Opinion ID: 4216061
Heading Depth: 2
Heading Rank: 1

Heading: Plain Language of the Exemptions

Text: 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.