In Michigan , as I’m sure may be the case in many other states, the GSE’s Fannie Mae and Freddie Mac were exempt from paying some of the local taxes imposed by counties on the transfer of real estate properties. The GSE’s claimed the exemption under the widely held theory that Federal Governmental bodies cannot be subjected to local taxes.
In a recent ruling, the Michigan Department of Treasury was asked by certain registers of deeds whether particular entities, such as Fannie Mae, were subject to the county and state real estate transfer tax. On October 4, 2011, the Treasury advised the Emmet County Register of Deeds that the answer was yes – Fannie Mae and Freddie Mac, as sellers of real estate in Michigan, must pay county and state transfer tax.
Apparently, Fannie Mae and Freddie Mac had previously avoided paying both county and state transfer tax relying on an exemption in both those statutes for “written instruments which this state is prohibited from taxing under the constitution or statutes of the United States.” In its letter, Treasury indicated that federal law generally prohibits the taxation of these entities by state and local governments. However, Treasury has concluded that the real estate transfer tax is not a tax on real property, but instead is an excise tax on the instrument that is being recorded. Thus, the Treasury concludes that government sponsored entities, such as Fannie Mae and Freddie Mac are not exempt from real estate transfer tax.
The law provides that a seller is responsible for payment of county and state transfer taxes. However, a seller can contractually agree to have a buyer assume that obligation. Generally, Fannie Mae and Freddie Mac use addendums which impose all liability for transfer tax on buyers. Thus, in pending purchases for Fannie Mae and Freddie Mac, buyers most likely will now need to deal with a new obligation, i.e., payment of county and state transfer tax as reflected on the HUD-1.
This ruling does not apply to HUD, so sales of HUD-owned hoes will still be exempt from paying the transfer taxes.