Montgomery County, Maryland v. Federal National Mortgage Ass'n
2014 U.S. App. LEXIS 1578
| 4th Cir. | 2014Background
- Fannie Mae and Freddie Mac receive federal tax exemptions for real property under 12 U.S.C. §1723a(c)(2) and §1452(e); the statute exempts real property from state/local taxes to the same extent as other real property.
- Maryland and South Carolina impose real property taxes and also transfer/recordation taxes on deeds and related instruments.
- Counties argue the real property exemption does not cover transfer taxes and that exempting Fannie Mae/Freddie Mac from such taxes is unconstitutional as a federal intrusion on state taxing power.
- District courts held the exemption applies to real property taxes but not transfer taxes; and found Congress acted within its Commerce Clause power.
- FHFA (as conservator) was involved in the Maryland case; appeals consolidated for review in the Fourth Circuit.
- Court affirms the district courts’ decisions that the real property exemptions do not include transfer or recordation taxes.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the real property exemptions cover transfer taxes | Counties: exemptions include transfer taxes | Fannie Mae/Freddie Mac: exemptions apply only to real property taxes | No; exemptions do not include transfer taxes |
| Whether Congress validly exempted transfer taxes under the Commerce Clause | Counties contend exemption exceeds Congress’s power | Exemption rationally furthers national objectives in housing finance | Exemption valid under rational-basis review |
| Whether the exemption survives heightened scrutiny | States’ tax rights are fundamental | Congress may exempt to facilitate interstate commerce in housing finance | Rational-basis review applies; exemption upheld under Commerce Clause |
| Whether the exemption raises commandeering or Tenth Amendment issues | Exemption coerces state recording duties | No affirmative obligation to act imposed by federal statute | No commandeering; Tenth Amendment inapplicable because Congress acted under Commerce Clause |
| Whether federal instrumentalities theory affects the result | Counties rely on instrumentality immunity | Statutory immunity suffices; may be broader than constitutional immunity | Statutory immunity governs; constitutional analysis unnecessary |
Key Cases Cited
- United States v. Wells Fargo Bank, 485 U.S. 351 (1988) (distinguishes property tax from transfer tax; property tax on ownership vs. excise on transfer)
- Pittman v. Home Owners’ Loan Corp., 308 U.S. 21 (1939) (recordation tax not within real property exclusion; transfer-related tax not a property tax)
- Fed. Land Bank v. Bismarck Lumber Co., 314 U.S. 95 (1941) (transfer/sales taxes not a property tax; excise nature preserved)
- Southern Ry. Co. v. Watts, 260 U.S. 519 (1923) (privilege tax not converted into property tax; distinction between taxes on transfer vs. ownership)
- Wickard v. Filburn, 317 U.S. 111 (1942) (aggregation of intrastate activity may substantially affect interstate commerce)
- United States v. Morrison, 529 U.S. 598 (2000) (relevant to limits on Congress’s power under Commerce Clause; intrastate activity can be regulated if part of a broader interstate framework)
- United States v. Lopez, 514 U.S. 549 (1995) (limits on regulation of non-economic intrastate activity; contrasted with overall interstate aims)
- Arizona Public Service Co. v. Snead, 441 U.S. 141 (1979) (Demonstrates Congress may immunize certain entities from state taxation when within Commerce Clause power)
- First Agricultural Nat’l Bank v. Tax Comm’n, 392 U.S. 339 (1968) (statutory tax exemption can exist independently of constitutional instrumentality status)