New York Courts Dismisses CU Challenge To Mortgage Tax

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ALBANY, N.Y. – Lawyers for Hudson Valley FCU on Monday said they plan to appeal last week’s state court ruling rejecting their challenge to the state’s mortgage recording tax.

“Yes, we will appeal,” said Dale Lois, an attorney representing the $2.8 billion former IBM employees credit union located in nearby Poughkeepsie. The credit union’s lawyer said the speedy decision by the court – the case was filed in November – may work to their favor by getting them to the state’s appeals court faster to decide the decision, which could save credit unions millions of dollars in taxes.

The state court ruled that even though federal law, the Federal CU Act, defines federally chartered credit unions as instrumentalities of the federal government and thus exempt from state taxes, the mortgage recording tax is not a tax on credit unions or a tax on borrowers, but on the “privilege of recording” a mortgage, as was argued by the state’s Department of Taxation and Finance.

Hudson Valley lawyer Lois, a partner in the Fishkill, N.Y., firm of Quartararo and Lois PLLC, said even with the negative decision he is confident going forward because of several rulings in the case. Among them are the fact the credit union did not have to exhaust its administrative appeals before launching the suit, and that the New York tax department has primary jurisdiction over the case, something the tax agency had denied.

The stakes are big for credit unions, which pay millions of dollars in mortgage recording taxes to the state each year. Hudson Valley has requested a rebate of $1.8 million of taxes paid over the last three years. But the bigger stakes, according to Lois, are going forward for Hudson Valley and dozens of other federally chartered credit unions in New York.

The credit union, which was represented in court by a litigator from a major New York City law firm, also has the backing of the U.S. Justice Department, which often intervenes when the issue of federal instrumentalities is raised in courts.

The credit union had argued that federally chartered credit unions should be exempt from the state tax because the Federal CU Act makes them exempt from all local taxes on property. But the New York Court of Appeals has held that the mortgage recording tax is not a tax on property, and thus not an exempted tax for federal credit unions.

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