Fannie Mae and Freddie Mac Ruled Exempt From Transfer Tax

Fannie Mae and Freddie Mac are exempt from paying taxes on property transfers, a Washington appeals court ruled in the latest defeat for local governments that further weakens a bid to press their case at the U.S. Supreme Court.

Today’s decision is at least the sixth appeals panel which has ruled against local governments seeking to recover an estimated $1 billion in transfer taxes from Fannie Mae and Freddie Mac, according to Don Springmeyer, a Las Vegas attorney who has advised counties on many of the complaints.

The plaintiffs’ strategy of improving their chances of having a case reach the Supreme Court by winning at least one such ruling and creating a split among appeals panels has failed so far, Springmeyer said.

“That was the hope originally,” Springmeyer said in a phone interview. “It doesn’t look too good.”

All of the appeals rulings have been unanimous, according to Springmeyer. “Even getting a dissent is proving elusive,” he said.

U.S. Circuit Judge David Sentelle wrote in today’s ruling that an Oklahoma county suing to collect the tax wrongly relied on a Supreme Court decision that interpreted an exemption to cover only direct taxation, not a levy on the use or transfer of property.

Tax Exemptions

The case cited by the commissioners of Kay County applied to tax exemptions on a specific property, which are limited to direct taxes, Sentelle said in his opinion. Fannie Mae and Freddie Mac, as corporate entities, have broader exemptions, which cover all taxes they would have to pay, the judge said.

“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,” Sentelle wrote.

Warren Burns, an attorney for Kay County, didn’t immediately respond to a phone message seeking comment on the ruling.

Cases Pending

Cases are pending in at least three other appeals courts, Springmeyer said.

Besides Washington, rulings favoring Fannie Mae and Freddie Mac have come from courts headquartered in San Francisco, Chicago, Philadelphia, St. Louis, Cincinnati and Richmond, Virginia, he said.

Local governments have prevailed in only one of about 40 suits filed in district courts and that victory was reversed by the appeals court in Cincinnati.

Fannie Mae and Freddie Mac own or guarantee $5.2 trillion in mortgages and back more than two-thirds of mortgages currently being originated.

The Kay County lawsuit also named the Federal Housing Finance Agency, which took Fannie Mae and Freddie Mac into U.S. conservatorship in September 2008 after the government bailed out the companies.

The case is Board of Commissioners of Kay County, Oklahoma v. FHFA, 13-7114, U.S. Court of Appeals, District of Columbia (Washington).

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