Nation” constitutes interstate commerce.
Accordingly,
Plaintiff’s
Commerce
Clause
challenge
must
be
rejected.15
15
Montgomery County also purports to challenge the
constitutionality of the Charter Exemptions by invoking the
Tenth Amendment, arguing that “[a] state’s power to tax is its
lifeblood” and that “the Tenth Amendment is not just an end in
itself, but also serves as a vital check on the federal
government.” (ECF No. 26, at 26-27). At bottom, however, this
line of argument merely reiterates Plaintiff’s Commerce Clause
37
IV.
Conclusion
For the foregoing reasons, the motion to dismiss filed by
Defendants
will
Plaintiff’s
Agricultural
Plaintiff’s
be
claim
Taxes
granted
seeking
will
statutory
in
be
claim
and
enforce
to
part
the
dismissed
seeking
for
denied
in
Washington
lack
payment
of
part.
County
of
standing;
the
Transfer
Taxes will be dismissed for failure to state a claim; and a
declaration that the Entities are exempt from the Transfer Taxes
will
be
entered.
Finally,
Plaintiff’s
summary judgment will be denied.
partial
motion
for
A separate Order will follow.
/s/
DEBORAH K. CHASANOW
United States District Judge
challenge.
(See ECF No. 31, at 14-15).
Indeed, the Supreme
Court has held that the inquiry into “whether an Act of Congress
is authorized by one of the powers delegated to Congress in
Article I of the Constitution” and the inquiry into whether “an
Act of Congress invades the province of state sovereignty
reserved by the Tenth Amendment” are “mirror images of each
other.” New York v. United States, 505 U.S. 144, 155-56 (1992).
“In the end, just as a cup may be half empty or half full, it
makes no difference whether one views the question . . . as one
of ascertaining the limits of the power delegated to the Federal
Government under the affirmative provisions of the Constitution
or one of discerning the core of sovereignty retained by the
States under the Tenth Amendment.”
Id. at 159.
Accordingly,
the conclusion that the Charter Exemptions are within the scope
of Congress’ Commerce Clause powers is also dispositive of
Montgomery County’s Tenth Amendment claim.
38
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