New York vs. the U.N. in a "tax war"

Great Debates
1

A recent Supreme Court decision reported on here gives the city of New York the ability to sue foreign governments for back taxes.

The problem comes about because several countries who have diplomatic offices in New York do not pay property taxes (nor do they pay parking tickets which is a side issue but apparently also something for which NY can sue for under the decision–which I have not been able to find online in its entirety yet.)

The issues this raise:

  1. Will this open a “Pandora’s Box?”, will we see New York City taking this a step further? The case in question involves suing India and Mongolia, and the State Department argues that is as far as it goes. Will this result in like treatment around the world and general problems with other governments who decide to engage in tit-for-tat and start suing us over similar issues?

  2. Should New York have the right to sue foreign governments for owed property taxes? I tend to think that any property owned by a foreign government that isn’t tax-exempt should be taxed and we should have the authority to do what is necessary to collect on that tax.

Diplomats are generally granted with some immunity from prosecution, but I don’t feel that means the United States and its municipalities should be powerless to stop countries from essentially robbing them continually over many years (the amount of taxes owed is in the multiple millions, India and Mongolia alone owe $41m in back property taxes.)

As I understand it, some diplomatic properties are tax-exempt. Consulates for example, but housing for diplomatic workers is typically not tax-exempt, in the case of Mongolia and India (apparently) they designate their housing as being part of the consulate as a way to extend tax-exemption to those properties as well (for what it is worth, the U.S. seemingly has tax exempt status for its diplomatic housing areas abroad as well.)

I’m not entirely sure how I feel on the tax-exempt/not tax-exempt issue, but I do think if a property is clearly not tax-exempt, that whoever owns it should have to pay the property taxes on it, be it a business owner or a foreign government. Maybe a better solution is to expand the definition of what sort of diplomatic properties are tax-exempt, since that would probably make everyone happy (aside from New York City.) I also don’t see any reason why municipalities (be it New York or Geneva) should let diplomatic employees routinely refuse to pay parking tickets which can collectively cost said municipality millions.

2

Aren’t foreign consulates extraterritorial, therefore non-taxable?

3

I believe consulates are. I’m not entirely clear on the whole situation. I think that certain countries have been taking advantage of the general reluctance to enforce taxes on diplomats and have basically blown the whole thing off, by claiming properties or areas which they are not supposed to. The diplomats can’t be taken to court, so they just ignore the law in this case. The Feds don’t care enough to bother, but New York City is losing a hefty chunk of change over it.

4

In general, foreign missions/consulates/embassies themselves are tax-exempt (and that is not specifically what New York City is trying to tax.) Housing for diplomatic staff is not tax-exempt under any international agreements except for housing for top-level diplomats (actual ambassadors and the most senior staff at the embassy.)

At issue in this particular case are twenty floors of India’s embassy (which itself is tax exempt) and six floors of Mongolia’s being used to house pretty much all kinds of embassy staff (not just top-level diplomats); New York City viewed it as an end-run around its authority to tax non-embassy housing.

Part of the problem is, the United States has significant housing developments for diplomatic staff around the world that is not taxed. The worry is this development is going to lead to them being taxed. Not every municipality gives housing a pass, some tax it like New York does; but this is the first prominent case of a municipality being set up to actually sue a country that doesn’t want to pay the bill.

5

It is simple- NYC got greedy,so the USA makes them pay whatever taxes the State Dep’t gets hit with!

6

Humm, I’m fairly sure I remember seeing an article about how annoyed the Mayor of London (Ken Livingstone) was about US diplomats in London refusing to pay the congestion charge …

http://news.bbc.co.uk/1/hi/england/london/4960308.stm

Smacks of hypocrisy if you ask me

7

Not eactly. The diplomats from any nation don’t care. The cities do.

8

What’s hypocritical about it? New York City =/= Individual American Diplomats.

9

You think that that one part of the US government ( admittedly a local and autonomous part ) getting unhappy about diplomats refusing to pay it’s taxes while another part of said government is doing almost exactly the same thing is entirely reasonable?

10

If you understand how American government works you’d realize one thing has nothing to do with the other.

The American State Department is a federal-level organ of government that is primarily responsible for the foreign relations of the United States. Officials at the State department realize that not paying parking tickets, for better or worse, is something that diplomats all over the world do. They also realize that the United States has similar properties overseas that currently are not taxed.

It’d be hypocritical if the State Department was on the side of New York City while its foreign employees were doing exactly what NYC is accusing India/Mongolia of doing. But that isn’t the situation, the State Department supports India/Mongolia in this, and is not pleased with what New York City is doing. Neither is the President.

However, in the United States, State governments dictate the form of municipal governments (usually through State constitutions) how New York conducts its business may piss off Bush or the State Department, but because of our form of government, there’s not a damn thing they can do about it. It isn’t the same government. New York City’s government is not part of the U.S. government. It is arguably part of New York State’s government (the State itself being the true authority over all municipalities within its borders–but most State constitutions guarantee some permanent authority to municipalities) There are fifty sovereign State governments within the United States sovereign because the Federal government cannot restructure their boundaries nor dissolve them–in many countries that are divided into provinces/administrative regions, the overall central government still wields absolute sovereignty.

So no, it’s not hypocritical at all. New York City officials don’t have offices in London where they refuse to pay congestion fees, that’s the U.S. Federal Government, a completely separate government. The U.S. Federal government has both domestic and geopolitical concerns. The municipal government of New York City does not, they don’t care about the geopolitical ramifications because the mayor/city council weren’t elected to deal with geopolitical issues, they were elected to deal with issues concerning the city of New York and its citizens, and to them, $41m in back taxes is of paramount importance. Whether or not U.S. Federal government employees refuse to pay a congestion charge in London is not only inconsequential to the decision making of New York City, it has virtually no relation to said decision making because they aren’t the same government. Local government in the United States isn’t just a “local, autonomous part” of the U.S. government. It’s a local, autonomous part of a sovereign State’s governing system and is explicitly not part of the Federal government. Federalism in the U.S. is about primarily two levels of sovereign government.

That’s why this presents a perplexing problem. The State Department doesn’t like this. The President doesn’t like this. But since the SCOTUS has ruled New York City can sue India and Mongolia, it’s now a problem for the State Department and the President, and there’s little actual authority they wield which could compel NYC not to sue. There are some ways they could convince them not to sue, but it’s definitely a sticky situation.

11

Most foreign governments, let alone their citizens, do not have an, um, nuanced appreciation of the complexities of American federalism. They’ll just see that U.S. diplomats are using diplomatic immunity to get out of paying congestion fees in London, and will be pissed when NYC officials - who admittedly have nothing to do with the State Department - attempt (properly, IMHO) to collect fees and taxes from foreign diplomats assigned to the UN.

Unfortunately, the message will once again be “Americans = oafish hypocrites.”

12

I agree that NYC is in the right here too to be honest, on moral grounds at least, though I have no clue regarding legal ones …

And as you say my understanding of US federalism is “un-nuanced”. I’d like to know how the US Supreme Court came to this decision. Was it ruling on domestic US law or the Vienna Convention?

13

Well, apart from radically overhauling our system of government so idiots abroad can understand it, so what? How would this be different from any other day?

14

If I understand correctly, the US Supreme Court didn’t rule that India and Mongolia must pay, only that Federal Courts have jurisdiction to hear cases dealing with property taxes and foreign nations.

Here’s the actual Supreme Court opinion piece. Basically it looks like property used for diplomatic activities are exempt from taxation, however property not directly associated with actions of a diplomatic nature (say housing of staff) is not exempt.

15

In other words, the title of this thread should be “New York vs. certain U.N. member states.” The scofflaws in question don’t work for the UN, but for their home countries. This is a real difference, especially in the old days when Russian UN employees basically acted as if they worked for the USSR, not the UN.

People actually working for the UN have no such immunity, and I’ve never known of any who tried to pretend they did. (My father worked for the UN for over 30 years.)

16

Putting issues of federalism aside, one would need to look at the actual treaties to decide what’s reasonable and what’s unreasonable. If the treaties regarding diplomatic relations said that all diplomatic personnel and property are taxed exactly the same as everyone else, then yeah, it’s unreasonable to refuse to pay London’s congestion fee.

But the treaties aren’t like that. They (apparently) exempt certain property and activities and leave other property and activities subject to taxation. Apparently, the Indians and Mongolians are pretty clearly not paying taxes they should pay per treaty.

At the same time, it’s possible that London’s congestion fees do not need to be paid by US diplomats (per treaty). In which case there’s no contradiction. It’s also possible that the treaty is ambiguous on the issue, in which case the British authorities should feel free to avail themselves of whatever dispute resolution mechanism is provided for by treaty. But there’s still no contradiction.

The last possibility is that the US diplomats are refusing to pay a fee that they clearly must pay per treaty. In that case, I would agree that there’s a contradiction. But I doubt that’s the case.

17

I’m thoroughly confused. If the embassy itself is non-taxable, and is technically the territory of the embassy’s nation, exactly how is it New York’s business what India or Mongolia do with their embassies? And wouldn’t these be consulates and not embassies?

18

It’s not that confusing. From the Supreme Court opinion piece linked earlier…

Italics and bolding are mine.