We're a New York State-chartered credit union making residential first mortgage loans. Banking Law section 479 says no tax law applies to us unless we're specifically named in it. Does that exempt us from the 'special additional' mortgage recording tax that mortgagees normally pay on small residential mortgages?

Plain-English summary

Hudson River Community Credit Union, a New York State-chartered credit union incorporated under Article XI of the Banking Law, is a not-for-profit financial cooperative that makes residential first mortgage loans to its members. It asked whether it is exempt from the "special additional" mortgage recording tax under Tax Law § 253(1-a) — an extra 25 cents per $100 of secured debt imposed on mortgages, in addition to the base mortgage recording tax.

Section 253(1-a)(a) generally makes the MORTGAGEE responsible for paying this special additional tax on mortgages of small residential property (structures with six or fewer dwelling units, each with its own separate cooking facilities) — unless the mortgagee qualifies as an exempt organization under § 253(1-a)(b), in which case liability shifts to the mortgagor instead. To qualify as exempt under (b), an organization must satisfy a two-part test: (1) it's organized other than for profit, with no earnings inuring to the benefit of any officer, director, or member, and (2) it's exempt from federal income tax under IRC § 501(a).

The credit union argued that Banking Law § 479 — which deems credit unions "institutions for savings" exempt from any tax law unless that law specifically names credit unions — should exempt it here. The Department rejected this on two grounds. First, even setting aside § 479, the credit union independently fails § 253(1-a)(b)'s own two-part test: while it might satisfy the federal tax-exemption prong, it fails the "no earnings to members" prong, because Banking Law § 460(1) expressly authorizes a credit union's board to declare dividends to its members from undivided profits. Second, and more fundamentally, both the base mortgage recording tax and the special additional tax are established (citing Matter of Citibank v. State Tax Commission) to be taxes on the PRIVILEGE of recording a mortgage — not a tax on the mortgagee as a corporation. Because the tax applies to individuals, partnerships, and other unincorporated entities just as it applies to corporations, Banking Law § 479's shield against "any law which taxes corporations" simply has no purchase here. The credit union remains liable for the special additional tax as mortgagee, and cannot shift that burden to its borrowers.

What this means for you

Credit unions and other member-owned financial cooperatives

Don't assume Banking Law § 479's broad "exempt from any tax law unless specifically named" language reaches the mortgage recording tax — the Department treats this tax as one on the recording privilege itself, not a tax on the corporation, so entity-specific tax shields like § 479 don't apply.

Borrowers taking a residential mortgage from a credit union

Expect your credit union lender to bear the special additional mortgage recording tax on a qualifying small residential mortgage (six units or fewer) — that cost cannot legally be passed to you as the borrower, unlike with a true § 253(1-a)(b)-exempt nonprofit mortgagee.

Common questions

Q: Could a credit union ever qualify for the § 253(1-a)(b) exemption/shift?
A: Only if it met BOTH prongs — no earnings inuring to any member, and federal 501(a) tax exemption. Credit unions generally fail the first prong because state banking law lets them pay member dividends.

Q: Does this ruling affect the BASE mortgage recording tax, or just the special additional tax?
A: This opinion addresses only the special additional tax under § 253(1-a); it doesn't separately exempt credit unions from the base tax either, for the same "tax on the recording privilege, not the entity" reasoning.

Q: Can another credit union rely on this specific opinion?
A: No. It binds the Department only as to this petitioner and these facts, though the reasoning applies generally to any state-chartered credit union under the same Banking Law provisions.

Citations and references

Statutes and regulations:

• Tax Law § 253(1-a) (special additional mortgage recording tax; liability generally on mortgagee, shifts to mortgagor only for a qualifying § 501(a)-exempt nonprofit mortgagee with no member-inuring earnings)
• Banking Law § 460(1) (credit union board may declare dividends from undivided profits to members)
• Banking Law § 479 (credit unions deemed savings institutions exempt from any tax law not specifically naming them)

Case law cited in the opinion:

• Matter of Citibank v. State Tax Commission, 98 A.D.2d 929 (mortgage recording tax, including the special additional tax, is a tax on the privilege of recording, not on the mortgage or mortgagee as property/entity)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/mortgage_rec_ao_2006.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/mortgage/a06_1r.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-06(1)R
Mortgage Recording Tax
May 30, 2006

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M051201A

On December 1, 2005, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Hudson River Community Credit Union, 321 Palmer Avenue, Corinth,
NY 12822.
The issue raised by Petitioner, Hudson River Community Credit Union, is whether a
New York State-chartered credit union, incorporated under Article XI of the Banking Law, is
exempt from the special additional tax on mortgages imposed under Article 11 of the Tax Law.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner is a New York State-chartered credit union incorporated under Article XI of
the Banking Law. Petitioner is a not-for-profit financial cooperative whose operations include
making residential first mortgage loans to its members.
Applicable law
Section 253(1-a) of the Tax Law provides:
(a) In addition to the tax imposed by subdivision one of this section, there shall be
imposed on each mortgage of real property situated within the state, except mortgages
wherein the mortgagee is a natural person or persons and the mortgaged premises consist
of real property improved by a structure containing six residential dwelling units or less,
each with separate cooking facilities, a special additional tax of twenty-five cents for each
one hundred dollars and each remaining major fraction thereof of principal debt or
obligation which is, or under any contingency may be secured at the date of execution
thereof or at anytime thereafter by such mortgage. The tax, if any, imposed by this
subdivision shall in cases of real property principally improved or to be improved by one
or more structures containing in the aggregate not more than six residential dwelling
units, each dwelling unit having its own separate cooking facilities, be paid by the
mortgagee, and such tax shall not be paid or payable, directly or indirectly, by the
mortgagor except as otherwise provided in sections two hundred fifty-eight and two
hundred fifty-nine of this article and except such tax shall be paid in such cases by the
mortgagor where the mortgagee is an exempt organization described in paragraph (b) of
this subdivision. In all other cases, such tax shall be paid by the mortgagor except that the
tax shall be paid by the mortgagee where the mortgagor is an exempt organization

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Mortgage Recording Tax
May 30, 2006

described in paragraph (b) of this subdivision. All of the provisions of this article shall
apply with respect to the special additional tax imposed by this subdivision to the same
extent as if it were imposed by said subdivision one of this section, except as otherwise
expressly provided in this article.
(b) An organization organized other than for profit which is operated on a
nonprofit basis no part of the net earnings of which inures to the benefit of any officer,
director or member and which is exempt from federal income taxation pursuant to
subsection (a) of section five hundred one of the internal revenue code shall be exempt
from the special additional tax imposed by this subdivision.
Section 460(1) of the Banking Law provides:
The board of directors of any credit union may declare a dividend from the credit
union’s undivided profits calculated as provided in this article for any period determined
by the board of directors.
Section 479 of the Banking Law provides:
Any credit union subject to the provisions of this article shall be deemed an
institution for savings within the meaning of the law which exempts such institutions
from taxation. No law which taxes corporations in any form, or the shares thereof or the
accumulations therein, shall apply to corporations doing business in accordance with the
provisions of this article, unless such corporations are specifically named in said law.
Opinion
Section 253(1-a)(a) of the Tax Law provides that, in cases of real property principally
improved or to be improved by one or more structures containing in the aggregate not more than
six residential dwelling units, with each dwelling unit having its own separate cooking facilities,
the special additional mortgage recording tax imposed by such section is paid by the mortgagee.
However, if the mortgagee is an exempt organization described in section 253(1-a)(b), then the
liability for payment of the tax shifts to the mortgagor.
Section 253(1-a)(b) of the Tax Law provides a two-part test to determine an
organization’s exemption from the special additional tax and the shifting of the liability for
payment of such tax. First, the organization must be organized other than for profit with no part

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Mortgage Recording Tax
May 30, 2006

of its earnings inuring to the benefit of any member. Second, the organization must be exempt
from federal income taxation pursuant to section 501(a) of the Internal Revenue Code. Although
a State-chartered credit union might satisfy the second part of this test, it is clear that it would not
satisfy the first part since, under section 460(1) of the Banking Law, a State-chartered credit
union may pay earnings to its members.
It has been well established that the taxes imposed under Article 11 of the Tax Law,
including the special additional tax imposed by section 253(1-a), are taxes on the privilege of
recording a mortgage (Matter of Citibank v State Tax Commission, 98 AD2d 929, 931). The
special additional tax on mortgages is not a tax on a corporation but on the act of recording a
mortgage and applies not only to corporations, but also to individuals, partnerships, and other
unincorporated entities. Accordingly, the exemption provided under section 479 of the Banking
Law clearly does not apply to the special additional tax on mortgages.
Therefore, based on the conclusions above, Petitioner is not exempt from the special
additional tax on mortgages and the tax burden may not be shifted to the mortgagor.

DATED: May 30, 2006

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.