United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued May 12, 2014 Decided June 13, 2014
No. 13-7114
BOARD OF COUNTY COMMISSIONERS OF KAY COUNTY,
OKLAHOMA,
APPELLANT
v.
FEDERAL HOUSING FINANCE AGENCY, AS CONSERVATOR FOR
FEDERAL NATIONAL MORTGAGE ASSOCIATION AND
FEDERAL HOME LOAN MORTGAGE CORPORATION,
ET AL.,
APPELLEES
UNITED STATES OF AMERICA,
INTERVENOR
Appeal from the United States District Court
for the District of Columbia
(No. 1:12-cv-01283)
Warren T. Burns argued the cause for appellant. With
him on the briefs was Terrell W. Oxford. Jonathan W. Cuneo
and Larry D. Lahman entered appearances.
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Michael A.F. Johnson argued the cause for appellees.
With him on the brief were Howard N. Cayne, Dirk C.
Phillips, Michael J. Ciatti, Merritt E. McAlister, Michael D.
Leffel, and Jill L. Nicholson.
Tamara W. Ashford, Principal Deputy Assistant Attorney
General, U.S. Department of Justice, Gilbert S. Rothenberg,
Jonathan S. Cohen, and Patrick J. Urda, Attorneys, were on
the brief for intervenor United States of America in support of
appellees.
Before: HENDERSON and MILLETT, Circuit Judges, and
SENTELLE, Senior Circuit Judge.
Opinion for the Court filed by Senior Circuit Judge
SENTELLE.
SENTELLE, Senior Circuit Judge: The Board of County
Commissioners of Kay County appeals the district court’s
dismissal of its complaint seeking a declaratory judgment that
the Federal National Mortgage Association (Fannie Mae) and
the Federal Home Loan Mortgage Corporation (Freddie Mac),
along with the Federal Housing Finance Agency (FHFA) as
their conservator, violated state law by failing to pay
Oklahoma’s documentary stamp tax (the “Transfer Tax”).
The district court held that all of the entities were exempt
from the tax pursuant to their statutory charters, 12 U.S.C.
§§ 1452(e), 1723a(c)(2), 4617(j)(1)-(2). We affirm the
district court. We hold that the statutes exempt the entities
from all state and local taxation, including Oklahoma’s
Transfer Tax, and that the Transfer Tax does not constitute a
tax on real property such that it falls into the real property
exceptions from the exemptions. Finally, we hold that Kay
County has forfeited its argument that the exemptions
represent an invalid exercise of the Commerce power.
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BACKGROUND
Fannie Mae and Freddie Mac are federally-chartered,
privately-owned entities currently under the conservatorship
of the FHFA. Pursuant to 12 U.S.C. §§ 1452(e), 1723a(c)(2),
and 4617(j)(1)-(2), each of these entities is “exempt from all
taxation . . . imposed by any State [or] county . . . except that
any real property of the [corporation or Agency is] subject to
[such taxation] to the same extent . . . as other real property
. . . .” Oklahoma imposes a documentary stamp tax on sales
of real property. 68 Okla. Stat. Ann. § 3201. The tax is
known as a “Transfer Tax,” and is measured by the value of
the property conveyed. Id. It attaches at the time a deed is
executed and delivered to a buyer, and must be paid by the
seller before the deed will be accepted for recording. Id.
§§ 3203-04.
Kay County filed against Fannie Mae, Freddie Mac, and
the FHFA (the “Entities”), seeking a declaratory judgment
that they were not exempt from the Transfer Tax, along with
damages in the amount of Transfer Taxes purportedly due and
owing by the Entities. The complaint alleged that the Entities
“wrongfully refused to pay” the tax when conveying property
in the state, thereby depriving Kay County of tax revenue to
which it is entitled. The Entities moved to dismiss, and the
district court granted the motion. In so doing, the court joined
an array of other federal courts interpreting “all taxation” to
mean what it says and rejected Kay County’s assertion that
the phrase is actually a term of art referring only to direct
taxation. Bd. of Cnty. Comm’rs of Kay County v. FHFA, 956
F. Supp. 2d 184, 187-90 (D.D.C. 2013). Highlighting the
distinction between tax exemptions granted to property and
those granted to entities, the court applied Federal Land Bank
of St. Paul v. Bismarck Lumber Co., 314 U.S. 95 (1941),
which stands for the principle that unqualified exemptions
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extended to entities reach all taxes ultimately borne by the
entity—including excise taxes like the Transfer Tax. Kay
County, 956 F. Supp. 2d at 188-89. The court further
concluded that the Transfer Tax did not fall into the real
property exception, noting that “[j]ust because a transfer tax is
measured by the value of real property does not mean that the
tax is a ‘property tax.’” Id. at 189.
In a footnote, the district court also referenced Kay
County’s contention that the Entities are not federal
instrumentalities. Id. at 189 n.5. However, it dismissed as
irrelevant the County’s skepticism about “whether [the
Entities] should be considered federal instrumentalities for tax
purposes” because the Entities’ tax exemption depends not
upon their instrumentality status, but instead upon the
statutory language providing them immunity. Id.
DISCUSSION
On appeal, the County reiterates the statutory arguments
brought below—it insists that the statutory exemptions do not
include indirect taxes like the Transfer Tax, and, alternatively,
that the Transfer Tax falls into the real property exceptions.
The County also raises a constitutional challenge asserting
that the exemptions represent invalid exercises of the
Commerce power absent a sufficiently explicit preemption
purpose.
We review a grant of a motion to dismiss de novo.
Emory v. United Air Lines, Inc., 720 F.3d 915, 921 (D.C. Cir.
2013). Applying this standard, we agree with the district
court that the exemptions encompass the Transfer Tax and
that the Transfer Tax does not fall into the real property
exceptions. Because the County did not present its
Commerce power argument below, and concedes before us
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that the district court’s result may stand on the basis of
statutory immunity, we need not address either of its
constitutional arguments on appeal.
A. Tax Exemption
Appellant’s primary argument is that the statutory
language exempting the Entities from “all taxation” does not
include the Transfer Tax. According to the County, the
phrase does not actually mean all taxation; instead, it is a term
of art encompassing only direct taxation. The exemptions
therefore do not include indirect taxes—like the Transfer
Tax—that are levied only upon the transfer of the property.
It is “well settled that the starting point for interpreting a
statute is the language of the statute itself.” Gwaltney of
Smithfield, Ltd. v. Chesapeake Bay Found., Inc., 484 U.S. 49,
56 (1987) (internal quotation omitted). When a statute’s
language is plain, we “must enforce it according to its terms.”
Jimenez v. Quarterman, 555 U.S. 113, 118 (2009). Moreover,
where a statute’s terms are undefined, our interpretation is
guided by the terms’ “regular usage.” Lopez v. Gonzales, 549
U.S. 47, 53 (2006).
We thus begin our analysis by examining the plain
language of 12 U.S.C. §§ 1452(e), 1723a(c)(2), and
4617(j)(1)-(2). Each statute clearly states that its
corresponding entity “shall be exempt from all taxation
[imposed] . . . by any State.” Because the statute itself defines
neither “all” nor “taxation,” we look to the ordinary meaning
of the words, which is unambiguous: all taxation clearly
encompasses all taxation, including the Transfer Tax. See
Cnty. of Oakland v. FHFA, 716 F.3d 935, 940 (6th Cir. 2013).
To accept the County’s argument to the contrary would
6
require the application of inapposite precedent toward an
absurd result.
The County argues that United States v. Wells Fargo
Bank, 485 U.S. 351 (1988), a case wherein the Supreme Court
interpreted identical exemption language, established that the
phrase “all taxation” is a term of art signifying only direct
taxation. There, the Court interpreted a provision of the
Housing Act of 1937 exempting certain bond-type
obligations—known as Project Notes—from “all taxation now
or hereafter imposed by the United States.” Id. at 352-53,
355. Asserting that “[w]ell before the Housing Act was
passed, an exemption of property from all taxation had an
understood meaning,” namely that the property was “exempt
from direct taxation” but not from taxation levied merely
upon its “use or transfer,” the Court concluded that the
exemption encompassed income taxes—which are a form of
direct taxation—but not estate taxes—which are a form of
indirect, excise taxation. Id. at 355-56.
But that case is not on point. The statute at issue in Wells
Fargo exempted specific property from taxation. The statute
at issue in this case exempts specific entities. This is a
distinction with a difference: an unqualified tax exemption for
specific property necessarily reaches only those taxes that act
directly upon the property itself, while a similarly unqualified
exemption for a specific entity may reach any and all taxes
that ultimately will be borne by the entity. Because the
Entities, as sellers of property in Oklahoma, would ultimately
bear the burden of the Transfer Tax, Wells Fargo is not
applicable precedent.
Instead, as several of our sister circuits have already
recognized, the relevant precedent is Federal Land Bank of St.
Paul v. Bismarck Lumber Co., a case that preceded Wells
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Fargo and was not overruled by it. In Bismarck, the Supreme
Court interpreted a provision of the Federal Farm Loan Act
unqualifiedly exempting federal land banks from state
taxation. 314 U.S. at 98-99. It found that the exemption
encompassed a state sales tax that the federal bank had
refused to pay when purchasing building materials from a
lumber company. Id. at 99. Because that sales tax—like the
Transfer Tax at issue here—was ultimately borne by an entity
for which Congress had crafted an exemption, the Court
concluded that the entity was immune from it.
Bismarck controls this case. The Transfer Tax is an
excise tax borne by the Entities and the statutory charters
provide entity—not property—exemptions. It is clear that
Wells Fargo and Bismarck represent separate strains of
authority dealing with different types of exemptions. Wells
Fargo is not on point and neither overruled nor even cited
Bismarck. Without any indication that the Court meant to
eliminate the distinction between entity and property
exemptions in Wells Fargo, we cannot accept the County’s
argument.
As we noted above, other courts have interpreted and
applied the precedent of Bismarck as we do here. See
Delaware Cnty. v. FHFA, 747 F.3d 215 (3d Cir. 2014);
Hennepin Cnty. v. Fed. Nat’l Mortg. Ass’n, 742 F.3d 818 (8th
Cir. 2014); DeKalb Cnty. v. FHFA, 741 F.3d 795 (7th Cir.
2013); Cnty. of Oakland v. FHFA, 716 F.3d 935 (6th Cir.
2013).
B. Real Property Exception
Appellant alternatively argues that even if the Entities’
exemptions encompass the Transfer Tax, Fannie, Freddie, and
the FHFA are still subject to the Transfer Tax. The County
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contends that the exception for real property taxes from the
exemption extends to taxation of the transfer of real property.
We disagree.
The statutory charters state that all of the Entities’ “real
property . . . shall be subject” to state and local taxation “to
the same extent as other real property is taxed.” 12 U.S.C.
§ 1723a(c)(2); see also id. §§ 1452(e); 4617(j)(2) (materially
identical provisions). The County argues that the term “real
property” includes the transfer of that property, and thus that
the Transfer Tax falls within the exception. It bases this
argument on the classic legal characterization of property
ownership which conceives of it as the possession of a
“bundle of sticks.” Because the right to transfer is an integral
“stick” in the “bundle,” the tax is “intimately connected with
the real property itself” and is thus within the exception. Not
so. The Transfer Tax, which is measured by the value of the
property but triggered only at its transfer, is clearly an excise
tax. Wells Fargo, upon which the County relies, establishes
the difference: excise taxes may be measured by the
property’s value, but they are levied upon its use or transfer
and not upon its existence. 485 U.S. at 355. Here,
Oklahoma’s statutory taxation scheme confirms that the
Transfer Tax is an excise tax: the state imposes an entirely
separate ad valorem tax on real property. 68 Okla. Stat. Ann.
§ 2804. The Oklahoma Transfer Tax is triggered by
conveyance and paid by the seller, who, at the point of
payment, no longer has any right in the property conveyed.
68 Okla. Stat. Ann. §§ 3203-04. Appellant’s attempt to
convert the Transfer Tax into a property tax fails. See S. Ry.
Co. v. Watts, 260 U.S. 519, 530 (1923). Once again, we note
the uniform agreement of our sister circuits. See Delaware
Cnty., 747 F.3d at 223-24; Hennepin Cnty., 742 F.3d at 822;
DeKalb Cnty., 741 F.3d at 801; Montgomery Cnty. v. Fed.
9
Nat’l Mortg. Ass’n, 740 F.3d 914, 919-21 (4th Cir. 2014);
Cnty. of Oakland, 716 F.3d at 939 n.6.
C. Constitutional Arguments
The County concludes by arguing that the statutory
exemptions are invalid on constitutional grounds. The
asserted constitutional justification for the statute is
congressional authority under the Commerce Clause. The
County asserts that creation of this exemption is an
unconstitutional overreach. Citing United States v. Morrison,
529 U.S. 598 (2000), the County argues that “Congress’
regulatory authority is not without effective bounds.” Id. at
607-08. It asserts that the transfer of property being truly
local, there is no effect on interstate commerce and to uphold
the statutory scheme would expand the scope of the
Commerce Clause at the expense of curtailing the
indisputably fundamental right of the states to tax. The
County goes on to note that there is a “strong background
presumption against [federal] interference with state
taxation.” Appellant’s Br. at 19 (quoting Nat’l Private Truck
Council v. Okla. Tax Comm’n, 515 U.S. 582, 589 (1995)).
Therefore, they contend, where Congress is using its power
under the Commerce Clause to limit state taxation, it must
have expressed a “clear and manifest purpose” to preempt
state taxation. See, e.g., Dep’t of Revenue of Or. v. ACF
Indus., Inc., 510 U.S. 332 (1994).
We will not linger long over either step of appellant’s
argument. Appellant did not raise this constitutional
challenge in the district court. “Generally, an argument not
made in the lower tribunal is deemed forfeited and will not be
entertained absent exceptional circumstances.” Flynn v.
C.I.R., 269 F.3d 1064, 1068-69 (D.C. Cir. 2001) (quotations
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and citations omitted). Appellant has made no attempt to
demonstrate exceptional circumstances.
We further note that the grounds for recognizing the
forfeiture of the arguments are especially strong where the
alleged error is constitutional. We operate under a norm of
constitutional avoidance. Kalka v. Hawk, 215 F.3d 90, 97
(D.C. Cir. 2000). Under that norm, we adhere to the principle
that “[f]ederal courts should not decide constitutional
questions unless it is necessary to do so.” Id. (citations
omitted). It is neither necessary nor even advisable here. We
therefore reject appellant’s constitutional challenge without
further discussion. 1
CONCLUSION
For the reasons set forth above, the judgment of the
district court is affirmed.
1
We note that appellant also raises and argues the point that
because Fannie Mae and Freddie Mac are no longer purely federal
entities, they are not entitled to “constitutional immunity.”
Appellants raised this issue in a footnote in the district court. The
district court rejected it in a footnote to its own opinion. See Kay
County, 956 F. Supp. 2d at 189 n.5. We agree with the district
court that this argument warrants no more than marginal mention,
as it is irrelevant to the issue of statutory immunity.