Applicable Statutes that Created the Entities Exempted Them from All State and Local Taxes
In County of Oakland v. Federal Housing Finance Agency, U.S. Court of Appeals for the Sixth Circuit, Nos. 12-2135 and 12-2136, May 20, 2013, the U.S. Court of Appeals ruled the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Federal Housing and Finance Agency were exempt from Michigan state and county real estate transfer taxes, the U.S. Court of Appeals for the Sixth Circuit held, because the plain language of the applicable statutes that created these entities expressly exempted them from all taxation imposed by the state or local taxing authority. Accordingly, the common sense, nontechnical interpretation of "all taxation" had to include the state and county real estate transfer taxes, which imposed a tax on the seller or grantor when a deed or other instrument of conveyance was recorded during the transfer of real property.
The Court of Appeals also noted that the text of the statutes was revealing in another way. In granting to each of the three entities an exemption, Congress explicitly created a carve-out from the "all taxation" language by permitting taxes on real property. Congress, however, did not provide a similar carve-out for the type of transfer taxes at issue in this case. When Congress provided exceptions in a statute, it did not follow that courts had authority to create others. The proper inference was that Congress considered the issue of exceptions and, in the end, it limited the statute to the ones set forth. Therefore, because the statutes were clear, the court was not in a position to second guess Congress and create a new exception in the statute for state and county real estate transfer taxes.
The conclusion that the plain language of the statutes should control was reinforced by the U.S. Supreme Court’s decision in Federal Land Bank of St. Paul v. Bismarck Lumber Co., 314 U.S. 95 (1941), and the decision of the U.S. Court of Appeals for the Sixth Circuit in United States v. State of Michigan, 851 F. 2nd 803 (1988). These cases involved entity exemptions in statutes similar to the exemption statutes in this case. In both cases, the courts concluded that the exemption precluded a sales tax on the entities’ purchases, even though sales taxes were not a specifically enumerated exemption in the statute.
In other words, Bismarck and Michigan supported the straightforward, nontechnical reading of the exemptions in this case. They stood for the proposition that when Congress broadly exempted an entity from taxation or all taxation, it meant all taxation.