City Wins Tax Ruling Against Foreign Countries

Opening the door for the city to collect millions of dollars from foreign governments through the courts, a federal judge is ordering that India, Mongolia, and the Philippines pay New York City more than $57.6 million in back property taxes and interest for using their consulates and missions for non-diplomatic purposes.

At issue was a dispute over whether the governments, which operate tax-exempt consulates and missions for diplomatic purposes in New York, had to pay taxes on businesses run out of their buildings and on portions of their buildings used to house staff members. Under the ruling, the city would collect taxes from India and Mongolia for portions of their properties that house staff members from United Nations missions and staff from the consulates. The court held that only the residences of the consul general and the ambassador to the United Nations are exempt from paying residential taxes.

The judge ordered the Philippines to pay taxes on the portion of a building that housed the Philippines National Bank and the Philippines Airlines. A restaurant that had been situated on the property was determined by the court in February to have served consular purposes and was thus exempt from taxes.

U.S. District Court Judge Jed Rakoff awarded the city the full amount it was seeking on Monday, ordering India to pay $42.4 million, Mongolia to pay $4.3 million, and the Philippines to pay $10.9 million. In early February, he had ruled that India, Mongolia, and the Philippines did owe the city back taxes. Foreign governments generally receive immunity in American courts.

"Most countries are good neighbors to New York City. They pay what they owe, like all other New Yorkers who carry their share of the tax burden. However, this ruling sends a message to those trying to avert their obligations that New York City will be vigilant," the corporation counsel of the New York City Law Department, Michael Cardozo, said in a statement.

The suits are part of a larger effort by the city to collect taxes and fees from consulates and missions to the United Nations. The Justice Department has warned that allowing cities to pursue tax cases against foreign countries could prompt retribution against American interests abroad, according to a brief.

Under federal legislation passed last year, the Department of State is required to withhold aid the United States sends to these countries in the amount of 110% of what the countries were ordered to pay until they pay.