Attorney General Opinions

The Honorable Ryan T. McDougle

• • Member, House of Delegates
    
    Issue Presented
    
    You ask whether the recordation tax imposed pursuant to § 58.1-803 may be collected on deeds of trust of a federal land credit association.
    
    Response
    
    It is my opinion that § 2098 of the Farm Credit Act generally exempts federal land credit associations from federal, state or local taxation. Therefore, the recordation tax imposed pursuant to § 58.1-803 may not be collected on deeds of trust of a federal land credit association.
    
    Applicable Law and Discussion
    
    States and localities generally are prohibited from taxing the federal government and its agencies, except when Congress has expressly authorized them to do so.¹ Under the Supremacy Clause of the Constitution of the United States, this prohibition against taxation applies, regardless of whether a state has granted specific exemptions.² Federal law granting tax exemptions overrides state law to the contrary.³

    A 2002 opinion of this Office determined that the mere appearance of an agency of the federal government as a guarantor or beneficiary on a deed of trust does not necessarily relieve payment of the recordation tax under § 58.1-803.⁴ The opinion further notes that the absence of a state statutory exception, by itself, is not dispositive of whether a transaction involving a federal agency is subject to taxation.⁵ Congress may create exemptions from taxation for specific entities even if such exceptions are not memorialized in the states’ laws. Implicit in the 2002 opinion is the authority of the federal government to exempt specific real estate transactions from state taxation.

    Section 2098 of the Farm Credit Act of 1971, as amended, generally exempts federal land credit associations⁶ and the income derived from certain transactions from taxation:

    • • • • Each Federal land bank association and the capital, reserves, and surplus thereof, and the income derived therefrom, shall be exempt from Federal, State, municipal, and local taxation, except taxes on real estate held by a Federal land bank association to the same extent, according to its value, as other similar property held by other persons is taxed. The mortgages held by the Federal land bank associations and the notes, bonds, debentures, and other obligations issued by the associations shall be considered and held to be instrumentalities of the United States and, as such, they and the income therefrom shall be exempt from all Federal, State, municipal, and local taxation, other than Federal income tax liability of the holder thereof under the Public Debt Act of 1941 ….^[7]
    Pursuant to § 2098, federal land credit association deeds of trust are not subject to the recordation tax imposed pursuant to § 58.1-803.
    
    Conclusion
    
    
    Accordingly, it is my opinion that § 2098 of the Farm Credit Act generally exempts federal land credit associations from federal, state or local taxation. Therefore, the recordation tax imposed pursuant to § 58.1-803 may not be collected on deeds of trust of a federal land credit association.
    
    
    ¹The Supreme Court of the United States has recognized in First Agricultural National Bank of Berkshire County v. State Tax Commission that, "if a change is to be made in state taxation of national banks, it must come from the Congress." 392 U.S. 339, 346 (1968). The Court ruled in that case that the Commonwealth of Massachusetts could not apply its sales and use tax to national banks, as they are not among the methods of taxation by which Congress permits states to tax such banks. Id. at 339. In an earlier case, the Supreme Court of Virginia held that a tax on the grantee for recording a deed to land acquired by mortgage foreclosure is unenforceable against the Federal Land Bank of Baltimore, a federal instrumentality that can be taxed only as allowed by federal law. See Fed. Land Bank v. Hubard, 163 Va. 860, 178 S.E. 16 (1935).
    ²U.S. Const. art. VI, cl. 2; see Gibbons v. Ogden, 22 U.S. (9 Wheat) 1, 211 (1824) (stating that act of Congress is supreme and that state law must yield to it and must not interfere with or be contrary to laws enacted pursuant to Constitution); Op. Va. Att’y Gen.: 1992 at 183, 185; 1990 at 259, 259; 1987-1988 at 504, 505; 1974-1975 at 477, 477-78.
    ³1987-1988 Op. Va. Att’y Gen., supra note 2, at 505 (concluding that tax exemption provided in Farm Credit Act of 1971 prevails over conflicting state law authorizing taxation of Farm Credit Banks or federal land bank associations).
    ⁴2002 Op. Va. Att’y Gen. 328, 329.
    ⁵Id. at 329.
    ⁶See 12 C.F.R. § 619.9155 (2003) (defining "federal land credit association" as federal land bank association that has received transfer of direct long-term real estate lending authority pursuant to Farm Credit Act of 1971).
    ⁷12 U.S.C. § 2098 (2000).