Hudson Valley Federal Credit Union will have to pay a state tax to record mortgages it issues despite being a federal credit union, according a decision handed down Thursday by the New York Court of Appeals, the state's highest court.
The 262,000-member $3.7 billion, Poughkeepsie credit union had brought suit against New York in 2009, arguing in part that it did not have to pay the tax, which is assessed and paid prior to mortgages being recorded, since it is exempt as a credit union generally and as federally chartered credit union specifically under the supremacy clause that allows federal laws to override those of states.
NAFCU and CUNA both filed friend of the court briefs in the case and expressed disappointment in the ruling.
“We are very disappointed that the court ruled against Hudson Valley,” said Carrie Hunt, NAFCU general counsel and vice president of regulatory affairs. “NAFCU will remain vigilant in protecting the credit union federal tax exemption.”
Meanwhile, CUNA EVP/General Counsel Eric Richard said, “CUNA and the Credit Union Association of New York filed friend of the court briefs at every level of the courts in this litigation, standing with the credit union movement and its tax exemption. “Nevertheless, the highest court in New York has now spoken. We will confer with the Credit Union Association of New York, and the credit union, about what further steps, if any, should now be taken.”
Hudson Valley lost the case in a lower court and appealed that decision to the Court of Appeals, which also rejected its arguments.
Writing for the five-judge majority, Associate Judge Victoria Graffeo held that the court was unconvinced that the credit union tax exemption covered mortgage loans because the Federal Credit Union Act does not specifically exempt them.
“Given the uniform choice of language in these other federal acts, one would expect that if federal credit union mortgages were intended to be excluded from state [Mortgage Recording Taxes], such immunity would have been plainly stated in the FCUA,” the court held.
“Instead, although the FCUA contains an extensive list of exemptions relevant to federal credit unions, it makes no mention of mortgages or loans of any kind,” the decision read.
The court also noted that at the time the FCUA was originally written, credit unions could not issue mortgage loans, and therefore Congress at that time could not have intended to have made credit unions exempt from taxation on a product they could not offer.
The court also declined to accept the credit union's argument that such taxation interfered with its mission as a credit union:
“Hudson Valley does not dispute that prior to the initiation of this action in 2009, it voiced no objection to the assessment of the MRT,” the court observed. “Moreover, contrary to its assertions, there appears little danger that the MRT will drive federal credit unions out of business.
“Over the years, Congress has greatly expanded the powers of the credit unions and they now provide many of the same services traditionally offered by banks. For example, credit unions may accept deposits in ‘share’ and ‘share draft accounts’ (equivalent to bank savings and checking accounts respectively), issue first and second residential mortgages, make automobile and personal loans, extend lines of credit (including credit cards) and offer other services.”
Writing in a lone dissent, Associate Judge Susan Phillips Read took the FCUA act to prevent the imposition of any taxes on credit unions.
“New York's mortgage recording tax is an excise tax on the privilege of transferring title, not a tax on the real property subject to the mortgage issued to secure a loan,” Read wrote. “Further, the MRT is not a tax on tangible personal property, such as portable machinery and equipment, tools, vehicles or other assets (other than land or buildings) with a physical form.
“Because the MRT is not a tax on real or tangible personal property -- the only two carve-outs from the FCUA's exemption of federal credit unions from ‘all taxation’ – New York may not impose the MRT on plaintiff Hudson Valley Federal Credit Union,” she wrote.