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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