ALBANY, N.Y. – The American Bankers Association weighed in on credit unions’ efforts for an exemption from state mortgage taxes, telling the state’s highest court the bid represents an effort by credit unions to tilt the competitive balance in New York by allowing them to offer mortgage “tax-free loans”.

The bankers told the Court of Appeals for the State of New York a challenge brought by Hudson Valley FCU to the state’s mortgage recording tax represents another attempt by federal tax-free credit unions to gain a foot up on banks and other mortgage lenders in the state. If the state’s high court rules for the credit union, argued the bankers in an amicus brief submitted in the case, then federal credit unions would be allowed to offer their members “MRT-free Loans,” which no other bank, savings association or state (chartered) credit union in New York could offer.”

The entry by the bankers, both the ABA and the New York Bankers Association, into the fray is significant because of the argument that competitors of federally chartered credit unions share the same position of the New York State Department of Taxation and Finance, which has defended the state’s tax on credit unions successfully at two lower court levels.

The $3 billion one-time IBM employees credit union, which is supported by CUNA, NAFCU and the state credit union association, maintains that the Federal CU Act’s exemption on taxes on federally chartered credit unions applies to the state’s mortgage levy.

The argument is important in New York, where the vast majority of the state’s 375 credit unions are federally chartered and thus come under the federal exemption of state and local taxes. The dozen or so state chartered credit unions would not be affected.

The lower courts have ruled for the state’s tax department, stating that the state tax represents a levy on the privilege of borrowers to record a mortgage, and not on the credit unions themselves.

The bankers say despite the fact credit unions have paid the mortgage tax for at least three decades it was only in 2009 that Hudson Valley FCU launched its challenge. What’s more, they note that federally chartered credit unions continue to pay mortgage recording taxes in at least 16 other states.

The Poughkeepsie-based credit union is seeking more than $2 million in back taxes and interest and a declaration that would exempt it from the mortgage tax going forward.

A ruling for credit unions would have enormous ramifications for both the state, which stands to lose tens of millions of dollars in revenues a year, and federally chartered credit unions, which could offer lower rates and fees to borrowers if they don’t pay the tax.


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