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TAX NEWS - JUNE 2010

U.S. Tax: CU Loses First Round in Mortgage Case

by Claude R. Marx, 02 June 2022 -- Despite support from the federal government, Hudson Valley FCU lost the battle in a New York State trial court over whether it or its members have to pay a mortgage-recording tax.

New York Supreme Court Justice Judith Gische ruled that based on previous cases, the courts had determined that the tax is not a tax on property but a "privilege," and therefore not part of the tax exemption granted to federal credit unions under the Federal Credit Union Act. She also dismissed the claim that the U.S. Constitution's Supremacy Clause exempted Hudson Valley FCU from the tax.

She issued the ruling on May 14, but filed it with the court clerk on May 20.

Gische wrote that she was "constrained to follow" precedent set by New York's highest court, the Court of Appeals, even though two U.S. Supreme Court decisions "seemingly lend support to Hudson Valley's argument that New York State's MRT [mortgage-recording tax] is, likewise, a tax on 'property'."

Gische said she agreed with the New York State Department of Taxation and Finance's argument that a 2001 U.S. Supreme Court decision that national banks and cooperatives enjoyed no greater immunity than is expressly spelled out in a state law.

CUNA and NAFCU both filed amicus briefs on behalf of Hudson Valley FCU as did the U.S. Department of Justice.

Dale Lois, one of the attorneys representing Hudson Valley FCU, said he was pleased by parts of Gische's decision and his client "looks forward to moving ahead with the next part of the process."

The credit union has 30 days after it is officially served with the decision by court officials to file an appeal.

Eli Mattioli, another attorney representing Hudson Valley FCU, said the U.S. Supreme Court has ruled in three cases-including one decided after the two New York cases that Gische cited in her decision-that the state cannot impose a recording tax on any federally chartered entity.

The U.S. Supreme Court decisions that could help the credit union's case were handed down in 1923, 1939 and 1961 and the New York cases were decided in 1939 and 1959.

Hudson Valley FCU is seeking a refund of $1.9 million in taxes paid in a separate but related administrative matter.

In its court filing, New York State attacked the notion that federally chartered credit unions are instrumentalities of the federal government for purposes of these taxes.

But the Justice Department held in its brief that federal entities are "constitutionally immune from taxation absent express congressional consent to the contrary."

The case is titled Hudson Valley FCU v. New York State Department of Taxation & Finance.
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