Federal CU Challenges New York's Mortgage Tax

Hudson Valley FCU of New York has filed a lawsuit, challenging the state's mortgage tax, arguing that federally chartered credit unions should be exempt from the levy. The credit union claims that federally chartered credit unions, which are defined as instrumentalities of the federal government under the Federal CU Act, should be exempt from all federal and state taxes, according to Paul Quartararo, Hudson Valley's attorney in the case. However, John McDermott, a real estate attorney who has closed loans in New York for 20 years, said he is unsure of the CU's case. "New York does not collect the lender's portion of mortgage tax from credit unions. It does collect the borrower's portion of New York's mortgage tax from credit union mortgagors (loan borrowers) because those borrowers are individuals not credit unions." (Mr. McDermott, who has worked for Citibank, is also a columnist for Origination News, a SourceMedia publication.) The tax varies from county to county, but is $1.30 per $1,000 of a new mortgage when the deed is recorded, and is as high as $2 per $1,000 in New York City, Manhattan County. An exemption from the four-decade-old tax could save credit unions millions of dollars a year. Hudson Valley FCU is a $2.8 billion Poughkeepsie, N.Y., credit union that was one of more than two dozen credit unions chartered in the 1960's to serve employees of IBM Corp. The credit union claims that the tax is unconstitutional as applied to federal credit unions because federally chartered credit unions are instrumentalities of the federal government and the U.S. Constitution bars taxation of those entities without the express consent of the Congress.