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Consumer Finance Insights
January 19, 2015

GSEs Emerge Victorious In Transfer Tax Battles With Counties

Attempts by county governments to obtain real property transfer taxes from the Government Sponsored Entities (GSEs) were stifled again recently, this time by a January 16, 2015, ruling from the U.S. Court of Appeals for the Eleventh Circuit, which affirmed dismissal of six cases brought by counties against Fannie Mae, Freddie Mac, and their conservator, the Federal Housing Financing Agency.

Since we last wrote about the GSEs’ string of victories, the First and Ninth Circuits have also rejected transfer tax lawsuits by counties.  The Eleventh Circuit thus joined eight other circuits – all the circuits to have addressed the issue – in holding that the GSEs are exempt from paying transfer taxes.

The GSEs’ statutory exemptions from “all taxation” except for taxes on “real property” bars the transfers taxes, the Court held, because a tax on transferring property differs from a tax on the property itself.

The Counties also attempted to persuade the Court that Congress could not constitutionally grant the GSEs an exemption from local transfer taxes.  No dice.  The exemptions were a rational effort by Congress to allow the GSEs “to reduce transaction costs in the course of buying and selling mortgages,” the Court held.

The Court also rejected as irrelevant the Counties’ argument that the GSEs do not qualify as “federal instrumentalities” because they were privatized.  Whether the GSEs are private or federal instrumentalities does not matter “as long as [the GSEs] are fulfilling a federal policy found in their charters.”

The Eleventh Circuit’s decision resolves what appears to be the last outstanding appeal by counties concerning transfer taxes.  Unless the Supreme Court accepts review and reverses—unlikely given the uniformity of the appellate decisions—the GSEs have withstood the several dozen cases filed by counties seeking payment of transfer taxes.