Milwaukee County tax appeal fails

Listen to this article

The latest rejection of Milwaukee County’s attempt to levy real estate transfer taxes on two federal enterprises reinforces an emerging national trend.

In July 2012, the county filed a class-action lawsuit on behalf of all 72 Wisconsin counties against the Federal National Mortgage Association, commonly known as Fannie Mae, and the Federal Home Loan Mortgage Corp., commonly known as Freddie Mac.

At the time, John La Fave, Milwaukee County’s register of deeds, said he believed the enterprises were claiming illegally an exemption from the transfer taxes when selling property. The taxes in Wisconsin are levied at $3 per $1,000 of a property’s value and are paid by the seller.

Wisconsin counties keep 20 percent of the taxes and give the rest to the state. Milwaukee County had not been assessing the taxes on Fannie Mae and Freddie Mac, La Fave had said, so he could not say for sure how much they could be liable to pay. He estimated it could be at least $1 million, of which $200,000 would stay within Milwaukee County.

But a federal judge dismissed that lawsuit in July 2013, and the 7th U.S. Circuit Court of Appeals affirmed that dismissal Dec. 23.

Judge Richard Posner, who wrote the appellate decision, sided with the Wisconsin federal judge who determined Fannie Mae’s and Freddie Mac’s charters exempt them from taxation.

La Fave did not immediately respond to a request for comment.

Similar claims across the country also have failed. Two Illinois cases were consolidated with Milwaukee County’s for the failed appeal, and lawsuits filed in Florida, Georgia, Tennessee, Rhode Island, Minnesota, Pennsylvania and Michigan were all dismissed.

Appeals are pending in Georgia, Minnesota and Pennsylvania.

Milwaukee County’s case was modeled on two Michigan lawsuits that briefly prevailed.

A federal judge ruled in those cases that Fannie Mae and Freddie Mac were “unambiguously liable” to pay the transfer taxes because they are not federal entities and therefore do not have federal protection against taxation. Rather, the judge ruled, Fannie Mae and Freddie Mac are public enterprises backed by the government, and the exemptions in their charters apply only to direct taxation. The transfer tax is a form of excise tax, which is indirect.

Fannie Mae and Freddie Mac appealed the Michigan decision, and the ruling was overturned. The Michigan counties that filed the original lawsuits then petitioned for a review by the U.S. Supreme Court. Those requests were denied in October.

Don Springmeyer, an attorney with Las Vegas-based Wolf Rifkin Shapiro Schulman and Rabkin LLP, who represented Milwaukee County during oral arguments for the appeal, referred a request for comment to Charles Crueger, an attorney with Milwaukee-based Hansen Reynolds Dickinson Crueger.

Crueger, who has represented the county since filing the original lawsuit, did not immediately respond to a request for comment.

Paul Bargren, corporation counsel for the county, also referred all questions to Crueger, but said the county’s Board of Supervisors would have to sign off on petitioning for U.S. Supreme Court review.

The reasoning in the appellate decision against Milwaukee County, however, could make that request difficult. According to Posner’s order rejecting Milwaukee County’s appeal, the charter language exempting Fannie Mae and Freddie Mac from taxation “could not be clearer.”

Posner’s order cited the Michigan appeal that sided with Fannie Mae and Freddie Mac and pointed out that Congress would have written the exemptions differently if it meant to exempt the enterprises only from direct taxation.

Claiming otherwise, according to Posner’s order, would be “equivalent to interpreting ‘all soup’ to mean ‘all lobster bisque.’” Follow @bkevit