ALBANY, N.Y. (3/8/12)--The State of New York has until Monday to respond to amicus briefs filed in December before the New York Court of Appeals by the Department of Justice, the Credit Union National Association and the Credit Union Association of New York, among others, and to Hudson Valley FCU's challenge of the state's mortgage recording tax (MRT).
Hudson Valley, a $3.2 billion asset credit union based in Poughkeepsie, N.Y., is appealing two lower courts' decisions that denied its challenge to the MRT. It had filed suit on May 12, 2009, in the New York Supreme Court, a lower trial court, against the New York State Department of Taxation and Finance.
The lower court, in dismissing the case, said the MRT was a tax on the "privilege" of filing the mortgage under state law. The case then went to the Appellate Division, which upheld the lower court ruling. The credit union appealed to the New York Court of Appeal, the state's highest court, which agreed Oct. 18, 2011, to hear the appeal.
The credit union maintains that the Federal Credit Union Act exempts federally chartered credit unions from the state tax, which it argues is not considered a "privilege tax" under federal law. Instead, credit unions' federal tax exemption and applicable U.S. Supreme Court rulings should control in the issue, it said.
The Department of Justice, in an amicus brief filed Dec. 19 by Preet Bharara, U.S. Attorney for the Southern District of New York, New York City, supported the credit union's interpretation. In its brief, the Justice Department argued that the lower courts' interpretation of the Federal Credit Union Act (FCUA) "is inconsistent with the statute's plain language" exempting federal credit unions from all taxes except real property taxes and tangible personal property taxes.
"The lower courts misinterpreted Section 122 of the FCUA Act," said the Justice Department, adding the act "expressly immunizes federal credit unions from all state taxes, with the limited exception of real property taxes and tangible personal property taxes." It also pointed out, "The United States has an interest in the proper interpretation of the FCUA and in preserving the tax exemptions afforded federal credit unions by Congress."
The appellate division's decision "conflicts with decisions of other courts interpreting the FCUA to exempt federal credit unions from all taxes not expressly authorized under the statute," said the Justice Department. "Under the clear terms of the FCUA, because the MRT is not a real property or tangible personal property tax--the only two taxes permitted under the FCUA--it cannot be levied against federal credit unions such as Hudson Valley," the document said.
"Even if the FCUA exempts federal credit unions from only certain categories of taxes, as the Appellate Division erroneously concluded, federal credit unions are still exempt from paying the MRT because the MRT can be characterized as a tax on a federal credit union and its property, two of the categories prohibited by the FCUA under the Appellate Division's construction of the statute," said the Justice Department.
Because the U.S. Supreme Court "has characterized mortgage recording taxes similar to the MRT as a tax on the mortgage, the MRT can be construed as an exempted tax on intangible personal property. The MRT is also a tax on a federal credit union itself when applied to mortgages issued by the federal credit union, and thus is exempted…," said the document.
New York's MRT requires a tax of 50 cents for each $100 of debt secured by a mortgage. Most states charge only administrative fees for recording a mortgage.
Others amicus briefs for the credit union were filed by the Federal Housing Finance Agency (see "HFA seeks to back CU in N.Y. mortgage tax appeal" in News Now's Jan. 18 issue); the Credit Union Association of New York and the Credit Union National Association ("CUANY, CUNA file amicus brief in mortgage recording tax case appeal," News Now Dec. 20), and the National Association of Federal Credit Unions.