In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 16‐4140
FEDERAL NATIONAL MORTGAGE ASSOCIATION, et al.,
Plaintiffs‐Appellees,
v.
CITY OF CHICAGO, et al.,
Defendants‐Appellants.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 15 CV 9150 — Sara L. Ellis, Judge.
____________________
ARGUED SEPTEMBER 20, 2017 — DECIDED OCTOBER 30, 2017
____________________
Before MANION and KANNE, Circuit Judges, and MILLER,
District Judge.
KANNE, Circuit Judge. In 2013, this court held that state and
local taxing authorities could not charge the Federal National
Mortgage Association, Federal Home Loan Mortgage Corpo‐
ration, or Federal Housing Finance Agency with real estate
The Honorable Robert L. Miller, Jr., United States District Court for the
Northern District of Indiana, sitting by designation.
2 No. 16‐4140
transfer taxes, because such taxes are preempted by federal
laws exempting these entities from all taxation. We must now
determine whether the federal statutory exemptions apply
when the transfer tax is charged to a private buyer who pur‐
chases real estate from one of the exempt federal entities. The
district court concluded that, because the imposition of a
transfer tax impacts the price the federal entities can charge
for real property, the tax is unconstitutional regardless of who
is required to pay it. Because this conclusion is contrary to the
plain language of the tax exemption provisions, the judgment
of the district court is reversed.
I. BACKGROUND
The Federal National Mortgage Association (“Fannie
Mae”) and Federal Home Loan Mortgage Corporation
(“Freddie Mac”) are federally chartered, privately owned cor‐
porations. They were created by Congress to bolster the hous‐
ing market by establishing a secondary mortgage market. In
2008, Fannie Mae and Freddie Mac were placed into conser‐
vatorship, and the Federal Housing Finance Agency (FHFA)
was appointed as conservator. Fannie Mae and Freddie Mac
generally carry out their mission by purchasing mortgages
from third party lenders, bundling or pooling the mortgages,
and then selling securities backed by the mortgages. When a
borrower defaults, the mortgage‐holding entity (Fannie Mae
or Freddie Mac) forecloses and takes title to the real estate se‐
curing the loan. The mortgage‐holding entity then sells the
foreclosed property to a private buyer. Between August 2013
and December 2014, Amy Wettersten, Rama Group Interna‐
tional, Inc., Angel Ramos, Barbara Ramos, and Veeral Patel
(“the buyers”) purchased real property in Chicago from Fan‐
nie Mae.
No. 16‐4140 3
The City of Chicago imposes a Real Property Transfer Tax
on the transfer of real property located within Chicago. Chi.,
Ill. Municipal Code § 3‐33‐030. The “primary incidence of the
tax and the obligation to pay the tax are on the purchaser,
grantee, assignee, or other transferee” of the property. Id. § 3‐
33‐030(C). This is referred to as the “City portion” of the trans‐
fer tax. A supplemental tax, referred to as the “CTA portion”
of the transfer tax, is to be paid by the transferor, unless the
transferor is exempt by operation of state or federal law, in
which case the transferee is held responsible for that portion
of the tax as well. Id. § 3‐33‐030(F). The tax is due upon the
earlier of the delivery or the recording of the instrument of
transfer. Id. § 3‐33‐030(B)(1).
None of the buyers paid the transfer tax when they re‐
ceived or recorded the titles to the properties they purchased
from Fannie Mae. The Illinois Department of Finance assessed
the buyers for the tax, and the buyers protested on the basis
that Fannie Mae, Freddie Mac, and FHFA are exempt from all
taxation. An administrative law judge in the Department of
Finance ruled that each buyer was liable for the tax, and the
director of the Department affirmed. The buyers and the fed‐
eral entities (together, the plaintiffs‐appellees) sued the City
of Chicago and its relevant taxing officials in federal court
seeking review of the Department’s decision.
The district court for the northern district of Illinois con‐
cluded that the tax was preempted by the federal exemption
statutes. Accordingly, the court granted summary judgment
for the appellees, issued declarations stating that the transac‐
tions were exempt from taxation, and issued an injunction
barring the City from collecting the taxes from the federal en‐
4 No. 16‐4140
tities or the buyers. The district court also denied the appel‐
lants’ motion to dismiss for lack of jurisdiction, which the ap‐
pellants do not challenge on appeal.
II. ANALYSIS
The Supremacy Clause of the United States Constitution
provides that “the laws of the United States … shall be the su‐
preme Law of the Land; … any Thing in the Constitution or
Laws of any State to the contrary notwithstanding.” U.S.
Const. art. VI, cl. 2. “[S]tate law that conflicts with federal law
is ‘without effect.’” Cipollone v. Liggett Group, Inc., 505 U.S. 504,
516 (1992) (quoting Maryland v. Louisiana, 451 U.S. 725, 746
(1981)).
The appellees contend that the Chicago Real Property
Transfer Tax conflicts with the tax exemption provisions in
the federal statutes governing Fannie Mae, Freddie Mac, and
FHFA and, therefore, that the tax is “without effect.” In DeK‐
alb County, this court held that the federal tax exemptions
preempted such a tax, insofar as the tax was charged to Fannie
Mae, Freddie Mae, or FHFA. 741 F.3d 795 (7th Cir. 2013). All
other circuits that have addressed this issue reached the same
conclusion. Montgomery Cty. Comm’n v. Fed. Hous. Fin. Agency,
776 F.3d 1247, 1255 (11th Cir. 2015); City of Spokane v. Fed. Nat’l
Mortg. Ass’n, 775 F.3d 1113 (9th Cir. 2014); Town of Johnston v.
Fed. Hous. Fin. Agency, 765 F.3d 80 (1st Cir. 2014); Bd. of Cty.
Comm’rs v. Fed. Hous. Fin. Agency, 754 F.3d 1025 (D.C. Cir.
2014); Delaware County v. Fed. Hous. Fin. Agency, 747 F.3d 215
(3d Cir. 2014); Hennepin County v. Fed. Nat’l Mortg. Ass’n, 742
F.3d 818 (8th Cir. 2014); Montgomery County v. Fed. Nat’l
Mortg. Ass’n, 740 F.3d 914 (4th Cir. 2014); County of Oakland v.
Fed. Hous. Fin. Agency, 716 F.3d 935 (6th Cir. 2013).
No. 16‐4140 5
We must now determine whether the scope of the exemp‐
tions expands so far as to exempt individuals who purchase
property from the federal entities. We review the district
court’s grant of summary judgment in favor of the appellees
on this issue de novo. Alston v. City of Madison, 853 F.3d 901,
906 (7th Cir. 2017). A grant of summary judgment is appro‐
priate if “there is no genuine dispute as to any material fact,”
and the moving party is “entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56(a). All parties agree that there are no
genuine issues of fact remaining in this case.
Taxation authority is recognized as central to state sover‐
eignty. Dep’t of Revenue v. ACF Indust., Inc., 510 U.S. 332, 345
(1994). Therefore, “we are hesitant to extend the statute be‐
yond its evident scope.” Id. “[A]bsent unambiguous evi‐
dence” to the contrary, we will not “infer a scope of pre‐emp‐
tion beyond that which clearly is mandated by Congress’ lan‐
guage.” Cipollone, 505 U.S. at 533 (Blackmun, J., concurring).
“We will interpret a statute to pre‐empt the traditional state
powers only if that result is ‘the clear and manifest purpose
of Congress.’” Dep’t of Revenue, 510 U.S. at 345 (quoting Rice
v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947)); see DeKalb
County, 741 F.3d at 802 (applying the “clear and manifest pur‐
pose” standard to interpret the same tax exemptions at issue
in this case).
As with any statute, we look first to the plain language of
the federal tax exemption provisions. The language of the
statute itself is considered the best indicator of Congress’s in‐
tent. “‘Absent a clearly expressed legislative intention to the
contrary, that language must ordinarily be regarded as con‐
clusive.’” Lewis v. Epic Sys. Corp., 823 F.3d 1147, 1152 (7th Cir.
2016) (quoting Consumer Prod. Safety Comm’n v. GTE Sylvania,
6 No. 16‐4140
Inc., 447 U.S. 102, 108 (1980)). The appellants argue that the
plain language of the statutes limits the tax exemption to the
federal entities and that Congress has not clearly expressed
an intent to the contrary.
A. Plain Language of the Exemptions
The statutes governing Fannie Mae, Freddie Mac, and
FHFA each contain provisions that exempt the corporations
or agency from “all taxation.” The provisions also exempt
each entity’s franchise, capital, reserves, and income. For the
most part, the provisions are identical. The exemption for
Fannie Mae, however, includes “its … mortgages,” and the
exemption for Freddie Mac includes “its … activities.”
Specifically, the statute governing Fannie Mae states:
“The Corporation, including its franchise, capital,
reserves, surplus, mortgages or other security hold‐
ings, and income, shall be exempt from all taxation
now or hereafter imposed by any State, territory,
possession, Commonwealth, or 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 prop‐
erty is taxed.”
12 U.S.C. § 1723a(c)(2).
The statute governing Freddie Mac states:
“The Corporation, including its franchise, activities,
capital, reserves, surplus, and income, shall be ex‐
empt from all taxation now or hereafter imposed by
No. 16‐4140 7
any territory, dependency, or possession of the
United States or by any State, county, municipality,
or local taxing authority, except that any real prop‐
erty of the Corporation shall be subject to State, ter‐
ritorial, county, municipal, or local taxation to the
same extent according to its value as other real prop‐
erty is taxed.”
12 U.S.C. § 1452(e).
And the statute governing FHFA states:
“The Agency, including its franchise, its capital, re‐
serves, and surplus, and its income, shall be exempt
from all taxation imposed by any State, county, mu‐
nicipality, 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 prop‐
erty is taxed, except that, notwithstanding the fail‐
ure of any person to challenge an assessment under
State law of the value of such property, and the tax
thereon, shall be determined as of the period for
which such tax is imposed.”
12 U.S.C. § 4617(j)(2).
Each provision is specific to the federal entity and its vari‐
ous assets. Nothing in the language of these provisions ad‐
dresses parties that transact with the exempt entities. Several
of the courts of appeals have described these exemptions as
“entity‐specific.” E.g. DeKalb County, 741 F.3d at 800 (“Fan‐
nie’s tax exemption … exempts an entity….”); Delaware
County, 747 F.3d at 222 (“this case involves exemption of enti‐
8 No. 16‐4140
ties”); Bd. of Cty. Comm’rs, 754 F.3d at 1029 (“The statute at is‐
sue in this case exempts specific entities.”); Montgomery Cty.
Comm’n, 776 F.3d at 1256 (“[T]his case involves exemptions of
entities.”).
The exemption provisions do not specifically address
transactions entered into by the federal entities, and such
transactions should not be read into the “including” phrases
of the provisions. Although the use of the term “including”
does not signal an exhaustive list, the list “connotes … an il‐
lustrative application of the general principle.” Fed. Land Bank
of St. Paul v. Bismarck Lumber Co., 314 U.S. 95, 100 (1941). In
each of the provisions, the listed items are assets or property
of the federal entity. DeKalb County, 741 F.3d at 800 (describ‐
ing the exemption list as consisting “largely of different forms
of property”); see Black’s Law Dictionary (8th ed. 2004) (defin‐
ing “franchise” as “the right conferred by government to en‐
gage in a specific business or to exercise corporate power;”
“capital” as “money or assets invested, or available for invest‐
ment, in a business;” “reserves” as “something retained or
stored for future use, esp., a fund of money set aside by a bank
or insurance company to cover future liabilities;” “surplus”
as “excess of receipts over disbursements;” “mortgage” as “a
conveyance of title to property that is given as security for the
payment of a debt or the performance of a duty and that will
become void upon payment or performance according to the
stipulated terms;” and “income” as “the money or other form
of payment that one receives, usu. periodically, from employ‐
ment, business, investments, royalties, gifts, and the like”).
Transactions are not assets or property. See Black’s Law
Dictionary (8th ed. 2004) (defining “transaction” as “the act or
an instance of conducting business or other dealings, esp., the
No. 16‐4140 9
formation, performance, or discharge of a contract”). There‐
fore, an exemption for transactions cannot be read into the
plain language of the statutes.
Nor can transactions be considered an element of any of
the specified exempt assets listed in the statutes. In Pittman v.
Home Owners’ Loan Corp. of Wash., D.C., 308 U.S. 21 (1939), the
U.S. Supreme Court reviewed whether a tax on recording
deeds was preempted by a federal law exempting the Home
Owners’ Loan Corporation from state and local taxation. The
Home Owners’ Loan Act included a tax exemption very sim‐
ilar to those at issue in this case: the “Corporation, its fran‐
chise, capital, reserves and surplus, and its loans and income
shall be exempt from all state or municipal taxes.” Id. at 31 &
n.3 (quoting 12 U.S.C. § 1463(c)). The Court focused on the
term “loans” and determined that the use of that term was
meant to shield from taxation the entire process of lending,
including mortgages given to secure loans. Id. Because a mort‐
gage and its recordation are “indispensable elements in the
lending operations authorized by Congress,” the Court con‐
cluded the federal exemption preempted the recording tax,
regardless of who recorded the deed and thus was taxed. Id.
at 32.
For Pittman to apply, we would need to find that transfer‐
ring property is an “indispensable element” of one of the ex‐
empt assets listed in the exemption provisions. Transferring
property is not an element of the entities’ franchise, capital,
reserves, surplus, loans, or income. The Fannie Mae provision
also exempts the corporation’s mortgages. Buying property
often involves a mortgage, but the sale of property here was
not an element of any mortgage held by Fannie Mae. The
Freddie Mac provision exempts the corporation, “including
10 No. 16‐4140
its … activities” from all taxation. Transferring property can
logically be understood as an activity. However, given the
transfer tax is owed by the transferee upon delivery or record‐
ing of the instrument of transfer, the tax is better understood
as one imposed on the transferee’s receipt of property rather
than a tax imposed on the act of selling property by Freddie
Mac. Thus, there is nothing in the plain language of the ex‐
emptions that indicates that the “clear and manifest purpose
of Congress” was to exempt from taxation entities that trans‐
act with Fannie Mae, Freddie Mac, and FHFA.
B. Congressional Intent
The appellees contend that this interpretation is contrary
to what Congress intended when it exempted Fannie Mae,
Freddie Mac, and FHFA from taxation. Taxation, regardless
of who has the direct obligation to pay, affects both parties to
a transaction. If the buyer of a product or service is charged a
tax, the seller must lower its price to compensate for the in‐
creased cost. The appellees argue that if buyers are required
to pay the real estate transfer tax, Fannie Mae, Freddie Mac,
and FHFA will have to lower the price of the real estate they
sell. As a result, the federal entities will have less capital avail‐
able for investing in the secondary mortgage market. Since
the entities were created to invest in and stabilize that market,
charging the tax to those who buy property from the federal
entities harms the mission of the entities. The appellees, rely‐
ing on Laurens Fed. Sav. & Loan Ass’n v. S. Carolina Tax
Comm’n, 365 U.S. 517 (1961), argue that the tax is preempted
because of this effect.
In Laurens Fed. Sav. & Loan Ass’n, the Supreme Court ad‐
dressed whether a state could require a borrower to pay taxes
on promissory notes executed in favor of a Federal Home
No. 16‐4140 11
Loan Bank. The Federal Home Loan Bank Act of 1932 ex‐
empted “the bank, including its franchise, its capital, reserves,
and surplus, its advances, and its income” from all taxation.
Id. at 519 (quoting 12 U.S.C. § 1433). The Court looked at the
language of the exemption and the legislative history of the
Act as a whole and concluded that the tax, even when levied
against those transacting with the Bank, was preempted. Id.
at 522.
“Regardless of who pays the documentary stamp
taxes here at issue, the necessary effect of the taxes
is to increase the cost of obtaining the advances of
funds from the Home Loan Bank to be used in mak‐
ing loans to home owners. In its impact, therefore,
this tax, whether nominally imposed on the Bank or
on the petitioner, is bound to increase the cost of
loans to home owners and thus contravene the basic
purpose of Congress in insulating these advances
from state taxation.”
Id. at 522–23.
While the tax at issue here likely has some impact on the
federal entities even when charged to buyers, it is not clear
that the burden falls on something Congress intended to
shield. The language quoted from Laurens Fed. Sav. & Loan
Ass’n addresses consistency with Congress’s intent to shield
“advances” from taxation, not consistency with Congress’s
general intent when creating the Federal Savings and Loan
Bank. “Advances” were specifically included in tax exemp‐
tion provision. The tax on promissory notes was found to be
a tax on advances and thus the plain language of the exemp‐
tion applied. The Court’s discussion of congressional purpose
merely supported that interpretation of the plain language. Id.
(“In its impact … this tax … is bound to increase the cost of
12 No. 16‐4140
loans … and thus contravene the basic purpose of Congress
in insulating these advances from state taxation.”) (emphasis
added). Again, the appellees have not demonstrated why
transferring property should be considered an element of the
federal entities’ “franchise[s],” “mortgages,” “income” or
other assets specifically exempted in the statutes.
Furthermore, just because a tax has an effect on an entity
does not make it a tax on that entity. See United States v. New
Mexico, 455 U.S. 720, 734 (1982) (“[Constitutional] immunity
may not be conferred simply because the tax has an effect on
the United States, or even because the Federal Government
shoulders the entire economic burden of the levy.”). In United
States v. City of Detroit, 355 U.S. 466 (1958), the Supreme Court
considered whether the constitutional prohibition on states
taxing federal government entities extended to those doing
business with federal government entities. A state tax on
leased property was assessed against a private corporation
that rented property owned by the federal government. Id. at
468. The government argued that the tax should be consid‐
ered a tax on the government or its property, because, when
a tax is imposed on a lessee who rents from the government,
the government cannot charge as high rentals. Id. at 472. The
Court rejected this argument, noting that it had ruled in nu‐
merous cases that “the imposition of an increased financial
burden on the Government does not, by itself, vitiate a state
tax.” Id. The Court further commented that Congress could
have legislatively extended tax immunity to other parties and
had declined to do so. Id. at 474. Therefore, the tax could be
collected from those who rented from the government. Id. at
475. While this case involves the breadth of constitutional im‐
munity, not statutory immunity, we see no reason why the
same logic should not apply, especially in light of the Court’s
No. 16‐4140 13
warning that a tax exemption should not be granted by impli‐
cation. Chickasaw Nation v. United States, 534 U.S. 84, 95 (2001)
(referring to “the canon that warns us against interpreting
federal statutes as providing tax exemptions unless those ex‐
emptions are clearly expressed”); United States v. Wells Fargo
Bank, 485 U.S. 351, 354 (1988) (“[E]xemptions from taxation
are not to be implied; they must be unambiguously proved.”).
III. CONCLUSION
We will interpret a statute to pre‐empt the traditional state
power of taxation only if that result is the “clear and manifest
purpose of Congress.ʺ The plain language of the federal tax
exemption provisions does not shield from state and local tax‐
ation individuals or corporations that transact with Fannie
Mae, Freddie Mac, or FHFA, and there is no other evidence
that Congress intended for the exemptions to apply to those
who buy property from the exempt entities. Charging a trans‐
fer tax to such buyers may affect the exempt entities, but it
does not result in a tax on the entity itself or on any of the
entity’s exempt assets or property. Therefore, we cannot say
that exempting the buyers from taxation was the “clear and
manifest purpose of Congress.” For these reasons, the judg‐
ment and orders of the district court are REVERSED, the in‐
junction barring the City from collecting the taxes is
DISSOLVED, and this case is remanded to the district court
for proceedings consistent with this opinion.