ALBANY, N.Y.-A new state law will exempt state-chartered credit unions from the state's special additional mortgage recording tax, which already exempts federal charters.
Enactment of the law comes as federally chartered credit unions are challenging in court the assessment of mortgage recording taxes on home loans arranged by them. A suit brought by Hudson Valley FCU claims that federal charters are exempt from all state taxes, a position which could cost the state tens of millions of dollars in refunds and future taxes to be paid by federal charters in the Empire State.
The new exemption refers to an "additional mortgage recording tax" or surcharged, passed by the state that expressly exempt federal charters. But the Hudson Valley suit refers to the broader mortgage tax that is assessed by counties on all real estate transactions and disbursed by the state. The New York Department of Revenue, the defendant in the credit union suit, asserts in court filings that because the tax does expressly say which entity should pay the levy it is not a tax on the federal credit union.
The Federal CU Act establishes federal charters as "instrumentalities" of the federal government, and thus exempt from state and local taxes. The same does not go for state chartered credit unions.
"These are federal entities," said Paul Quartararo, a New York lawyer representing Hudson Valley FCU, who said they are seeking a refund of as much as $2.5 million in mortgage recording taxes paid by the credit union and a declaration that the state will stop collecting the taxes on transactions conducted by federally chartered credit unions.
The U.S. Department of Justice, CUNA, NAFCU and the New York CU Association have all filed briefs on behalf of Hudson Valley FCU in the case.
