Montgomery County, Maryland v. Federal National Mortgage Ass'n

PUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 13-1691

MONTGOMERY COUNTY, MARYLAND, on behalf of itself and all
others similarly situated,

Plaintiff - Appellant,

v.

FEDERAL NATIONAL MORTGAGE ASSOCIATION, a corporation;
FEDERAL HOME LOAN MORTGAGE CORPORATION, a corporation;
FEDERAL HOUSING FINANCE AGENCY, a federal agency, as
conservator for Federal National Mortgage Association and
Federal Home Loan Mortgage Corporation,

Defendants - Appellees,

UNITED STATES OF AMERICA,

Intervenor.

Appeal from the United States District Court for the District of
Maryland, at Greenbelt. Deborah K. CHASANOW, District Judge.
(8:13-cv-00066-DKC)

No. 13-1752

DALE L. BUTTS, as Register of Deeds of Beaufort County,
South Carolina, individually and on behalf of all others
similarly situated; JOHN HOPKINS, as Register of Deeds of
Richland County, South Carolina, on behalf of himself and
all others similarly situated,

Plaintiffs - Appellants,

and
GAIL LANEY, as Register of Deeds of Orangeburg County, on
behalf of themselves and all others similarly situated;
JAMES B. HIERS, as Register of Deeds and Clerk of Court of
Bamberg County, on behalf of themselves and all others
similarly situated; RHONDA MCELVEEN, as Register of Mesne
Conveyances and Clerk of Court of Barnwell County, on behalf
of themselves and all others similarly situated; CHARLIE
LYBRAND, as Register of Mesne Conveyances of Charleston
County, on behalf of themselves and all others similarly
situated; TIMOTHY NANNEY, as Register of Deeds of Greenville
County, on behalf of themselves and all others similarly
situated; BALLERY SKIPPER, as Register of Deeds of Horry
County, on behalf of themselves and all others similarly
situated; DAVID ADAMS, as Treasurer of Richland County, on
behalf of themselves and all others similarly situated,

Plaintiffs,

v.

FEDERAL NATIONAL MORTGAGE ASSOCIATION, a/k/a Fannie Mae, a
federally chartered private corporation; FEDERAL HOME LOAN
MORTGAGE CORPORATION, a/k/a Freddie Mac, a federally
chartered private corporation,

Defendants - Appellees,

FEDERAL HOUSING FINANCE AGENCY, Conservator of Federal
National Mortgage Association; Conservator of Federal Home
Loan Mortgage Corporation,

Intervenor/Defendant - Appellee,

UNITED STATES OF AMERICA,

Intervenor.

Appeal from the United States District Court for the District of
South Carolina, at Beaufort. Richard Mark GERGEL, District
Judge. (9:12-cv-01912-RMG)

Argued: December 11, 2013 Decided: January 27, 2014

2
Before TRAXLER, Chief Judge, and NIEMEYER and DUNCAN, Circuit
Judges.

Affirmed by published opinion. Judge Niemeyer wrote the
opinion, in which Chief Judge Traxler and Judge Duncan joined.

ARGUED: Don Springmeyer, WOLF RIFKIN SHAPIRO SCHULMAN & RABKIN,
LLP, Las Vegas, Nevada, for Appellants. Michael Alexander
Johnson, ARNOLD & PORTER, LLP, Washington, D.C., for Appellees.
Patrick J. Urda, UNITED STATES DEPARTMENT OF JUSTICE,
Washington, D.C., for Intervenor. ON BRIEF: Howard N. Cayne,
Asim Varma, Dirk C. Phillips, ARNOLD & PORTER LLP, Washington,
D.C., for Appellee Federal Housing Finance Agency. Jill
Nicholson, Chicago, Illinois, Michael D. Leffel, FOLEY & LARDNER
LLP, Madison, Wisconsin, for Appellee Federal National Mortgage
Association. Michael J. Ciatti, Merritt E. McAlister, KING &
SPALDING LLP, Washington, D.C., for Appellee Federal Home Loan
Mortgage Corporation. Kathryn Keneally, Assistant Attorney
General, Tamara W. Ashford, Principal Deputy Assistant Attorney
General, Gilbert S. Rothenberg, Jonathan S. Cohen, Tax Division,
UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C.; Rod J.
Rosenstein, United States Attorney, Baltimore, Maryland, William
J. Nettles, United States Attorney, OFFICE OF THE UNITED STATES
ATTORNEY, Columbia, South Carolina, for Intervenor.

3
NIEMEYER, Circuit Judge:

The question presented in these appeals is whether the

Federal National Mortgage Association (“Fannie Mae”) and the

Federal Home Loan Mortgage Corporation (“Freddie Mac”) are

exempt from the payment of state and local taxes imposed on the

transfer of real property in Maryland and South Carolina.

Fannie Mae and Freddie Mac claim that they are exempt from such

transfer taxes under 12 U.S.C. §§ 1723a(c)(2) and 1452(e),

respectively. Counties in Maryland and South Carolina (the

“Counties”), however, which collect transfer taxes, claim (1)

that those exemptions do not, as a matter of statutory

interpretation, apply to state and local taxes relating to real

property, including transfer taxes, and (2) that, in any event,

exempting Fannie Mae and Freddie Mac from state and local

transfer taxes for real property would be unconstitutional as an

infringement on the States’ taxing power.

The district courts in Maryland and South Carolina rejected

the Counties’ arguments, concluding that the general tax

exemptions applicable to Fannie Mae and Freddie Mac, while not

applicable to real property taxes, did cover real property

transfer taxes, thus making a distinction between property taxes

and transfer taxes. The courts also concluded that Congress, in

providing the tax exemptions to Fannie Mae and Freddie Mac,

acted within its Commerce Clause power.

4
 We agree with the district courts, as explained herein, and

affirm.

I

Congress created Fannie Mae during the Great Depression to

provide banks with more capital for mortgage lending. See

generally Richard W. Bartke, Fannie Mae and the Secondary

Mortgage Market, 66 Nw. U. L. Rev. 1 (1971). Its charter

describes its purposes as follows:

The Congress declares that the purposes of this
subchapter are to establish secondary market
facilities for residential mortgages, to provide that
the operations thereof shall be financed by private
capital to the maximum extent feasible, and to
authorize such facilities to --

(1) provide stability in the secondary market for
residential mortgages;

(2) respond appropriately to the private capital
market;

(3) provide ongoing assistance to the secondary
market for residential mortgages . . . by
increasing the liquidity of mortgage investments
and improving the distribution of investment
capital available for residential mortgage
financing;

(4) promote access to mortgage credit throughout
the Nation . . . by increasing the liquidity of
mortgage investments and improving the
distribution of investment capital available for
residential mortgage financing; and

(5) manage and liquidate federally owned mortgage
portfolios in an orderly manner, with a minimum
of adverse effect upon the residential mortgage
market and minimum loss to the Federal
Government.

5
12 U.S.C. § 1716. While Fannie Mae was originally created as a

government corporation, Congress split it in 1968, creating the

Government National Mortgage Association (“Ginnie Mae”), which

remains a government corporation, and privatizing Fannie Mae.

Freddie Mac was established by Congress in 1970 as a

private corporation to compete with Fannie Mae, and its charter

describes similar purposes. See 12 U.S.C. § 1451 note. *

Fannie Mae and Freddie Mac carry out their missions by

purchasing mortgages originated by third-party lenders, pooling

the mortgages into investment instruments, and selling those

mortgage-backed securities to raise capital for further

purchases. By providing capital to lenders, these activities

promote access to mortgage credit throughout the Nation and

stabilize the secondary market for residential mortgages.

Congress has exempted Fannie Mae and Freddie Mac generally

from state and local taxes, “except that any real property of

[either Fannie Mae or Freddie Mac] 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. §

*
During the financial crisis of 2008, Congress created the
Federal Housing Finance Agency (“FHFA”) to provide “general
regulatory authority” over Fannie Mae and Freddie Mac. 12
U.S.C. § 4511. On September 6, 2008, FHFA imposed itself as the
conservator over Fannie Mae and Freddie Mac, thus stepping into
their shoes. See id. § 4617. As conservator of Fannie Mae and
Freddie Mac, FHFA is also a party to these cases.

6
1723a(c)(2) (as to Fannie Mae); see also id. § 1452(e) (as to

Freddie Mac); id. § 4617(j)(2) (as to the FHFA).

Maryland and South Carolina, as well as many other states,

impose taxes on the ownership of real property, as well as

excise taxes on the transfer of real property.

Maryland’s property tax is imposed annually on owners of

real property located in the State, based on the assessed value

of the property. See Md. Code Ann., Tax-Prop. §§ 5-102(a), 6-

101(a), 6-201(a). In addition, Maryland imposes a recordation

tax on “instrument[s] of writing” (e.g., deeds, leases, and

mortgages) that are recorded with the clerk of a circuit court,

as well as a transfer tax on the same “instrument[s] of

writing.” See id. §§ 12-102, 13-202. The amount of the

recordation and transfer taxes are based on the “consideration”

paid for the real property or the principal amount of debt

secured. See id. §§ 12-103, 13-203. Maryland also authorizes

counties to impose transfer taxes, which, for example,

Montgomery County has done. See id. § 13-402.1; Montgomery

County Code § 52-19 et seq.

South Carolina similarly imposes an annual tax on the

ownership of real property located in the State, based on its

assessed valuation. See S.C. Code Ann. §§ 12-37-30, 12-37-210,

12-37-610. In addition, South Carolina imposes “recording fees”

“for the privilege of recording deeds in which land . . . is

7
transferred to another person.” Id. § 12-24-10(A). As with

Maryland, the rate for the recording fees in South Carolina is

based on the “consideration paid or to be paid” for the real

property or for the debts recorded. Id. § 12-24-30(A).

In the course of their business, Fannie Mae and Freddie Mac

acquired real property in both Maryland and South Carolina

through foreclosures on mortgages that they owned or guaranteed.

When selling these properties to third persons, they refused to

pay the transfer taxes and recording fees, claiming to be exempt

from them under 12 U.S.C. §§ 1723a(c)(2) and 1452(e),

respectively. The Maryland and South Carolina counties, which

collect these taxes, disputed Fannie Mae and Freddie Mac’s

claimed exemptions, contending that the exemptions did not cover

state and local transfer taxes, including recording fees,

insofar as they related to real property, and they commenced

these actions (one in Maryland and two in South Carolina) for a

declaratory judgment that Fannie Mae and Freddie Mac are liable

for transfer taxes and recording fees and to recover as damages

the taxes and fees that they refused to pay. The FHFA, as

conservator of Fannie Mae and Freddie Mac, was also named a

defendant in the Maryland case and intervened as a defendant in

the South Carolina cases.

The South Carolina district court consolidated the two

actions pending there and certified the consolidated action as a

8
class action, defining the class as all counties in South

Carolina. The court thereafter rejected the counties’ claims on

the merits, concluding that the exclusion from the general tax

exemptions covered only real property taxes and not transfer

taxes. The court also rejected the South Carolina counties’

claim that the tax exemptions were unconstitutional. The

Maryland district court did not reach the class action

certification question but dismissed the Maryland county’s

claims as a matter of law, again concluding that the exclusion

from the general tax exemptions did not apply and that the

exemptions themselves were a constitutional exercise of

Congress’s Commerce Clause power.

These appeals followed, and we ordered that they be

consolidated for our review.

II

The general tax exemptions for Fannie Mae and Freddie Mac

exclude state and local taxes on their “real property” “to the

same extent as other real property is taxed.” 12 U.S.C. §

1723a(c)(2); id. § 1452(e). The Counties argue that “real

property,” as used in the statutes, includes deeds to the

property recorded by Fannie Mae and Freddie Mac because “deeds

are ‘indispensable’ to ownership of real property; they are the

principal evidence of ownership and true title.” The Counties

9
reason that such a construction follows from the concept that

real property ownership is a “bundle of sticks” that includes

the right to transfer title. Consequently, by their account, a

real property transfer tax is a tax on real property, which is

excluded from the general tax exemptions provided for Fannie Mae

and Freddie Mac.

Thus, according to the Counties, when a statute refers to a

real property tax, it is also referring to transfer taxes. Such

a blur of the two taxes would mean analogously that any

reference to a personal property tax (a tax on the ownership of

personal property) must also be a reference to sales taxes

imposed on the transfer of personal property. Yet, every legal

and common understanding distinguishes a property tax from a

transfer or sales tax.

The Supreme Court made this very point clear when it stated

that a property tax is “levied upon the property itself,”

whereas a transfer tax is levied upon the “transfer of

property.” United States v. Wells Fargo Bank, 485 U.S. 351, 355

(1988). The Court explained:

[A]n exemption of property from all taxation ha[s] an
understood meeting: 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.

10
Id. at 355. Thus, the exemption from a tax on real property was

not an exemption from a tax on “certain privileges of ownership,

such as the right to transfer [real] property.” Id.

When that distinction is recognized, it becomes apparent

that the exclusions allowing for the taxation of real property

as “other real property is taxed,” 12 U.S.C. §§ 1723a(c)(2),

1452(e), undoubtedly refer to real property taxes imposed on the

ownership of real property and not to transfer taxes imposed on

the transfer of real property -- e.g., on the sale of real

property.

The Supreme Court applied the same distinction in Pittman

v. Home Owners’ Loan Corp., 308 U.S. 21 (1939). In Pittman, the

Court considered whether Maryland could impose a mortgage-

recordation tax on the Home Owners’ Loan Corporation. That

corporation was subject to a statutory tax exemption with a real

property exclusion materially identical to the ones in the

present case. See id. at 31 n.3. The Court found that the

corporation was exempt from the recordation tax, which

necessarily meant that the real property exclusion did not apply

to the recordation tax. Id. at 33.

The transfer taxes in the present case are analogous to the

recordation tax in Pittman, and both are distinct from property

taxes. See also Fed. Land Bank v. Bismarck Lumber Co., 314 U.S.

95, 101 (1941) (“Obviously a tax upon the sale of building

11
materials to be used on the real estate of a federal land bank

is not a tax upon that real estate”); Southern Ry. Co. v. Watts,

260 U.S. 519, 530 (1923) (“[A] privilege tax is not converted

into a property tax because it is measured by the value of

property”).

Moreover, the South Carolina and Maryland statutory schemes

themselves confirm the divide between excise taxes and property

taxes. Both States, in addition to imposing a tax on the

transfer of real property, impose a separate direct tax on real

property, using the same “subject to” language used in the

federal exemption statutes. Compare Md. Code Ann., Tax-Prop. §

6-101 (“[A]ll property located in [Maryland] is subject to . . .

property tax” (emphasis added)), and S.C. Code Ann. § 12-37-210

(“All real . . . property in [South Carolina] . . . shall be

subject to taxation” (emphasis added)), with 12 U.S.C. §

1452(e) (excluding from the general taxation exemption “any real

property . . . subject to State . . . or local taxation to the

same extent according to its value as other real property is

taxed” (emphasis added)), and 12 U.S.C. § 1723a(c)(2) (similarly

using “subject to” language).

In sum, we hold that the real property exclusions from the

general tax exemptions of 12 U.S.C. §§ 1723a(c)(2) and 1452(e)

do not include transfer and recordation taxes. Accord DeKalb

Cnty. v. Fed. Hous. Fin. Agency, __ F.3d __, 2013 U.S. App.

12
LEXIS 25763 (7th Cir. Dec. 23, 2013); Cnty. of Oakland v. Fed.

Hous. Fin. Agency, 716 F.3d 935, 939 n.6 (6th Cir. 2013).

III

The Counties contend that, in any event, Congress acted

impermissibly in providing Fannie Mae and Freddie Mac with

exemptions from state and local transfer taxes. Disputing the

district courts’ conclusion that the exemptions were justified

under the Commerce Clause, the Counties assert that the transfer

taxes were “assessed on local, intrastate activity -- the buying

and selling of parcels of real estate,” and therefore any

efforts to regulate them were not justified by the Commerce

Clause but instead amounted to nothing less than an infringement

on the States’ sovereign power to tax -- a power “indispensable

to their existence.” Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1,

199 (1824); see also Bode v. Barrett, 344 U.S. 583, 585 (1953)

(observing that the power of a State to tax is “basic to its

sovereignty”); Dows v. City of Chicago, 78 U.S. (11 Wall.) 108,

110 (1871) (“It is upon taxation that the several States chiefly

rely to obtain the means to carry on their respective

governments”).

A

Before addressing the Counties’ Commerce Clause argument,

we address the Counties’ contention that we should review

13
Congress’s authority to exempt Fannie Mae and Freddie Mac from

state and local taxes under the strict-scrutiny standard of

review. They argue that the “rights of the states to . . .

impose taxes are just as fundamental, from a Constitutional

standpoint, as the rights of individuals to Due Process and

Equal Protection under the Fifth and Fourteenth Amendments.”

The Counties provide no authority for this position, though,

candidly observing, “The admitted absence of judicial standards

for limiting Congressional interference with non-discriminatory

state taxes is no proper reason to apply a wrong standard or not

formulate a proper one.”

We need not, however, formulate a new standard, as it is

established that for a federal statute to pass constitutional

muster under the Commerce Clause, there need only exist a

“‘rational basis’ . . . for . . . concluding” that the regulated

activities “taken in the aggregate, substantially affect

interstate commerce.” Gonzales v. Raich, 545 U.S. 1, 22 (2005)

(emphasis added); see also Hodel v. Va. Surface Mining &

Reclamation Ass’n, 452 U.S. 264, 276 (1981) (“The 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 congressional

finding that a regulated activity affects interstate commerce,

if there is any rational basis for such a finding”); United

14
States v. Gibert, 677 F.3d 613, 621 (4th Cir. 2012) (“[I]f a

‘rational basis exist[s] for concluding that a regulated

activity sufficiently affect[s] interstate commerce,’ then a

challenge to Congress’ power under the Commerce Clause to

regulate that activity must fail” (alterations in original)

(quoting United States v. Lopez, 514 U.S. 549, 557 (1995))).

And this level of scrutiny is not altered because a

regulation exempts an entity from state taxation. The Counties’

analogy to the Fifth and Fourteenth Amendments fails because

there is no independent constitutional protection for the

States’ right to tax. To be sure, Congress must speak clearly

when preempting a State’s traditional powers, including the

power to tax. See Dep’t of Revenue of Or. v. ACF Indus., Inc.,

510 U.S. 332, 345 (1994). But Congress’s intent to exempt

Fannie Mae and Freddie Mac from state taxation in the present

case could not be clearer -- the statutes provide that Fannie

Mae and Freddie Mac “shall be exempt from all taxation now or

hereafter imposed by any State . . . or by any county.” 12

U.S.C. § 1723a(c)(2); id. § 1452(e). 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. See, e.g., Ariz.

Dep’t of Revenue v. Blaze Constr. Co., 526 U.S. 32, 38 (1999)

(“Whether to exempt [the government contractor] from Arizona’s

15
transaction privilege tax . . . rests . . . with Congress”);

United States v. New Mexico, 455 U.S. 720, 737 (1988) (“If the

[tax] immunity of federal contractors is to be expanded beyond

its narrow constitutional limits, it is Congress that must take

responsibility for the decision”); United States v. City of

Detroit, 355 U.S. 466, 474 (1958) (“[T]his is not to say that

Congress, acting within the proper scope of its power, cannot

confer [tax] immunity by statute where it does not exist

constitutionally”). And more particularly, in Arizona Public

Service Co. v. Snead, 441 U.S. 141 (1979), the Court upheld a

federal law invalidating a discriminatory New Mexico tax on the

transmission of electricity where “Congress had a rational basis

for finding that the New Mexico tax interfered with interstate

commerce, and selected a reasonable method to eliminate that

interference.” Id. at 149-50. While Snead was a dormant

Commerce Clause case, the Court’s employment of the rational-

basis standard of review nonetheless undermines the Counties’

claim that state taxes are deserving of heightened protection.

In the absence of a particular constitutional right that

would trigger heightened scrutiny, we hold that a congressional

exemption from state taxation under the Commerce Clause is

subject to rational-basis review.

16
 B

On the merits, the Counties contend that the Commerce

Clause does not authorize Congress to regulate local, intrastate

activity, such as collecting taxes on “the buying and selling of

parcels of real estate,” and therefore, they argue, the district

courts erred in holding that Congress could reasonably conclude

that state and local taxation would interfere with the stated

missions of Fannie Mae and Freddie Mac. See Butts v. Fed. Nat’l

Mortg. Ass’n, No. 9:12-1912, 2013 U.S. Dist. LEXIS 124999, at

*24-25 (D.S.C. May 23, 2013) (“Congress created Fannie Mae and

Freddie Mac to provide stability and competition in the national

secondary mortgage market. Congress could reasonably conclude

that requiring Fannie Mae and Freddie Mac to pay certain state

taxes, such as the South Carolina recording fee, could interfere

with that important mission”); Montgomery Cnty. v. Fed. Nat’l

Mortg. Ass’n, No. DKC-13-0066, 2013 U.S. Dist. LEXIS 61822, at

*44-45 (D. Md. Apr. 30, 2013) (concluding that there is “a

rational basis for Congress to conclude that the regulated

activity in question . . . has a substantial economic effect on

interstate commerce” and that it was reasonable for Congress to

believe that “any taxation of [Fannie Mae and Freddie Mac] by

states and localities could interfere with their stated

missions”).

17
 Congress has the power to “‘make all Laws which shall be

necessary and proper’ to ‘regulate Commerce . . . among the

several States.’” Raich, 545 U.S. at 22 (omission in original)

(quoting U.S. Const., Art. I, § 8). The Supreme Court has

identified three forms of regulation that are authorized by the

Commerce Clause: (1) “Congress can regulate the channels of

interstate commerce”; (2) “Congress has authority to regulate

and protect the instrumentalities of interstate commerce”; and

(3) “Congress has the power to regulate activities that

substantially affect interstate commerce.” Id. at 16-17

(emphasis added). Moreover, “when Congress enacts a general

statutory framework regulating economic activity, its power is

not limited to the regulation only of interstate economic

activity, but extends to the regulation of purely intrastate

economic activity as well.” Brzonkala v. Va. Polytechnic Inst.

& State Univ., 169 F.3d 820, 835 (4th Cir. 1999) (en banc)

(emphasis omitted), aff’d sub nom. United States v. Morrison,

529 U.S. 598 (2000).

In this case, the overall statutory schemes establishing

Fannie Mae and Freddie Mac are clearly directed at the

regulation of interstate economic activity. Congress created

the corporations to “promote access to mortgage credit

throughout the Nation” and to foster a nationwide secondary

mortgage market. 12 U.S.C. § 1716 (with respect to Fannie Mae);

18
id. § 1451 note (with respect to Freddie Mac). 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. And at oral argument, the Counties rightly conceded

that Congress acted well within its Commerce Clause power in

establishing Fannie Mae and Freddie Mac for the purposes

indicated in their charters. The relevant inquiry, then, is

whether the statutory exemptions from state and local taxes are

necessary and proper to Congress’s legitimate exercise of its

Commerce Clause power. See Raich, 545 U.S. at 34-35 (Scalia,

J., concurring) (explaining that the authority to regulate

intrastate commerce “derives from the Necessary and Proper

Clause”).

“[I]n determining whether the Necessary and Proper Clause

grants Congress the legislative authority to enact a particular

federal statute, we look to see whether the statute constitutes

a means that is rationally related to the implementation of a

constitutionally enumerated power.” United States v. Comstock,

560 U.S. 126, 134 (2010). “[T]he word ‘necessary’ does not mean

‘absolutely necessary.’” Id. (quoting McCulloch v. Maryland, 17

U.S. (4 Wheat.) 316, 413-15 (1819)). Rather, “the relevant

inquiry is simply ‘whether the means chosen are reasonably

19
adapted to the attainment of a legitimate end under the commerce

power.’” Id. at 135 (quoting Raich, 545 U.S. at 37 (Scalia, J.,

concurring) (internal quotation marks omitted)).

We conclude that Congress could rationally have believed

that state taxation would substantially interfere with or

obstruct the legitimate purposes of Fannie Mae and Freddie Mac

of regulating and stabilizing the secondary mortgage market.

And we conclude further that its decision to exempt Fannie Mae

and Freddie Mac from most state taxation was a reasonable means

of avoiding that risk of interference or obstruction. First,

excessive state taxation of Fannie Mae and Freddie Mac could

undermine their ability to purchase mortgages by reducing their

access to capital. Second, exposure to state taxation would

subject Fannie Mae and Freddie Mac to inconsistencies in

transaction costs that would vary from state to state. Such a

patchwork might undermine the goal of providing mortgage

liquidity to all parts of the country. See, e.g., 12 U.S.C. §

1716(4) (declaring that Fannie Mae should “promote access to

mortgage credit throughout the Nation (including central cities,

rural areas, and underserved areas)” (emphasis added)). In

particular, inconsistent state taxation could discourage Fannie

Mae and Freddie Mac from investing in mortgages on real property

in states with the highest taxes. Third, absent the statutory

exemptions, states might be tempted to target Fannie Mae and

20
Freddie Mac with large taxes, given the sheer volume of their

mortgage portfolios and their statutory obligations to continue

purchasing and guaranteeing mortgages throughout the country.

And this problem could become particularly pronounced were a

State to face a mortgage crisis. For these reasons, we agree

with the district courts that Congress could rationally have

believed that insulating Fannie Mae and Freddie Mac from most

state taxation would substantially further those entities’

purposes. Thus, we hold that the statutory exemptions are valid

exercises of Congress’s constitutional powers.

The Counties argue that Morrison and Lopez, two Commerce

Clause cases, suggest the opposite result, asserting that the

transfer taxes here are completely localized and “no more

commercial in nature than the activities” that Congress was

attempting to regulate in those cases because “[t]axes are not

commerce between or among the States.” In Morrison, the Supreme

Court struck down a federal statute that imposed a civil penalty

for gender-motivated violence, 529 U.S. at 601-02, and in Lopez,

the Court struck down a federal statute that criminalized

possession of a firearm in a school zone, 514 U.S. at 551. In

both of those cases, the object of Congress’s regulation was

intrastate, non-economic activity. See Morrison, 529 U.S. at

613 (“Gender-motivated crimes of violence are not, in any sense

of the phrase, economic activity”); Lopez, 514 U.S. at 561

21
(“[The statute] has nothing to do with ‘commerce’ or any sort of

economic enterprise, however broadly one might define those

terms”). In contrast, the ultimate goals of the statutory

scheme at issue in this case are to stabilize the secondary

mortgage market and to promote liquidity in that market, which

are quintessentially interstate and economic aims. While local

transfer and recordation taxes might, in a vacuum, appear to be

purely intrastate in nature, Congress could rationally have

believed that such taxes would substantially affect interstate

commerce by burdening Fannie Mae and Freddie Mac. See Wickard

v. Filburn, 317 U.S. 111, 124 (1942) (“[N]o form of state

activity can constitutionally thwart the regulatory power

granted by the commerce clause to Congress. Hence the reach of

that power extends to those intrastate activities which in a

substantial way interfere with or obstruct the exercise of the

granted power” (quoting United States v. Wrightwood Dairy Co.,

315 U.S. 110, 119 (1942)) (internal quotation marks omitted)).

Thus, we conclude that Congress may exempt Fannie Mae and

Freddie Mac from state and local transfer taxes, even though

they are collected in the context of intrastate transactions,

because the taxes could substantially interfere with or obstruct

the constitutionally justified missions of Fannie Mae and

Freddie Mac in bolstering the secondary mortgage market.

22
 C

The Counties’ remaining arguments for finding the statutory

tax exemptions unconstitutional do not merit extensive

discussion.

First, they argue that the statutory exemptions

inappropriately “commandeer” state employees by requiring them

“to record deeds from [Fannie Mae and Freddie Mac] free of

charge.” See Printz v. United States, 521 U.S. 898 (1997); New

York v. United States, 505 U.S. 144 (1992). The federal

statutes in question, however, do not impose upon the states or

local officers any affirmative obligation. See United States v.

Bostic, 168 F.3d 718, 724 (4th Cir. 1999) (rejecting a

commandeering argument in the absence of an affirmative

obligation). Surely, South Carolina and Maryland could scrap

their title recording systems if they so desired. The mere fact

that federal statutes give rise to state action does not amount

to commandeering. See South Carolina v. Baker, 485 U.S. 505,

514 (1988) (“Any federal regulation demands compliance”).

Second, the Counties argue that Fannie Mae and Freddie Mac

are not federal instrumentalities entitled to immunity from

state taxation, implying that Congress may only statutorily

exempt federal instrumentalities from taxation. But such an

argument makes little sense because, absent waiver, federal

instrumentalities are immune from state taxation under the

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Supremacy Clause of the Constitution, regardless of statutory

enactment. See New Mexico, 455 U.S. at 735; McCulloch, 17 U.S.

at 436. Moreover, the Supreme Court has repeatedly stated that

Congress may grant statutory tax immunity broader than what the

Supremacy Clause would otherwise provide. See Blaze Constr.

Co., Inc., 526 U.S. at 38; New Mexico, 455 U.S. at 737; City of

Detroit, 355 U.S. at 474. The case of First Agricultural

National Bank v. Tax Commission, 392 U.S. 339 (1968), makes

clear that constitutional and statutory tax exemptions are

distinct concepts. 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 instrumentalities.” Id. at

341. Because Congress may provide for immunity from state

taxation irrespective of an 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.

Third and finally, the Counties argue that the statutory

exemptions violate the Tenth Amendment. To be sure, the Tenth

Amendment reserves to the States powers not granted to Congress.

But because we hold today that Congress acted within its

Commerce Clause power in granting Fannie Mae and Freddie Mac

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statutory tax exemptions, the Tenth Amendment is inapplicable.

See New York, 505 U.S. at 156 (“If a power is delegated to

Congress in the Constitution, the Tenth Amendment expressly

disclaims any reservation of that power to the States”).

Accordingly, the judgments of the district courts are

AFFIRMED.

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