NEW YORK — Hudson Valley FCU has filed a suit in state court challenging the state's mortgage tax, arguing that federally chartered credit unions should be exempt from the levy.
The CU claims federally chartered credit unions, which are defined as instrumentalities of the federal government under the Federal CU Act, should be exempt from all federal and state taxes, according to Paul Quartararo, a lawyer representing the HVFCU in the case.
The tax varies from county to county, but is $1.30 per $1,000 of a new mortgage when the deed is recorded, and is as high as $2 per $1,000 in New York City, Manhattan County. An exemption from the four-decade-old tax could save credit unions millions of dollars a year.
Hudson Valley FCU is a $2.8 billion-Poughkeepsie, N.Y., credit union that was one of more than two dozen credit unions chartered in the 1960s to serve employees of IBM Corp.
The credit union claims that the tax is unconstitutional as applied to federal credit unions because federally chartered credit unions are instrumentalities of the federal government and the U.S. Constitution bars taxation of those entities without the express consent of the Congress. The credit union also claims the state tax as applied to federal charters violates provisions of the Federal CU Act.
The same argument helped the state's federal CUs obtain an exemption last month from the state's new commuter tax, with the state tax agency finding federally chartered CUs exempt from that levy. Federal charters make up more than 95% of the state's 400 CUs.
The suit has extra teeth because it is also joined by the Department of Justice, which intervenes in cases that raise the issue of federal instrumentalities. NAFCU and CUNA have also filed briefs on behalf of the CU exemption.
Named as defendants in the suit are the New York State Department of Taxation and Finance, which collects the mortgage tax, and Robert Megna, the department's deputy commissioner. Officials with the department did not return phone calls seeking comment.
