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Supreme Court To Hear Dispute Between New York And Foreign Diplomats Over Taxes

by Mike Godfrey, Tax-News.com, Washington

25 April 2007


The US Supreme Court on Tuesday began to hear arguments for the New York City authorities, and from legal teams representing India and Mongolia, over the taxation of the latter countries' diplomatic workers.

In May 2006, an US appeals court decision opened the way for the New York City tax authorities to sue foreign governments for non payment of tax on diplomatic buildings located in the city.

Although embassies, consulates and diplomatic missions are customarily tax exempt, New York tax rules state that parts of such buildings used for non-diplomatic purposes, such as restaurants or housing, may be taxed.

As a result, the city has been pursuing the diplomatic missions of several countries for non-payment of tax on property that is not used solely for official diplomatic purposes.

According to New York, as of January 1, 2003, India owed $16.4 million tax on its 26-floor tower near the United Nations building as only six of its twenty floors are used for diplomatic offices. The rest contain residential apartments. Mongolia meanwhile reportedly owed $2.1 million on part of its six floor building in Manhattan.

Other countries from which New York has so far failed to collect unpaid tax include Hungary, Libya, Rwanda, Nigeria and Uganda.

India has argued that it has immunity from being pursued in US courts under diplomatic protocol.

However, a three-judge panel of the 2nd US Circuit Court of Appeals last year affirmed a lower-court decision that US federal courts had the power to resolve such disputes.

According to US Judge Robert A. Katzmann, ruling in May 2006, a foreign country can't "assume the benefits of ownership...while simultaneously disclaiming the obligations associated with them."

"When owning property here, a foreign state must follow the same rules as everyone else," he wrote.

Reports this week revealed that the US government has intervened in the case via the filing of an amicus brief supporting India and Mongolia. The 'friend of the court' brief argues that the court has no jurisdiction over New York City's claims, as they involve sovereign countries.

However, the Economic Times of India quoted Corporation Counsel Michael Cardozo, of New York City Law Department, as stating this week that:

"We are very hopeful the Supreme Court will find there is a jurisdiction, so that the lower court can decide the merits of the dispute."

He added:

"If the City is given its day in court, we are confident that we will prevail, and India and Mongolia will then pay their fair share of real estate taxes."


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