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Judge dismisses CUs mortgage-recording tax challenge
NEW YORK (5/24/10)--A credit union's challenge to New York's mortgage-recording tax (MRT) based on the Federal Credit Union Act's (FCUA) tax exemption for federal credit unions has been dismissed by a trial-level New York court judge. The decision against Hudson Valley FCU, Poughkeepsie, N.Y., was rendered by New York Supreme Court Justice Judith Gische on May 14 and filed Thursday, according to court documents obtained by News Now. The credit union filed the suit on May 12, 2009, against the New York State Department of Taxation and Finance (DTF), Commissioner Robert L. Megna, and the State of New York. The credit union is seeking a refund of nearly $1.9 million paid in MRT on its mortgage loans in a separate, administrative matter. In separate portions of her opinion, Justice Gische ruled that Hudson Valley was not required to exhaust its administrative remedies with respect to such refund as a precondition to the litigation of its declaratory action, and that the burden of the MRT “rest[s] primarily with the mortgage holder.” “Certainly we are disappointed with portions of this opinion," said Eric Richard, CUNA's general counsel. "We are studying the court’s decision, and will work with the Credit Union Association of New York, as well as Hudson Valley FCU, to see if an appeal or further action is advisable. As always, we will support both in any ways that we can.” CUNA, the Credit Union Association of New York, and the National Association of Federal Credit Unions filed amicus briefs in support of the credit union in the case. In addition, the United States of America, represented by the U.S. Department of Justice, filed an amicus brief in support of Hudson Valley FCU’s position. The Supreme Court of New York County is a trial court located in Manhattan. New York's highest court, the New York Court of Appeals, had ruled in previous cases, unrelated to the federal tax exemption granted by the FCUA, that the mortgage tax is a tax on the "privilege" of recording mortgages and therefore not a tax on property. Eli Mattioli, a partner with K&L Gates LLP, one of the law firms representing the credit union, noted that a key factor in the disposition was the judge's reliance on state law in deciding the impact of New York’s mortgage tax on the FCUA tax exemption, a federal law. In ruling on the federal credit union tax-exemption, Justice Gische said she felt “constrained to follow” the prior New York decisions characterizing the tax as a “privilege tax” rather than a property tax. On this basis, the judge decided that the FCUA tax exemption does not apply. The credit union had argued that the FCUA, as well as the U.S. Constitution’s Supremacy Clause, exempt its mortgages from the state's tax, which is used by the state as a general revenue collecting mechanism for its general fund, because the tax is different from most other states' recording fees, which are only used to cover the cost of operating the recording office.


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