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Parties Involved:
Board of County Commissioners of Kay County, Oklahoma
Appellant
Federal Home Loan Mortgage Corporation
Appellee
Federal Housing Finance Agency
Appellee
Federal National Mortgage Association
Appellee
United States of America
Intervenor for Appellee

Document Text:

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 

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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. 

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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. 

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