Tax commission says no to millions in taxes from Fannie and Freddie
August 21, 2012
The Nevada Tax Commission on Monday refused to declare that Fannie Mae and Freddie Mac, the two giant federally chartered mortgage corporations, must pay taxes that could be worth millions to the state.
The appeal came from state Treasurer Kate Marshall who has been arguing those two corporations aren’t exempt from the real property tax, despite the fact they were chartered by Congress itself.
For the past three years, she estimates Nevada is owed $24.5 million in unpaid taxes.
Marshall said after the Tax Commission’s vote not to demand taxes from the two corporations that she would work with the attorney general’s office to see how far they can take the issue. She said the statute of limitations is moving until they take action, and that Nevada is losing money because it can never collect unpaid taxes beyond the statute of limitations until the commission acts or a lawsuit is filed.
“Fannie and Freddie are not federal instrumentalities and do not get immunity from taxes,” she argued.
She said the exemptions in their charters are for direct taxes, not excise taxes, which are “a tax on a privilege.”
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“The privilege is the right to transfer an item between parties,” Marshall said.
But Alfred Pollard of the Federal Housing Finance Agency said not only do those charters exempt Fannie and Freddie from all taxes, the two are in conservatorship, which affirms they are federal agencies.
“The law is quite explicit and quite clear – the entities do not pay taxes except on real property,” Pollard said, adding that the property tax is not the same as the transfer tax.
Michael Johnson representing Freddie Mac said those agencies can’t be forced to pay the tax because the plain language of their congressional charters exempts them – including from excise taxes.
Marshall said when a private buyer buys a home from a bank or Fannie or Freddie, he pays the transfer tax.
But when Fannie or Freddie take back a home or transfer it to their control from a bank, she said they don’t pay. She added that the instructional documents those organizations send to banks include instructions on how to get out of paying the tax.
Pollard said those instructions aren’t designed to be an evasion of taxes; they simply instruct banks about how to follow the law.
Deputy Attorney General Gina Sessions warned if counties start collecting before the legal issues are resolved, they would be vulnerable to litigation.
“The law is still unsettled,” she said.
Both sides agreed that the law on the matter is far from finished. There are federal court cases on both sides of the issue, one in Michigan and one in Nevada, indicating the state and counties should get the tax, while at least two other cases are saying they should not.
Commission Chairman Bob Barengo asked Johnson about the statute of limitations saying, “What happens if we win? How do we get that revenue back?”
Johnson agreed that until something like a suit or commission action stops the clock, they can’t go after back-taxes more than four years old.
“Maybe we should stay the course and wait,” said commissioner Joan Lambert.
Commissioner Ann Bersi agreed, as did Barengo.
Only George Kelesis and David Turner voted against the motion not to take action at this time, although Barengo instructed staff and the attorney general to keep an eye on the legal issue in case Nevada needs to move forward.