The New York Court of Appeals late Thursday agreed to allow the National Association of Federal Credit Unions to argue that the state's federally chartered CUs should be exempt from the state's mortgage recordation tax.
NAFCU and the New York Credit Union Association have been cleared by the state's high court to join Hudson Valley FCU which has been arguing the state tax violates the Federal CU Act's exemption on all taxes on income for federally chartered credit unions.
The case has enormous financial ramifications for both the $3.2 billion Poughkeepsie credit union, which stands to earn millions of dollars in recording tax rebates and interest if it wins, and the almost 400 federally chartered credit unions in New York that also would be exempted from the state tax in that case. But it also raises the issue of state's rights, as federal courts have generally ruled in favor of the federal tax exemption in similar cases.
Two lower courts have rejected the credit unions' argument and ruled the state's mortgage recording tax is a tax on the activity of the borrower having his mortgage recorded and not on the income of the credit union.
NAFCU, which will file a friend-of-the-court brief on behalf of Hudson Valley FCU, argued to the lower courts that their position is inconsistent with findings by courts in other states regarding similar state taxes.
NAFCU and the Poughkeepsie CU are careful not to mention that the federal tax exemption only protects federally chartered credit unions and not state charters. But the vast majority of the state's credit unions are federally chartered and would be impacted by a ruling.
