Tax Type
Local Taxes
Property Tax
Description
FDIC Liability; Penalties on Delinquent Taxes
Topic
Collection of Delinquent Tax
Penalties and Interest
Date Issued
04-25-1991
[Opinion - Virginia Attorney General: 1991 at 278]
REQUEST BY: The Honorable Joseph T. Fitzpatrick Treasurer for the City of Norfolk P.O. Box 3215 Norfolk, Virginia 23514-3215
OPINION BY: Mary Sue Terry, Attorney General
OPINION:
You ask whether the Federal Deposit Insurance Corporation (the "FDIC") is responsible for the payment of penalties on delinquent taxes on real property that the FDIC holds as receiver of an insolvent bank. You state that the FDIC is willing to pay the delinquent taxes owned on the property, but has refused to pay the penalties assessed.
I. Applicable Federal and State Statutes
The FDIC has the powers granted in 12 U.S.C.A. §§ 1811 through 1833e (West 1989 & Supp. 1991). The FDIC, when acting as receiver, is exempt from all taxation imposed by any state, county, municipality, or local tax authority, "except that any real property of the [FDIC] shall be subject to State, territorial, county, municipal, or local taxation to the same extent according to its value as other real property is taxed." § 1825(b)(1) (West 1989). § 1825(b)(3) further provides: "The [FDIC] shall not be liable for any amounts in the nature of penalties or fines, including those arising from the failure of any person to pay any real property . . . tax . . . when due."
Section 58.1-3916 of the Code of Virginia authorizes the governing body of a locality to provide by ordinance for the assessment of penalties for nonpayment of real estate taxes when due, and provides that "[a]ny such penalty when so assessed shall become a part of the tax."
II. Federal Law Controls When State Law Conflicts
A federal law supplants a conflicting state law, by virtue of the supremacy clause of the Constitution of the United States. U.S. Const. art. VI; Gibbons v. Ogden, 9 Wheat. 1, 211 (1824). See also Att'y Gen. Ann. Rep.: 1990 at 259 (copy enclosed) (federal statute prohibiting taxation of National Consumer Cooperative Bank prevails over state statute imposing recordation tax on beneficiary of deed of trust); 1987-1988 at 504, 505 (federal statute exempting Farm Credit Banks from certain federal, state and local taxation prevails over conflicting state statutes). States and localities generally are prohibited from taxing the federal government and its instrumentalities except when Congress has expressly authorized them to do so. See, e.g., Agricultural Bank v. Tax Comm'n, 392 U.S. 339, 240 (1968); M'Culloch v. State of Maryland , 17 U.S. (4 Wheat.) 316 (1819).
III. FDIC Not Liable for Penalties on Delinquent Taxes Despite Provisions of § 58.1-3916
Section 1825(b)(3) exempts the FDIC from the payment of any amount "in the nature of penalties" imposed because of failure to pay real estate taxes when due. I am aware of only one court decision applying this provision in § 1825(b)(3). In that case a federal district court concluded that both penalties and interest1 imposed on delinquent taxes under Texas law were "in the nature of penalties" and, therefore, uncollectible from the FDIC under § 1825(b)(3). Irving Indep. School Dist. v. Packard Properties, 741 F. Supp. 120, 124 (N.D. Tex. 1990).
The court in Packard Properties concluded that whether the amounts in question were penalties within the meaning of § 1825(b)(3) was "a federal question, the resolution of which is guided by reference to . . . state law." 741 F. Supp. at 123. Unlike § 58.1-3916, the Texas statutes involved in Packard Properties did not provide that the penalties "shall become a part of the tax." Id. at 123-24 nn. 507. I am not persuaded, however, that this distinction is sufficient to exclude penalties imposed under § 58.1-3916 from the meaning of § 1825(b)(3), because the latter statute refers to amounts "in the nature of penalties." In my opinion, the plain language of these two provisions dictates the conclusion that a "penalty," even if it becomes "part of the tax," is still "in the nature of [a] penalty." It is further my opinion, therefore, that the FDIC is not subject to delinquent tax penalties on real property it holds as receiver for an insolvent bank.
1 Although the court in Packard Properties held that "interest" and "penalties" were equivalent for purposes of § 1825(b)(3), other courts have distinguished between "interest" and "penalties" on delinquent taxes in other contexts. See, e.g., In re Brinegar, 76 B.R. 176, 178 (Bankr. D. Colo. 1987) (pre-petition interest on federal taxes not "penalty" for purposes of priority classification in bankruptcy proceeding); In re E.A. Nord Co., Inc., 75 R. 634 (Bankr. W.D. Wash. 1987) (penalty portion of state claim for unpaid workers' compensation premiums distinguished from interest). Because you have not asked whether the FDIC is subject to interest charges on delinquent real property taxes, I express no opinion on that question.
Attorney General's Opinion