We often get questions about how property taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es work, and a Supreme Court case this past week answered some interesting questions about tax liens and diplomatic immunity.
New York City is home for many foreign diplomatic missions, including India’s mission to the United Nations. Because the 26-story building is owned by a foreign government, and foreign governments are immune from taxation, New York cannot collect property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. es on it.
However, a few years ago, New York City began assessing taxes on the portion of the building—some 20 floors—dedicated to housing mission employees. India refused to pay, so New York City sought to convert the $37 million owed into a tax lien. Liens “run” with the property, so if India ever sells the building, the new owner will have to pay the back taxes. This has the effect of reducing what buyers would be willing to pay India for the building.
India argued that this practice violates its immunity, and a court challenge arose. The Bush Administration filed a brief supporting India, saying that the assessments invited retaliation abroad; the city in response argued that property ownership is not an essential aspect of diplomacy.
Last week, in Permanent Mission of India v. City of New York, the U.S. Supreme Court sided with New York City in a 7-2 decision. Citing a federal law that creates immunity exceptions for “immovable property,” the Court upheld the lien’s validity. Justice Clarence Thomas wrote the majority opinion; Justices John Paul Stevens and Stephen Breyer dissented.
New York officials estimate that diplomatic missions owe $100 million in back taxes. Turkey recently settled with city officials, paying $5 million. News reports suggest that the city will sue to collect the taxes now, which may run into tougher immunity issues.
The full opinion can be accessed here.
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