Hudson Valley Federal Credit Union v. New York State Department of Taxation and Finance, 19 N.Y.3d 21 (2012)
Federal credit unions are not exempt from New York State’s mortgage recording tax (MRT) under the Federal Credit Union Act (FCUA) or the Supremacy Clause, as the FCUA does not explicitly exempt mortgages and federal credit unions are not so closely connected to the federal government as to be inseparable entities.
Summary
Hudson Valley Federal Credit Union challenged the imposition of New York’s MRT on mortgages issued by the credit union, arguing that the FCUA exempts federal credit unions from state taxation and that, as federal instrumentalities, they are immune under the Supremacy Clause. The New York Court of Appeals held that the FCUA’s tax exemption for federal credit unions does not extend to the MRT because the statute does not explicitly mention mortgages and federal credit unions are not inseparable from the federal government. The Court emphasized the principle that tax exemptions are narrowly construed and that Congress knows how to explicitly exempt mortgages when it intends to do so.
Facts
Hudson Valley Federal Credit Union, a federal credit union, commenced a declaratory judgment action against the New York State Department of Taxation and Finance, challenging the applicability of the MRT to mortgages issued to its members. The Credit Union argued that federal law exempted them from paying the state tax.
Procedural History
The Supreme Court dismissed Hudson Valley’s complaint. The Appellate Division affirmed the Supreme Court’s decision. The New York Court of Appeals granted Hudson Valley leave to appeal.
Issue(s)
1. Whether the Federal Credit Union Act (FCUA) exempts federal credit unions from paying New York State’s mortgage recording tax (MRT) on mortgages they issue.
2. Whether federal credit unions are federal instrumentalities so closely connected to the government that they are immune from the MRT under the Supremacy Clause.
Holding
1. No, because the FCUA does not explicitly exempt mortgages from state taxation, and tax exemptions are narrowly construed.
2. No, because federal credit unions are not so closely connected to the United States Government that they cannot realistically be viewed as separate entities with respect to mortgage-lending activities.
Court’s Reasoning
The Court first addressed the statutory interpretation of the FCUA, noting the general rule that tax exemptions are strictly construed against the party claiming the exemption. The Court highlighted that when Congress intends to immunize mortgages of federally chartered lending entities from state taxation, it does so explicitly in other statutes, such as the National Housing Act and the Farm Credit Act of 1971. The FCUA, in contrast, does not mention mortgages or loans. “Given the uniform choice of language in these other federal acts, one would expect that if federal credit union mortgages were intended to be excluded from state MRTs, such immunity would have been plainly stated in the FCUA.”
The Court rejected Hudson Valley’s argument that the term “property” in the FCUA should be broadly construed to include mortgage loans. The legislative history of the FCUA indicates that, at the time the exemption was enacted, federal credit unions were not even empowered to issue mortgage loans. Therefore, Congress could not have intended the exemption to apply to this activity.
The Court distinguished Supreme Court cases cited by Hudson Valley, noting that those cases involved federal acts that explicitly referred to “advances,” “loans,” and “mortgages.”
Finally, the Court rejected the Supremacy Clause argument, stating that although federal credit unions are regulated by a federal agency, they are wholly owned, funded, and managed by their members. The directors have significant autonomy in administering the credit unions’ daily operations. Therefore, federal credit unions are not so “closely connected” to the government as to be inseparable entities. The court stated that “tax immunity is appropriate in only one circumstance: when the levy falls on the United States itself, or on an agency or instrumentality so closely connected to the Government that the two cannot realistically be viewed as separate entities, at least insofar as the activity being taxed is concerned” quoting United States v. New Mexico, 455 U.S. 720, 735 (1982)