New York imposes property taxes on the portion of foreign countries’ UN missions that are used not for diplomacy, but as housing for staff members. The state department has instructed foreign countries to pay those taxes. The question for the US Supreme Court on 24 April was what happens when they refuse.
No straightforward answer emerged during the argument. But the justices appeared at least open to permitting New York’s case against India and Mongolia to proceed in federal court, even though the city’s top lawyer conceded that because of diplomatic immunity, New York will not be able to force these governments or any others, ultimately, to pay a dime. The city says the two countries owe about $25 million (Rs102.5 crore) in back taxes and interest.
But a victory would give the city the high ground in encouraging about 190 UN missions to live up to their obligations to their host city. A legal judgment that the taxes were properly imposed and due would also invoke a provision of the Foreign Operations Appropriations Act, which penalizes countries with unpaid tax obligations by withholding from their foreign aid 110% of the amount due.
“I believe we are going to get a lot out of that,” Michael A. Cardozo, New York City's corporation counsel, told the justices. That provision operates only if there is a legal judgment, so it helps the city only if the Supreme Court rules that the federal courts have jurisdiction to hear New York’s claim, and if the city prevails.
India and Mongolia, which are appealing a ruling by the 2nd US Circuit Court of Appeals that the city’s case can proceed, are arguing that federal courts have no jurisdiction. New York has obtained tax liens against the 26-story building on East 43rd Street owned by India’s UN mission, 20 floors of which are housing staff members, and Mongolia’s six-story building on East 77th Street, where three floors are used for staff housing.
The legal question is whether a 1976 federal law that governs lawsuits against foreign governments permits the federal courts to give New York what it wants: a declaration that the taxes are due.
If this were an ordinary case of unpaid taxes, the city would be able to enforce the liens by foreclosing on the buildings. That cannot be done in this case, Cardozo conceded. “But if we can proceed to judgment and get that declaration”, he continued, the governments will pay, the city believes.
The statute, the Foreign Sovereign Immunities Act, generally withholds jurisdiction from the federal courts to hear lawsuits against foreign governments.
But the law contains several exceptions. New York is invoking the “immovable property” exception, which provides jurisdiction over cases in which “rights in immovable property situated in the United States are in issue”.
The question is whether a tax lien is such a “right”. New York argues that it is. The Indian and Mongolian governments, supported by the federal government, argue that the exception is limited and that it applies only to disputes over the ownership of a piece of property, not over taxes.
“All this case is about is money,” John J.P. Howley, representing the foreign governments, told the justices, adding, “It’s not about ‘rights in property’.” It was the federal government’s position that appeared to intrigue the justices, and not in a way that favoured the government. The last time the issue was litigated was in 1985, in a case that arose from an attempt by Englewood, New Jersey, to impose its property tax on a house that the head of Libya’s UN mission used as a “weekend retreat”.
At that time, the federal government argued that the courts had jurisdiction to hear Englewood’s case, a position that the 3rd US Circuit Court of Appeals eventually rejected in ruling for Libya.