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Media Alerts - Delaware County v. Federal Housing Finance Agency - Third Circuit
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March 20, 2014
  Delaware County v. Federal Housing Finance Agency - Third Circuit
Headline: Fannie Mae, Freddie Mac, and FHFA Tax Exempt

Area of Law: Constitutional Law/Congress's Power to Regulate Interstate Commerce

Issues Presented: Did Congress act unconstitutionally when it statutorily created a tax exemption for Fannie Mae, Freddie Mac, and FHFA from all state and local taxation except taxes on real property, and are real estate transfer taxes are also exempt from taxation under the statute.

Brief Summary: Counties in Pennsylvania and New Jersey sought to collect taxes on Fannie Mae, Freddie Mac, and its conservator FHFA for the transfer of property. Congress enacted a statute that exempts these entities from all local and state taxes except taxes on real property. Plaintiff counties claimed that the entities were subject to taxes for real estate transfers because they are based on the value of the property. Plaintiffs also claimed that Congress exceeded its power under the Commerce Clause and usurped state powers when it enacted the statute. The Court rejected these arguments and determined that the statutory language exempted defendants from all taxes including those for the transfer of property.

Extended Summary: This case centers on the statute enacted by Congress that exempts the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Federal Housing Finance Agency (FHFA) from paying all state and local taxes except taxes on real property. Counties in Pennsylvania and New Jersey filed suit alleging that the "all taxes" language in the statute meant only direct taxes and, therefore, defendants were subject to real estate transfer taxes.
The Third Circuit disagreed with plaintiffs' argument that "all taxation" means something less than all taxes. It explained that when interpreting a statute the words must be given their ordinary meaning. The Court determined that a transfer tax is not a tax on property itself and is exempt under the statute. The Court held that the proper interpretation of the phrase "all taxation" is exactly what it says and that defendants were exempt from paying state and local real estate transfer taxes.
The Court also rejected the argument that transfer taxes fall within the exception for taxes on real property. It agreed with precedent that transfer taxes are an excise tax because they are not taxes on the property itself but on a transaction relating to the property. In rejecting the plaintiffs' argument that transfer taxes amount to a direct real property tax because they are calculated by reference to the value of the property, the Court relied on the Supreme Court's rejection of a similar argument holding that a "privilege tax is not converted to a property tax because it is measured by the value of the property."
The Court also rejected the constitutional arguments raise by plaintiffs. Plaintiffs argued that the exemption exceed Congress's power under the Commerce Clause. The Court rejected that argument and reasoned that the state cannot use its power to tax to defeat Congress's power to regulate commerce. While respecting the state's power to tax, Congress can supersede that power as part of an interstate regulatory regime and can preempt it when Congress makes it explicit that is what it intends to do. The actions of the defendants here fall squarely within Congress's power to regulate interstate commerce. Congress only needed a rational basis for determining that the regulated activity, in the aggregate, would substantially affect interstate commerce. Congress had reason to believe that by making defendants tax exempt, it would decrease the transaction costs and increase the amount of buying defendants could do.
To read the full opinion, please visit http://www2.ca3.uscourts.gov/opinarch/132163p.pdf

Panel (if known): Fuentes, Fisher, and Stark, Circuit Judges

Argument Date: January 22, 2014

Argument Location:

Date of Issued Opinion: March 18, 2014

Docket Number: Nos. 13-2163/13-2501/13-3175

Decided: March 18, 2014

Case Alert Author: Cheri Snook

Counsel: Jeremy J. Brandon, Esq., for appellants Delaware County, Chester County of Pennsylvania, Cape May County, Rita Marie Fulginiti and Lackawanna County Recorder of Deeds, Nicholas E. Chimicles, Esq., Alison F. Gushue, Esq., Benjamin F. Johns, Esq., Joseph G. Sauder, Esq., for appellants Delaware County and Chester County of Pennsylvania, Lewis B. April, Esq., Jeffrey Ryan Lindsay, Esq., Bryan L. Clobes, Esq., for appellants Cape May County and Rita Marie Fulginiti, Jennifer E. Agnew, Esq., Warren T. Burns, Esq., Katherine L.I. Hacker, Esq., Terrell W. Oxford, Esq., Carol H. Lahman, Esq., Larry D. Lahman, Esq., Todd J. O'Malley, Esq., Ira N. Richards, Esq., Elaine A. Ryan, Esq., Patricia N. Syverson, Esq., Howard J. Sedran, Esq., Joseph Siprut, Esq., Stewart M. Weltman, Esq., for Lackawana County Recorder of Deeds, Scott J. Etish, Esq., Michael A. Johnson, Esq., Dirk Phillips, Esq., for appellees Federal Housing Finance Agency, Federal National Mortgage Association, RP, AKA Fannie Mae and Federal Home Mortgage Corp, AKA Freddie Mac, Howard N. Cayne, Esq., Michael A Johnson, Esq., Dirk Phillips, Esq., Asim Varma, Esq., Jared P. Duvoisin, Esq., for appellee Federal Housing Finance Agency, Michael D. Leffel, Esq., for appellee Federal National Mortgage Association, RP, AKA Fannie Mae, Michael J. Ciatti, Esq., Nicholas Deenis, Esq., Joseph T. Kelleher, Esq., Jill L. Nicholson, Esq., Ann Marie Uetz, Esq., William T. Mandia, Esq., for appellee Federal National Mortgage Association, RP, AKA Fannie Mae, and Federal Home Loan Mortgage Corp, AKA Freddie Mac, Patrick J. Urda, Esq., for intervenor-appellee

Author of Opinion: Judge Fisher

Circuit: Third Circuit

Case Alert Circuit Supervisor: Mary E. Levy

    Posted By: Susan DeJarnatt @ 03/20/2014 01:38 PM     3rd Circuit  

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