Federal National Mortgage Ass'n v. City of Chicago
874 F.3d 959
7th Cir.2017Background
- Fannie Mae and Freddie Mac (and FHFA as conservator) are federally chartered entities exempted by statute from "all taxation," with limited exceptions for their real property.
- Buyers purchased foreclosed Chicago properties from Fannie Mae between 2013–2014 and did not pay Chicago’s Real Property Transfer Tax on recording/delivery of deeds.
- Chicago’s transfer tax primarily levies the tax on purchasers; a supplemental portion is charged to the transferor unless the transferor is tax-exempt, in which case the transferee is liable.
- Illinois assessed the buyers; administrative appeals found buyers liable; buyers and the federal entities sued the City and obtained summary judgment in district court declaring the transfers exempt and enjoining collection.
- The Seventh Circuit reversed, holding the federal exemptions are entity-specific and do not plainly extend to private purchasers who buy property from the exempt federal entities; remanded for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether federal statutory exemptions from "all taxation" extend to private buyers acquiring property from Fannie Mae/Freddie Mac/FHFA | Exemptions should bar the transfer tax even when charged to buyers because the tax inevitably affects the federal entities (it reduces sale proceeds and harms their mission) | Exemptions are entity-specific; plain statutory language covers the entities and their assets, not unrelated purchasers | The exemptions do not cover buyers; statute’s plain language and precedent require a clear congressional statement to extend immunity beyond the entities |
| Whether transactional taxes (e.g., deed/recording/transfer taxes) can be read into listed exempt assets ("including" language) | The term "including" implies a broad, illustrative list; prior case law (Laurens, Pittman) supports preemption when the taxed transaction is integral to an exempt asset | "Including" lists refer to assets or property of the entity; transactions are not assets and cannot be presumed exempt absent clear statutory text | The court declined to read transactions into the exemptions; Pittman distinguished because transferring property here is not an "indispensable element" of the listed exempt assets |
| Whether the economic incidence or indirect effect on exempt entities transforms a tax on a private party into a tax on the exempt entity | Even if nominally on buyers, the tax’s economic effect forces lower sale prices, reducing the entities’ capital and contravening congressional purpose | Economic impact alone does not convert a tax on a private purchaser into a tax on the exempt entity; courts avoid extending exemptions by implication | Economic effect is insufficient; Supreme Court precedent bars implying tax exemptions without clear language, so buyers remain taxable |
Key Cases Cited
- DeKalb County v. Fed. Hous. Fin. Agency, 741 F.3d 795 (7th Cir. 2013) (held federal exemptions preempt local transfer taxes charged to the exempt entities)
- Pittman v. Home Owners’ Loan Corp., 308 U.S. 21 (1939) (held recording tax preempted where recording was an indispensable element of exempt loans)
- Laurens Fed. Sav. & Loan Ass’n v. S. Carolina Tax Comm’n, 365 U.S. 517 (1961) (upheld preemption where tax on promissory notes was effectively a tax on exempt advances)
- United States v. City of Detroit, 355 U.S. 466 (1958) (economic burden on federal government from taxation of private lessee did not alone invalidate the tax)
- Chickasaw Nation v. United States, 534 U.S. 84 (2001) (canon disfavoring implied tax exemptions—exemptions must be unambiguously expressed)
- Rice v. Santa Fe Elevator Corp., 331 U.S. 218 (1947) (pre-emption of state power over traditional areas occurs only if clearly mandated by Congress)