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CU System
Oral arguments heard in Hudson Valley FCU appeal
POUGHKEEPSIE, N.Y. (5/13/11)--The Appellate Division of the Supreme Court of New York Thursday heard oral arguments regarding Hudson Valley FCU’s appeal of a lower court ruling that denied the Poughkeepsie, N.Y. credit union’s challenge to the state’s mortgage recording tax (MRT). The credit union had filed the suit on May 12, 2009 against the New York State Department of Taxation and Finance, Commissioner Robert L. Megna and the State of New York. It sought a declaratory judgment that the state may not impose the MRT on mortgages granted to secure loans made by the credit union because it is a federal credit union with a federal tax exemption. The credit union also sought reimbursement of tax it had already paid. Last year, New York Supreme Court Justice Judith Gische dismissed Hudson Valley’s case, declaring that it was not “actionable.” During yesterday’s court session, one judge queried the credit union as to why the nature of the tax, as defined by New York State, shouldn’t control the issue. The judge describe the MRT as a tax on the privilege of filing the mortgage under state law, and asked how then could it be considered a tax on the credit union. Unlike most states, which only charge administrative fees for mortgage recordation, New York charges a tax that can be more than 2% of the mortgage's face value in places like New York City. Hudson Valley FCU argued Thuraday that the tax is not considered a "priviledge tax" under federal law and that the credit union federal tax exemption and applicable U.S. Supreme Court holdings should control. Recording a mortgage is required in New York for lenders to be able to foreclose on a mortgaged property or have other rights related to the mortgaged real estate. CUNA and the Credit Union Association of New York filed an amicus brief with th court arguing in favor of the credit union, as did the U.S. Department of Justice in order to support the credit union's argument that the tax-exemption and other federal laws mean that mortgages it made should not be subject to the tax. A decision in the appeal is not expected for until later thi year.


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