Nevada Tax Commission: Fannie Mae, Freddie Mac exempt from taxes on foreclosure sales

By David McGrath Schwartz

Monday, Aug. 20, 2012 | 4:36 p.m.

In a split vote, the Nevada Tax Commission today rejected an effort by Treasurer Kate Marshall to force Fannie Mae and Freddie Mac to pay taxes on home foreclosure sales.

Marshall believes the federally chartered mortgage companies should pay the real property transfer tax, which would have meant almost $25 million for state and local governments over the past three years.

But lawyers representing the companies argued federal law exempts them from all state and local taxes, except property taxes.

In a 5-2 vote, the commission sided with Fannie Mae and Freddie Mac.

“The department didn’t want to direct counties to collect the tax, when it could bring litigation to counties and the possibility of taxes to be refunded,” said Chief Deputy Attorney General Gina Session.

Tax Commission Chairman Bob Barengo noted the issue is being fought over in court right now.

Federal courts have issued varying decisions on the issue. One judge in Michigan ruled in favor of the state and said that the transfer tax should be collected. Another in Washington, D.C., ruled in favor of the companies.

Local governments in Illlinois have started collecting the tax, which has prompted lawsuits from the companies, an attorney said Monday.

The Nevada Department of Taxation in 2008 issued an advisory opinion to Lyon County saying that the county should not collect the tax.

But as Nevada waits for that court battle to play out, Marshall said the state runs the risk of being unable to collect back taxes. Under state law, only four years worth of back taxes can be collected.

She proposed collecting the tax and putting it in an escrow account until the matter is decided.

The companies’ lawyers, in Carson City for the hearing, said any tax on Fannie Mae and Freddie Mac would be a tax on federal taxpayers. Profits from the companies, which are in federal conservatorship, go to the U.S. Treasury.

“Any costs imposed on Fannie Mae and Freddie Mac go to the taxpayers,” said Alfred Pollard, general counsel for the Federal Housing Finance Agency.

Marshall has pursued the issue, arguing that the “real property transfer tax” is not a direct tax since it is levied on the transaction.

Marshall, a Democrat, said she is considering whether to pursue the issue in court.

Gov. Brian Sandoval said earlier this year that he believed Nevada should wait until it’s settled by the courts.

Barengo, chairman of the tax commission, asked the department to monitor the issue.