Is a mortgage given to a federal credit union exempt from Maryland's recordation tax?

Plain-English summary

A circuit court clerk asked the Attorney General to double-check a 1975 advice letter that had told a Montgomery County clerk to refund recordation tax on a mortgage given to a federal credit union, on the theory that federal credit unions are exempt from state and local taxes under 12 U.S.C. §1768.

The Attorney General concluded the 1975 letter was wrong and withdrew it. Reading §1768's exemption closely, the opinion found it covers only the credit union's own property, franchises, capital, and income, and Maryland's recordation tax is not a tax on the credit union at all; it is charged upon recording a mortgage or deed of trust, and by longstanding Maryland practice, the borrower, not the lender, bears that tax. Because the tax's economic burden falls on the borrower rather than the exempt federal credit union, §1768 simply doesn't reach it. The opinion distinguished a Supreme Court case and an earlier AG opinion the 1975 letter had relied on, both of which involved federal statutes that expressly exempted "loans," a word absent from §1768, and pointed to other federal statutes (covering Farm Credit Bank mortgages and USDA-held loan instruments) where Congress used that broader "loans" language when it actually meant to exempt mortgage instruments themselves.

Common questions

Does a federal credit union have to pay Maryland recordation tax when it takes a mortgage as loan security?
The credit union itself doesn't bear the tax under longstanding Maryland practice, since the tax falls on the borrower. But the opinion's point is that even if you view the tax as connected to the credit union's transaction, the borrower's obligation to pay is not exempted by 12 U.S.C. §1768, because that federal statute only exempts the credit union's own property and income, not instruments given by a third-party borrower.

Why did the 1975 advice letter get this wrong?
It relied on a Supreme Court case and an earlier AG opinion involving federal statutes that expressly exempted "loans" from taxation. Federal credit unions' own exemption statute, by contrast, does not use the word "loans" anywhere, so the opinion concluded those precedents don't carry over.

How do we know Congress could have exempted credit union mortgages if it wanted to?
The opinion pointed to other federal statutes, covering Farm Credit Bank mortgages and USDA-held loan instruments, where Congress did use "loans" or similarly explicit mortgage-covering language. Because §1768 doesn't include that language, the opinion read its absence as meaningful.

Does this affect recordation tax withheld on other kinds of federal instrumentality loans?
Only as it specifically concerns federal credit unions under 12 U.S.C. §1768. The opinion distinguished, rather than overruled, precedent involving other federal entities whose enabling statutes expressly cover "loans."

Background and statutory framework

Maryland's recordation tax attaches when a mortgage or deed of trust is recorded, and by long-established custom, reflected in statutes like §14-104 of the Real Property Article (which excludes mortgages and deeds of trust from the general presumption that recordation and transfer taxes are split equally between parties) and §12-105(f)(2) of the Tax-Property Article (which assigns the tax on subsequent line-of-credit draws to the borrower), the borrower bears the tax rather than the lender. Federal credit unions are exempted from state and local taxation under 12 U.S.C. §1768, but that exemption by its terms covers only the credit union's "property, ... franchises, capital, reserves, surpluses, and other funds, and their income," with real and tangible personal property carved back out and still taxable.

The 1975 letter the opinion withdrew had relied on Pittman v. Home Owners' Loan Corp., where the Supreme Court read a federal exemption covering the Home Owners' Loan Corporation's "franchise, its capital, reserves and surplus, and its loans and income" to reach a mortgage given to that corporation, because the exemption expressly used the word "loans," understood to cover the entire lending process including security instruments. The 1975 letter also cited a similar 1942 AG opinion involving the Reconstruction Finance Corporation's exemption, which likewise expressly covered "loans." This opinion distinguished both authorities on the ground that 12 U.S.C. §1768's list of exempted items, unlike the statutes in Pittman and the 1942 opinion, conspicuously omits the word "loans," and pointed to other federal statutes, 12 U.S.C. §2023 (Farm Credit Bank mortgages) and 7 U.S.C. §1984 (USDA-held mortgages or lien instruments), where Congress did use loan- or mortgage-specific language when it meant an exemption to reach the instrument itself rather than just the lending entity's own assets and income.

Citations and references

Statutes:

• 12 U.S.C. §1768 (federal credit union exemption from state and local taxation)
• 12 U.S.C. §2023 (Farm Credit Bank mortgage exemption, for comparison)
• 7 U.S.C. §1984 (USDA-held mortgage or lien instrument exemption, for comparison)
• §14-104 of the Real Property Article; §12-105(f)(2) of the Tax-Property Article (Maryland recordation tax borne by the borrower)

Cases:

• Pittman v. Home Owners' Loan Corp., 308 U.S. 21 (1939) (a federal exemption expressly covering "loans" reaches a mortgage given as loan security; distinguished here because 12 U.S.C. §1768 omits that word)

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1990/Volume75_1990.pdf (this opinion appears at printed pages 451-453 of the bound annual volume; Maryland's site does not publish a standalone PDF of this opinion)

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

TAXATION

Recordation Tax -- Credit Unions -- Federal Credit Unions' Statutory Exemption From State and Local Taxes Does Not Apply to Recordation Tax on Mortgages and Deeds of Trust

September 10, 1990

Mr. Wylie L. Ritchey, Jr.
Chief Deputy Clerk
Circuit Court for Baltimore County

You have requested our opinion concerning the continuing validity of a 1975 letter of advice regarding the applicability of the recordation tax to certain instruments. That letter indicates that a mortgage or deed of trust given to a federal credit union is exempted from recordation tax by a federal statute, 12 U.S.C. §1768.

For the reasons stated below, we conclude that the 1975 advice letter is incorrect. The federal statute exempting a federal credit union from paying State and local taxes does not apply to the recordation tax charged upon the recording of a mortgage or deed of trust given to a federal credit union.

I

Scope of Federal Statutory Exemption

In a November 24, 1975 letter of advice to Howard Smith, Clerk of the Circuit Court for Montgomery County, Assistant Attorney General William Rubin responded to a question concerning a federal credit union's entitlement to a refund of recordation tax paid upon the recording of a mortgage given to the credit union. The credit union based its claim for refund on the exemption from federal, state, and local taxes, except real and personal property taxes, afforded federal credit unions under 12 U.S.C. §1768. The letter advised that the federal exemption applied to a mortgage or deed of trust given to a federal credit union.

We conclude that this advice was in error. The exemption set forth in 12 U.S.C. §1768 provides, in pertinent part, as follows:

    The Federal credit unions organized hereunder, their property, their franchises, capital, reserves, surpluses, and other funds, and their income shall be exempt from all taxation now or hereafter imposed by the United States or by any State, Territorial, or local taxing authority; except that any real property and any tangible personal property of such Federal credit unions shall be subject to Federal, State, Territorial, and local taxation to the same extent as other similar property is taxed.

The plain language of this statute exempts a federal credit union from paying a tax that would otherwise be payable by the federal credit union. Nothing in the statute expressly or impliedly exempts from state tax a mortgage or deed of trust given to a federal credit union if, like the recordation tax, the incidence of the tax falls on the borrower who is giving the mortgage or deed of trust to the credit union, rather than on the credit union.[1]

In support of its interpretation of 12 U.S.C. §1768, the 1975 letter cited a Supreme Court decision and an Attorney General's opinion, both of which we believe to be distinguishable. In Pittman v. Home Owners' Loan Corp., 308 U.S. 21 (1939), the statutory exemption afforded the federal corporation expressly covered "loans."[2] The Court found that the term "loans" covered the entire process of lending, including a mortgage given to the corporation as security for repayment of the loan. Similarly, the statutory exemption afforded the Reconstruction Finance Corporation and other enumerated corporations, which was the subject of 27 Opinions of the Attorney General 448 (1942) also expressly covered "loans." Other similar federal exemptions that apply to state recordation tax on mortgages or deeds of trust are 12 U.S.C. §2023, which expressly covers "[t]he mortgages held by the Farm Credit Banks," and 7 U.S.C. §1984, which expressly covers "mortgages or other lien instruments held by or transferred to the Secretary" of Agriculture.

Thus, when Congress has intended a federal exemption from state and local taxation to apply to loan instruments to which the exempted agency or instrumentality is a party, it has clearly expressed that intention. Since 12 U.S.C. §1768 contains no language expressly or impliedly covering loans by a federal credit union or instruments given in connection with a loan, a mortgage or deed of trust given a federal credit union is not exempted from Maryland recordation tax by that federal statute.

II

Conclusion

The advice set forth in the November 24, 1975 letter, that mortgages and deeds of trust given to a federal credit union are exempt from State recordation tax under 12 U.S.C. §1768, is in error. Therefore, the 1975 advice letter is withdrawn.

                                         J. Joseph Curran, Jr.
                                         Attorney General

                                         Julia M. Freit
                                         Assistant Attorney General

Jack Schwartz
Chief Counsel
Opinions & Advice

[1] Although no statutory provision expressly imposes liability for the recordation tax on the borrower, certain provisions of law do reflect this longstanding practice. Section 14-104 of the Real Property Article, which creates a presumption, absent written agreement to the contrary, that State recordation tax and State and local transfer taxes will be shared equally by the parties to the instrument, expressly excludes mortgages and deeds of trust from application of the presumption. See also §12-105(f)(2) of the Tax-Property Article, which expressly provides that the borrower shall pay the recordation tax on subsequent draws under a line-of-credit mortgage or deed of trust. Cf. Chapter 619 of the Laws of Maryland 1916, Preamble (describing "long established custom").

[2] The contrast between the statute construed in Pittman and 12 U.S.C. §1768 is striking. The former exempted the federal corporation's "franchise, its capital, reserves and surplus, and its loans and income" from taxation. The latter exempts the credit unions' "franchises, capital, reserves, surpluses, and other funds, and their income ...." The term "loans" is conspicuously absent from 12 U.S.C. §1768.