ALBANY, N.Y. – The credit union bid for exemption from a the state’s mortgage tax is shaping up as a major political battle, with the organization representing the state’s 600 cities and towns the latest to ask the state’s highest court to uphold the tax.
The tax case, scheduled for oral argument next Tuesday in the state’s high court, now pits agencies for the state and federal government and other powerful interests against each other, with tens of millions of dollars a year in state revenues at stake.
The Court of Appeals of the State of New York, the state’s highest court agreed yesterday to allow the Association of Towns of the State of New York to enter the case in opposition to an appeal by Hudson Valley FCU to exempt all federally chartered credit unions from the state’s mortgage recording tax.
The powerful municipal lobby joins the New York Department of Taxation and Finance, the main defendant in the case, as well as the American Bankers Association and the New York Community Bankers Association in defending a state law that applies the local real estate tax to transactions conducted by credit unions.
In a suit filed against the state tax department, the $3.5 billion Hudson Valley FCU, the former IBM employees’ credit union, claims the Federal CU Act’s exemption for federally chartered credit unions from federal and state taxes extends to the New York levy. Two lower courts have rejected this argument, ruling the mortgage tax amounts to a tax on the borrower’s act of registering a mortgage and not on the credit union.
Backing the credit unions is the U.S. Department of Justice, which is arguing for enforcement of the Federal law for credit unions, as well Fannie Mae and the credit union lobby groups CUNA, NAFCU and the New York Association of CUs.
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. Lawyers for the credit union say they plan to challenge similar mortgage laws in other states if they are successful in New York.