Federal Appeals Court OKs Fannie, Freddie Transfer Tax Dodge On Conveyances Of Foreclosed Homes; 6th Circuit Shreds Local Taxing Authorities' Position With Straightforward, Common-Sense Application Of Plain Language In Relevant Statute

From a Justia.com Opinion Summary:

• The Michigan State Real Estate Transfer Tax, MICH.COMP.LAWS 207.521, and the County Real Estate Transfer Tax, section 207.501, impose a tax when a deed or other instrument of conveyance is recorded during the transfer of real property.
  
  The tax is imposed upon “the person who is the seller or grantor.”
  
  State and county plaintiffs sought to recover transfer taxes for real property transfers recorded by Fannie Mae, a corporation chartered by Congress to “establish secondary market facilities for residential mortgages,” in order to “provide stability in the secondary market for residential mortgages,” and “promote access to mortgage credit throughout the Nation,” 12 U.S.C. 1716; Freddie Mac, also a corporation chartered by Congress for substantially the same purposes; and the Federal Housing Finance Agency, an independent federal agency, created under the Housing and Economic Recovery Act of 2008, 12 U.S.C. 4617, which placed Fannie and Freddie into conservatorships, 12 U.S.C. 4617(a)(2).
  
  When Congress created defendants, it expressly exempted them from “all” state and local taxes except for taxes on real property. The district court entered summary judgment in favor of the plaintiffs, reasoning that “transfer taxes are excise taxes, not taxes on real property.
  
  The Sixth Circuit reversed.(1)

Source: Opinion Summary: Genesee Cty, v. Fed. Hous. Fin. Agency.

For the ruling, see County of Oakland v. Federal Housing Finance Agency, Nos. 12-2135/2136 (6th Cir. May 20, 2013.

(1) In approving the transfer tax dodge by Fannie, Freddie, and the Federal Housing Finance Agency, the 6th Circuit shredded the arguments by the local taxing authorities with a basic, common-sense approach to reading and applying the relevant statutes:

• The statutes at issue here plainly state that defendants are exempt from "all taxation" imposed by the state or local taxing authority. See 12 U.S.C. § 1723a(c)(2) (Fannie Mae's charter); § 1452(e) (Freddie Mac's charter); § 4617(j)(2) (Agency exemption).
  
  The statutes do not define "all" or "taxation." Where terms are undefined, "[t]he everyday understanding should count for a lot," and we look to "regular usage to see what Congress probably meant." Lopez v. Gonzales, 549 U.S. 47, 53 (2006).
  
  "Taxation" is the "imposition or levying of taxes;" "the action of taxing or the fact of being taxed." Oxford English Dictionary 679, vol. XVII (2d ed. 1989). As employed in the exemption statutes, "all" is an adjective describing "[t]he entire or unabated amount or quantity of; the whole extent, substance, or compass of; the whole." Oxford English Dictionary 324, vol. I (2d ed. 1989).
  
  Accordingly, the common sense, non-technical interpretation of "all taxation" has to include the State and County real estate transfer taxes here, which impose a tax on the "seller or grantor" when a deed or other instrument of conveyance is recorded during the transfer of real property. MICH. COMP. LAWS § 207.502; § 207.523.
  
  In other words, a straightforward reading of the statute leads to the unremarkable conclusion that when Congress said "all taxation," it meant all taxation. Lopez, 549 U.S. at 53; see also, Sander v. Alexander Richardson Inv., 334 F.3d 712, 716 (8th Cir. 2003) ("In short, `all' means all.").
  
  The statutes' text is revealing in another way. In granting each of the defendants' an exemption, Congress explicitly created a carve-out from the "all taxation" language by permitting taxes on real property.
  
  But Congress did not provide a similar carve out for the type of transfer taxes at issue here. "When Congress provides exceptions in a statute, it does not follow that courts have authority to create others. The proper inference . . . is that Congress considered the issue of exceptions and, in the end, limited the statute to the ones set forth." United States v. Johnson, 529 U.S. 53, 58 (2000).
  
  Accordingly, because the statutes are clear, we are not in a position to second-guess Congress and create a new exception in the statute for state and county real estate transfer taxes.

***

• Contrary to this commonsense reading and to the cases supporting it, plaintiffs employ a more arcane line of reasoning in an effort to persuade us that the plain language of the statute should not control here. They argue that when Congress said "all taxation" in the exemption statutes, it did not really mean all taxation. Instead, they claim that Congress used the phrase "all taxation" as a term of art—a term with a definition that does not include real estate transfer taxes. [...]

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Editor's Note: In hindsight, and based on the federal appeals court analysis of the applicable statute, this litigation appears to have been one gigantic waste of time for the local taxing authorities bringing the case.