Court cuts exemption to taxes for missions

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NEW YORK -- The Supreme Court yesterday slashed the tax-exempt status of U.N. missions that double as staff residences, ruling it is legal for New York and other jurisdictions to collect taxes on dual-use properties.

The dispute pitted New York City against India and Mongolia, which house staffers in properties used by their missions to the United Nations.

The court's 7-2 ruling established that U.S. courts have jurisdiction in disputes over diplomatic real estate issues.

It is expected to have broad implications for American embassies abroad and hundreds of diplomatic properties in New York and Washington.

In 2003, the Bloomberg administration successfully sued India and Mongolia to collect $19 million in back taxes and penalties on portions of buildings they own and use to house staff of their U.N. missions.

The decision was upheld on appeal on the basis of an "immovable property" exception in the 1961 Vienna Convention on Diplomatic Relations. Turkey and the Philippines were also sued, but have since settled with the city.

Mongolia and India argued before the Supreme Court that the United States does not have jurisdiction, citing diplomatic immunity.

The State Department, fearing retaliation against U.S. diplomatic properties abroad, sided with the two nations.

The Mongolian Foreign Ministry stopped paying property taxes in 1980, eventually racking up $2.1 million in back charges and penalties on three floors of its six-story town house in Manhattan's Upper East Side.

The city says the Indian government owes $16.4 million in back taxes and penalties on 20 stories of its 26-story tower that it uses to house diplomats and staff close to U.N. headquarters.

The city, which claimed the housing of drivers and low-level employees is commercial activity, won liens on the property in 2005.

"This is a critical decision for the rule of law," New York Corporation Counsel Michael Cardozo said. "Without this ruling, the city had no other legal avenue under which it could obtain recourse."

The U.S. Mission to the United Nations, which handles complaints and questions from U.N. diplomatic missions, could not say how many other nations could be affected by the ruling.

This is not the first time New York City has turned to the courts to win money owed by U.N. diplomats. Former Mayor Rudolph W. Giuliani threatened lawsuits to compel governments to pay tens of millions of dollars in accumulated parking tickets.

Under an agreement brokered by the U.S. Mission, the city created more diplomatic parking spaces and collected some of the outstanding fines.