RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 14a0144p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
BOARD OF COMMISSIONERS OF MONTGOMERY ┐
COUNTY, OHIO, and BOARD OF COMMISSIONERS OF │
SENECA COUNTY, OHIO, │
│ No. 13-4429
Plaintiffs-Appellants,
│
>
│
v.
│
│
FEDERAL HOUSING FINANCE AGENCY, 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 Southern District of Ohio at Dayton
No. 3:12-cv-00245—Thomas M. Rose, District Judge.
Argued: June 24, 2014
Decided and Filed: July 10, 2014
Before: SUHRHEINRICH, MOORE, and WHITE, Circuit Judges.
_________________
COUNSEL
ARGUED: Nathaniel C. Giddings, HAUSFELD LLP, Washington, D.C., for Appellants.
Michael A.F. Johnson, ARNOLD & PORTER LLP, Washington, D.C., for Appellees. Patrick J.
Urda, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Intervenor. ON
BRIEF: Nathaniel C. Giddings, James J. Pizzirusso, HAUSFELD LLP, Washington, D.C., Don
Springmeyer, WOLF, RIFKIN, SHAPIRO, SCHULMAN & RABKIN, LLP, Las Vegas,
Nevada, Mark H. Troutman, Mark Landes, ISAAC, BRANT, LEDMAN & TEETOR LLP,
Columbus, Ohio, for Appellants. Michael A.F. Johnson, Howard N. Cayne, Asim Varma, Dirk
C. Phillips, ARNOLD & PORTER LLP, Washington, D.C., Michael J. Ciatti, Merritt E.
1
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McAlister, KING & SPALDING LLP, Washington, D.C., Michael D. Leffel, FOLEY &
LARDNER LLP, Madison, Wisconsin, Jill L. Nicholson, FOLEY & LARDNER LLP, Chicago,
Illinois, for Appellees. Patrick J. Urda, Jonathan S. Cohen, UNITED STATES DEPARTMENT
OF JUSTICE, Washington, D.C., for Intervenor.
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OPINION
_________________
KAREN NELSON MOORE, Circuit Judge. Two Ohio counties brought this suit on
behalf of a class of all Ohio counties against the Federal National Mortgage Association (“Fannie
Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), as well as the
Federal Housing Finance Agency (“FHFA”), as conservator for both Fannie Mae and Freddie
Mac. In their suit against Fannie Mae and Freddie Mac (collectively, the “Enterprises”) and
FHFA, the Ohio counties sought unpaid real property transfer taxes under Ohio law. The
Enterprises claim that they are exempt, per their federal charters, from such state taxes.
The state real property transfer taxes at issue are encompassed in the Enterprises’
statutory exemptions from all taxation. Moreover, real property transfer taxes are excise taxes
rather than taxes on real property which are an exception to those tax exemptions. Finally,
Congress had the power to enact the exemptions under the Commerce Clause, and the enactment
does not run afoul of any constitutional provision. Therefore, because constitutionally sound
federal statutes exempt Fannie Mae and Freddie Mac from real property transfer taxes, we
AFFIRM the district court’s judgment dismissing the case.
I. BACKGROUND
Fannie Mae was established by congressional enactment of its charter in 1938 “to
establish secondary market facilities for residential mortgages.” 12 U.S.C. § 1716. This added
liquidity allows lenders to sell mortgages and use the proceeds to fund new loans. Fannie Mae
became a privately held corporation in 1968. Fannie Mae’s charter spells out that:
The corporation, including its franchise, capital, reserves, surplus, mortgages or
other security holdings, and income, shall be exempt from all taxation now or
hereafter imposed by any State, territory, possession, Commonwealth, or
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dependency of the United States, or by the District of Columbia, or by any
county, municipality, or local taxing authority, except that any real property of the
corporation 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. § 1723a(c)(2).
Freddie Mac was established in 1970 to compete with Fannie Mae, expand and stabilize
the secondary mortgage market, and provide further liquidity for mortgages. See Federal Home
Loan Mortgage Corporation Act, Pub. L. No. 91–351, 84 Stat. 450, 451 (1970) (codified, as
amended, at 12 U.S.C. §§ 1451 et seq.); see also DeKalb Cnty. v. Fed. Hous. Fin. Agency,
741 F.3d 795, 797–98, 803 (7th Cir. 2013). Freddie Mac’s charter provides that:
The Corporation, including its franchise, activities, capital, reserves, surplus, and
income, shall be exempt from all taxation now or hereafter imposed by any
territory, dependency, or possession of the United States or by any State, county,
municipality, or local taxing authority, except that any real property of the
Corporation shall be subject to State, territorial, county, municipal, or local
taxation to the same extent according to its value as other real property is taxed.
12 U.S.C. § 1452(e).
FHFA, an independent federal agency, was established in 2008. Pub. L. No. 110-289,
122 Stat. 2654 (codified in part at 12 U.S.C. § 4617 et seq.). Fannie Mae and Freddie Mac have
been placed into conservatorship under FHFA “for the purpose of reorganizing, rehabilitating, or
winding up [their] affairs.” 12 U.S.C. § 4617(a)(2). FHFA has its own exemption from state
taxes:
The Agency, including its franchise, its capital, reserves, and surplus, and its
income, shall be exempt from all taxation imposed by any State, county,
municipality, or local taxing authority, except that any real property of the
Agency shall be subject to State, territorial, county, municipal, or local taxation to
the same extent according to its value as other real property is taxed . . . .
12 U.S.C. § 4617(j)(2).
The Ohio counties in this dispute seek enforcement of real property transfer taxes under
Ohio law. See Ohio Rev. Code §§ 319.54(G)(3), 322.02(A) (stating that “any county may levy
and collect a tax to be known as the real property transfer tax on each deed conveying real
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property or any interest in real property located wholly or partially within the boundaries of the
county”).
The district court granted the defendants’ motion to dismiss on October 23, 2013. R. 74
(Entry and Order Granting Defs.’ Mot. To Dismiss Pls.’ Consol. Amended Class Action Compl.
(Doc. 24) and Terminating Case.) (Page ID ##1260–69). In its opinion, the district court
reasoned that the case was “largely governed” by our decision regarding Michigan’s real
property transfer tax. Id. at 7 (Page ID #1266) (quoting County of Oakland v. Fed. Hous. Fin.
Agency, 716 F.3d 935 (6th Cir. 2013)). It then rejected the counties’ “request[]” to “create a
strict scrutiny of legislation that limits a state’s ability to levy taxes.” Id. at 8 (Page ID #1267).
Rather, the district court deemed that the congressional enactment, which includes the statutory
tax exemption, “is not aimed at state property transfer taxes, but at facilitating the secondary
mortgage market.” Id. Thus, the district court performed a traditional analysis of the
congressional enactment and determined that the legislation’s subject was the “secondary
mortgage market, which has a substantial nexus with interstate commerce,” that “[e]xempting
Defendants from state and local taxation is reasonably adapted to the end Congress sought to
achieve—more equitable and efficient allocation of mortgage credit throughout the nation”—and
that the means for achieving this end are “rational.” Id. at 9 (Page ID #1268). Having implicitly
concluded that Congress intended to preempt state taxation, the district court held that this
preemption did not run afoul of the Constitution. See id.
This circuit has previously reviewed and rejected a challenge on statutory grounds by
Michigan counties attempting to force Fannie Mae and Freddie Mac to pay the Michigan real
estate transfer tax. See County of Oakland, 716 F.3d 935. In that case, the Sixth Circuit panel
held that the exemption from “all taxation” includes the Michigan real estate transfer tax. See id.
at 940.1 In a footnote, the panel noted that the Michigan counties were, for the first time on
appeal, arguing in the alternative that the real estate transfer tax while falling under the ban of
“all taxation” is excluded from that ban by the real property tax exception in the various statutes.
1
While the counties would like to argue that Ohio’s real property transfer tax does not fall under “all
taxation” as provided in the various statutory enactments, they concede that this panel is bound by the decision in
Oakland County and do not argue for a different result here.
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Id. at 939 n.6. The panel determined that the argument was forfeited because it was not argued
in the district court, but that even if it were not forfeited, “the transfer tax, as a privilege tax, does
not fit into the carve out allowing for taxes on real property.” Id.
II. DISCUSSION
We review the district court’s grant of the motion to dismiss de novo. Buck v. Thomas M.
Cooley Law Sch., 597 F.3d 812, 816 (6th Cir. 2010). Similarly, we review “de novo a district
court’s purely legal determinations, including determinations regarding statutory construction
and the constitutionality of a federal statute.” United States v. Felts, 674 F.3d 599, 602 (6th Cir.
2012).
A. Statutory Issue: Real Property Exception
Fannie Mae’s charter prohibits state and local taxation of Fannie Mae “except that any
real property of the corporation 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. § 1723a(c)(2). Similarly,
Freddie Mac’s charter prohibits state and local taxation of Freddie Mac “except that any real
property of the Corporation shall be subject to State, territorial, county, municipal, or local
taxation to the same extent according to its value as other real property is taxed.” 12 U.S.C.
§ 1452(e). As for FHFA, taxation is prohibited “except that any real property of the Agency
shall be subject to State, territorial, county, municipal, or local taxation to the same extent
according to its value as other real property is taxed.” 12 U.S.C. § 4617(j)(2). The Ohio
counties argue that the state and local real property transfer taxes fall into the statutory
exceptions for taxation of real property. See Appellants Br. at 47–52. If so, then the defendants
are statutorily required to pay the tax. We first address this statutory argument in order to avoid
the constitutional issues if possible. Ashwander v. Tenn. Valley Auth., 297 U.S. 288, 347 (1936)
(Brandeis, J., concurring) (“The Court will not pass upon a constitutional question although
properly presented by the record, if there is also present some other ground upon which the case
may be disposed of.”).
The parties disagree whether the County of Oakland panel’s statement that real estate
transfer taxes “do[] not fit into the carve out allowing for taxes on real property,” County of
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Oakland, 716 F.3d at 939 n.6, is binding precedent in the Sixth Circuit. The County of Oakland
panel held that the Michigan plaintiffs in that case had “forfeited this argument by not pressing it
below in any meaningful way.” Id. The declaration that transfer taxes are not subject to the real
property exception was made only as a counterfactual. See id. (providing the conclusion only
after stating “[e]ven if [the Michigan counties] had not forfeited the argument”). Because the
forfeiture conclusion disposed of the argument, the declaration that real estate transfer taxes are
not subject to the real property exception was not necessary to the outcome of the case, and is,
thus, mere dicta. See United States v. Stevenson, 676 F.3d 557, 561–62 (6th Cir. 2012). While
the defendants urge this panel “to treat [both reasons] as alternative bases of decision,” Appellees
Br. at 10 (quoting MacDonald, Sommer, & Frates v. Yolo Cnty., 477 U.S. 340, 346 n.4 (1986)),
the cases cited do not actually support the conclusion that the real property exception declaration
should be treated as binding precedent in this circuit. By determining that the Michigan counties
had forfeited their argument, the Oakland County panel made clear that it did not need to reach
the question whether real estate transfer taxes are part of the real property exception. Thus, we
do not consider that panel’s statements to be binding precedent.
The Oakland County panel’s conclusion that real estate transfer taxes do not fit into the
real property tax carve out, however, is sound. While a county may levy the transfer tax “on
each deed conveying real property or any interest in real property,” the transfer tax is “levied
upon the grantor named in the deed.” Ohio Rev. Code § 322.02(A). Ohio courts have held that
this transfer tax is an excise tax. Okey v. Walton, 302 N.E.2d 895, 902 (Ohio App. 1973) (“We
hold that R.C. Section 322.02 is an excise tax that comes under Section 10, Article XII of the
Ohio Constitution.”). The Supreme Court of Ohio has distinguished between an excise tax,
which is levied on a privilege, and a property tax levied directly against the property. General
Am. Transp. Corp. v. Limbach, Tax Comm’r, 473 N.E.2d 814, 818 (Ohio 1984) (“An excise tax
is one levied on a privilege and not one levied directly against the property.”). Thus, we
conclude that the real property transfer tax at issue is an excise tax upon the grantor of real
property for the privilege of transferring real property rather than a real property tax levied
directly against the property.
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Our sister circuits have reached the same conclusion regarding real property transfer
taxes. See, e.g., Del. Cnty., Pa. v. Fed. Hous. Fin. Agency, 747 F.3d 215, 224 (3d Cir. 2014)
(holding that “transfer taxes are an excise tax, not a direct tax on real estate, and therefore are not
within the scope of the [real property] exception”); Montgomery Cnty., Md. v. Fed. Nat’l Mortg.
Ass’n, 740 F.3d 914, 920 (4th Cir. 2014) (holding similarly because “every legal and common
understanding distinguishes a property tax from a transfer or sales tax”); Hennepin Cnty. v. Fed.
Nat’l Mortg. Ass’n, 742 F.3d 818, 822 (8th Cir. 2014) (“Minnesota’s deed transfer tax is a tax
imposed by the state on the transfer of real property, not on the real property itself. It therefore
does not fall within the real property exception to the agencies’ broad tax exemptions. We
conclude that Fannie Mae, Freddie Mac, and the FHFA are exempt from Minnesota’s deed
transfer tax.”);2 Board of Cnty. Comm’rs Kay Cnty., Okla. v. Fed. Hous. Fin. Agency, -- F.3d --,
2014 WL 2619884, at *4 (D.C. Cir. 2014) (“The Transfer Tax, which is measured by the value
of the property but triggered only at its transfer, is clearly an excise tax. . . . Appellant’s attempt
to convert the Transfer Tax into a property tax fails.”); DeKalb Cnty., 741 F.3d at 799 (“[The]
exemption is from ‘all taxation’ except real property taxation, and a tax on a real estate sale is a
tax not on property but on the transfer of property—a well-recognized distinction.”); see also
United States v. Wells Fargo Bank, 485 U.S. 351, 355 (1988) (noting “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”). Thus, we now hold similarly
that the Ohio real property transfer tax is not a real property tax that fits within the statutory
exceptions to the exemptions.
B. Constitutional Issue: Congressional Authority
Having concluded that the congressionally enacted charters exempt the enterprises from
state and local real property transfer taxes, we turn now to the constitutional question whether
Congress had the authority under the Commerce Clause to enact such exemptions.3 We answer
2
This conclusion was recently reiterated in Vadnais v. Federal National Mortgage, -- F.3d --, 2014 WL
2535276, at *3 (8th Cir. 2014).
3
We reject the Ohio counties’ argument that we should apply strict scrutiny in evaluating the charter tax
exemptions, see Appellants Br. at 45–47. The Ohio counties assert that “the rights of the States to exercise police
powers and impose taxes are just as fundamental, from a constitutional standpoint, as the rights of individuals’ due
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in the affirmative the question whether the state tax exemptions in the federal charters of these
Enterprises “arise out of or are connected with a commercial transaction, which viewed in the
aggregate, substantially affects interstate commerce.” United States v. Lopez, 514 U.S. 549, 561
(1995).
In creating Fannie Mae and Freddie Mac, Congress’s purpose was to add liquidity to the
secondary mortgage market. In effect, Congress was creating purchasers of mortgages who
would provide cash to the original lenders, who could then lend that money back out. The
creation of corporations that bought mortgages on the secondary market thus produced greater
availability of credit for home purchases.
The Enterprises argue that by including exemptions from state and local taxes, Congress
was attempting to accomplish two objectives: to reduce the cost of mortgage finance and to
ensure the equitable provision of mortgages anywhere in the nation. In purchasing the
mortgages, the Enterprises take on risk that the borrowers will default. When defaults invariably
occur, the Enterprises will foreclose on the homes and gain ownership of real property in various
states and localities. In order to recoup their money, the Enterprises will have to sell the
property. The tax exemptions lower the costs of selling the homes, allowing the Enterprises to
recoup more of their losses. Because the cost of a default is lowered, the Enterprises are willing
to pay more originally for the mortgages they purchase. This greater demand for mortgages on
the secondary market and the greater amount that the original lenders receive when they sell the
mortgages leads to more lending and the greater availability of mortgages throughout the nation.
Thus, the tax exemptions reduce the cost of mortgage finance in the nationwide secondary
mortgage market.
process and equal protection.” Id. at 46. Rather than evaluate whether this assertion is accurate, we note simply that
even if it is, we can find no legal precedent for applying strict scrutiny where a congressional enactment interferes
with “the rights of the States to exercise police powers and impose taxes.” This lack of precedent is far from
surprising, as we see no reason to apply strict scrutiny to defend states which are well-represented in our republic
and which do not require special protection from the federal courts. Moreover, applying strict scrutiny to all federal
legislation that interferes with “the rights of the States to exercise police powers and impose taxes” would be absurd,
as much of today’s federal legislation likely in some way interferes with states’ exercise of their police powers or
imposition of taxes.
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The tax exemptions also ensure the equitable provision of mortgages across state lines.
With non-uniform state and local tax rates, the Enterprises would suffer greater losses in states
and localities that have high real property transfer taxes than in those with lower taxes. As a
result, the Enterprises would be willing to pay more for mortgages in lower-tax locations than in
higher-tax locations. Thus, lenders would be better compensated for selling mortgages from low
tax locations and would be willing to make more home loans in these locations. Overall, the
differing state and local real property transfer taxes would lead to more mortgage credit being
available in some localities than others. The uniform exemption from all state and local taxes,
thus not only leads to greater availability of mortgage credit, but also ensures its equitable
distribution to all states and localities across the nation.
We conclude that the transfer tax exemptions are connected to the sale of mortgages
across state lines on the secondary mortgage market, and these sales, when viewed in the
aggregate, substantially affect interstate commerce. Thus, Congress had the power under the
Commerce Clause to enact this statutory provision.
Moreover, we find nothing that suggests Congress cannot exercise its Commerce Clause
power to supersede state tax laws. The counties’ argument that “the Supreme Court has
consistently construed statutory exemptions from state taxation in favor of the States and has
never implied the existence of such exemptions,” Appellants Br. at 20 (citing Hoge v. R.R. Co.,
99 U.S. 348, 355 (1879)), actually proves that Congress can enact such statutory exemptions.
The Supreme Court has recognized that Congress can expand tax immunity “beyond its narrow
constitutional limits” “by so expressly providing.” United States v. New Mexico, 455 U.S. 720,
737 (1982). Here, Congress has expressly exempted Fannie Mae and Freddie Mac from all
taxation by states and localities (except for real property taxes).
Our sister circuits that have considered the issue all agree that the exemptions are
necessary and proper to regulate the secondary mortgage market, which is without a doubt a
national market that Congress has the authority under the Commerce Clause to regulate. See
Del. Cnty., Pa., 747 F.3d at 227–28 (noting that “[t]he transfer tax exemptions aid the
Enterprises in regulating the secondary mortgage market, which is clearly of an economic
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nature,” and holding that “Congress acted well within the bounds of the Commerce Clause when
it exempted the Enterprises from paying state and local real estate transfer taxes”); Montgomery
Cnty., Md., 740 F.3d at 924 (“[T]he 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.”); DeKalb Cnty., 741 F.3d at 801 (“The
constitutional basis for the statute is the commerce clause, and it is obvious that the home
mortgage market is nationwide, and indeed worldwide, with home mortgages being traded in
vast quantities across state lines.”). Our sister circuits also agree that where congressional
enactments conflict with state tax laws, the Supremacy Clause ensures that the federal statute
overrides any contrary imposition of state taxes. See DeKalb Cnty., 741 F.3d at 801 (rejecting
the argument that “statutes authorized by the commerce clause must be subordinated to state and
local tax statutes because taxation is fundamental to state sovereignty” and stating that “[n]o
provision of the Constitution insulates state taxes from federal powers granted by the
Constitution, which include of course the [Commerce Clause] power”); Del. Cnty., Pa., 747 F.3d
at 225 (rejecting any assertion that state taxing authority can supersede or even equal Congress’s
Commerce Clause power and later reiterating that “considerations of state sovereignty yield
under the Supremacy Clause,” id. at 227); Vadnais v. Fed. Nat’l Mortg., -- F.3d --, 2014 WL
2535276, at *4–5 (8th Cir. 2014) (holding that the statutory exemptions not only supersede
Minnesota state tax laws, but are proper exercises of the Commerce Clause power). The charter
exemptions are constitutional exercises of Congress’s Commerce Clause power that supersede
state tax laws.
Finally, the Tenth Amendment plays no role in this analysis because the Enterprises’
charters were enacted by Congress exercising the power “[t]o regulate Commerce with foreign
Nations, and among the several States, and with the Indian Tribes,” U.S. CONST. art. I, § 8, cl. 3.
This power was explicitly “delegated to the United States by the Constitution.” U.S. CONST.
amend. X. Consequently, the Enterprises are statutorily exempt from paying state real property
transfer taxes.4
4
Because we hold that the Enterprises are statutorily exempt from state and local real property transfer
taxes, we do not need to reach the question whether they are constitutionally exempt from such taxes as federal
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III. CONCLUSION
For the foregoing reasons, we AFFIRM the district court’s judgment dismissing this suit.
instrumentalities. See First Agric. Nat’l Bank of Berkshire Cnty. v. State Tax Comm’n, 392 U.S. 339, 341 (1968)
(stating that congressional legislation limiting state power to tax national banks makes it “unnecessary to reach the
constitutional question of whether today national banks should be considered nontaxable as federal
instrumentalities”); see also Del. Cnty., Pa., 747 F.3d at 228 n.4 (determining that “because we find that Congress
acted constitutionally in extending statutory tax immunity to the Enterprises, we need not reach the question of
whether they are also entitled to constitutional immunity as instrumentalities of the United States”).