Despite Confusion, Credit Unions Remain Exempt from Special Additional Mortgage Recording Tax

A recent decision from the New York State Court of Appeals initially led to some confusion regarding whether federal credit unions will continue to be exempt from certain mortgage recording taxes. Pursuant to Article 11 of the New York Tax Law, two types of mortgage taxes may be required to be paid before a mortgage is recorded. For most residential mortgages, the borrower traditionally pays one of these mortgage taxes. The other mortgage tax, referred to as the “Special Additional Mortgage Recording Tax” (SAMRT), is paid by the lender. Federal credit unions are exempt from the SAMRT, pursuant to Section 1768 of the Federal Credit Union Act, and confirmed by a 1986 letter from the New York Department of Taxation and Finance.

In Hudson Valley FCU v. NYS Dept. of Taxation and Finance, decided in October 2012, the Court of Appeals held that federal credit unions may be subject to New York State recording taxes. However, this decision was somewhat loose with its use of tax terminology. As a result, some initially interpreted the Court’s holding as prohibiting credit unions from continuing to claim an exemption from payment of SAMRT. However, this is erroneous, as the credit unions’ exemption from SAMRT was never truly at issue in the case. Hudson Valley’s claim was actually that federal credit unions should not only be exempt from the SAMRT but also from the mortgage recording tax that their members have been paying.

Hudson Valley originally commenced that action in 2009 seeking a declaratory judgment against the Department of Taxation and Finance to the effect that federal credit unions would not be subject to mortgage recording taxes under Article 11 of the Tax Law. Relying on U.S. Supreme Court cases and federal statutes, Hudson Valley argued that they were immune from taxation by the state because they are a federal entity and based on the federal statutes. This is the argument the Court of Appeals rejected. It is unclear whether Hudson Valley will continue to pursue this argument in federal court. In any case, it is clear that that decision related solely to the mortgage recording tax, and in no way affected the SAMRT.

For now, the procedure for recording mortgages to credit union members remains the same. Several clerk’s offices have issued statements confirming that Federal Credit Unions are still exempt from SAMRT.

Article written by Megan E. Curinga, Esq. For more information, contact Ms. Curinga at (607) 231-6929 or via email at mcuringa@hhk.com.

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