NEW YORK – A state appellate court yesterday rejected the shield of the federal tax exemption for federally chartered credit unions and upheld a lower court ruling that Hudson Valley FCU and all of the state’s federally chartered credit unions are liable for millions of dollars in New York State mortgage recording taxes.
In its ruling, the Appellate Division of the Supreme Court of New York, First Department, sided with the state’s Department of Taxation and Finance that the MRT is a tax on the privilege of recording a mortgage, not a tax on property, which would make federally chartered credit unions exempt under the Federal CU Act. “The (lower) court correctly concluded that the MRT is not a tax on property and therefore not included in the FCUA tax exemption,” ruled the state’s appellate court.
The lawyer for $3 billion Hudson Valley FCU said this morning they were studying their options on whether to continue their appeal to the state’s highest appellate court. “We’re studying the decision carefully and are going to be discussing it with our clients,” Dale Lois, a partner with the Fishkill, N.Y., firm of Quartararo & Lois, told the Credit Union Journal this morning.
A ruling in the credit union’s favor could have had a broad financial impact, requiring the state to refund millions of dollars in taxes to credit unions and provided federally chartered credit unions with an advantage in the mortgage market.
The Poughkeepsie credit union, formerly an IBM employees credit union, had asserted that it and other federal charters should be exempt from the recording tax because the Federal CU Act expressly exempts federally chartered credit union from taxes on "mortgages," "loans," or "advances.” But the appellate court ruled the levy is not a tax on property buy on the “privilege” of recording a mortgage.
The court also reject the credit union’s contention that the Federal CU Act should be interpreted to exempt federal credit unions' mortgage loans, and the right to record them, from the state tax because the imposition of the tax undermines the FCU Act’s main policy of making low-cost credit available to average Americans by increasing the cost of mortgage loans.
“At the time the FCUA was enacted by Congress, federal credit unions did not have the authority to make home loans,” ruled the court. “Although Congress has amended the FCUA over the years to permit federal credit unions to make residential mortgage loans, it has never amended the statute specifically to exempt federal credit unions' mortgage loans from state MRTs”
The ruling came despite the support for the credit union’s case by the U.S. Department of Justice, CUNA and NAFCU, who all filed briefs on behalf of the credit union arguing for the supremacy of the federal tax exemption for federally chartered credit unions.
