The US Supreme Court ruled that US courts can decide New York City’s property tax disputes with foreign governments, an issue the city says involves more than $100 million (Rs410 crore).
US federal law “does not immunize a foreign sovereign” in such cases, Justice Clarence Thomas wrote in a 7-2 decision late on Thursday.
The city is trying to collect property taxes from countries that house their UN mission or consulate employees in the same buildings where they operate diplomatic offices.
Before the court was the case of India and Mongolia, which allegedly owed $16.4 million (Rs67 crore) and $2.1 million, respectively, when the city sued them in 2003. Interest on the disputed amount is 18% a year; the city says India now owes $37 million (Rs151 crore) and Mongolia $4.1 million.
Foreign governments have tax exemptions for the diplomatic mission section of their New York properties. The city says they must pay taxes for the space that houses employees.
New York mayor Michael Bloomberg said the decision will help ensure that foreign governments pay “their fair share in city taxes.”
New York’s corporation counsel, Michael Cardozo, who argued the case before the Supreme Court, said that “now India and Mongolia, as well as other countries, know the city ’means business.”’
The city declined to release the names of the countries it says have not paid taxes. But it did offer a figure of $100 million (€75.1 million) as “a conservative estimate of what is currently owed by several countries.”
The city’s action could draw a response in which the US government would find itself mired in disputes over its properties abroad.
“The concept of diplomacy is that what’s good for you is good for me. There will be some reciprocal act that takes place vis a vis US diplomatic installations in India,” predicted lawyer Andrew Odell.
After the ruling, State Department spokesman, Kurtis Cooper, declined to speculate whether foreign countries would take reciprocal measures against the US.
A spokesperson for the Indian consulate in New York said, “We have received the copy of the judgment and it is currently being studied by our experts.” Messages left at the Mongolian Embassy were not immediately returned.
The Bush administration sided with India and Mongolia, reversing a position the federal government took two decades ago. It says the US government was in error when it supported a tax enforcement action by a New Jersey municipality against property used by Libya’s UN ambassador.
Under the Foreign Sovereign Immunities Act, the jurisdiction of US courts generally does not extend to foreign governments.
But there is an exception when “rights in immovable property” are at issue. The Supreme Court said the exception applies in the New York case.
In dissent, Justice John Paul Stevens wrote that the case “is a dispute over a foreign sovereign’s tax liability. If Congress had intended the statute to waive sovereign immunity in tax litigation, I think it would have said so.”
Sangeeta Singh of Mint contributed to this story.