The U.S. Supreme Court, in Permanent Mission of India to the UN v. New York City , has reinforced the validity of a tax lien filed by the City of New York on a building owned by the country of India.*
Under New York law, property owned by a foreign nation and which is used exclusively for diplomatic offices or for the residence of an ambassador is exempt from tax, while any buildings, or portions of buildings, owned by a foreign sovereign and used for all other purposes are taxable.
India owns a 26-story building used for its permanent mission to the United Nations. Part of the structure is used for tax-exempt purposes, but 20 of the floors are used to house employees below ambassadorial ranking. New York City taxed those 20 floors, India refused to pay and amassed a tax liability of some $16.4 million.
These charges eventually converted to a lien on the property and the City filed suit in state Supreme Court seeking a judicial declaration that the lien was valid. (While the City conceded that India was immune from enforcement, it still sought a declaration as to the lien's validity since its experience with foreign governments revealed that liens were usually satisfied upon receipt of a judicial imprimatur. Second, by operation of federal law, foreign aid could be reduced by 110% of any outstanding debt. And third, the lien would be enforceable against a third-party, should India later attempt to sell or convey the property.)
India removed the case to federal district court and sought the dispute's dismissal, arguing it was immune from suit in a U.S. court. The District Court concluded that it had jurisdiction over the matter and upheld the tax lien. On appeal, the U.S. Court of Appeals for the Second Circuit affirmed. India then appealed to the U.S. Supreme Court, which also affirmed.
Foreign governments have always received immunity from U.S. courts -- first by court-created legal doctrine and then by federal statute. The U.S. affords foreign nations this protection because it is believed that these kinds of disputes are best handled by the State Department, and not by our courts.
In 1976, Congress passed the Foreign Sovereign Immunities Act (FSIA) to codify (and amend) that immunity. The FSIA carved out a number of exceptions, including suits "in which ... rights in immovable property situated in the United States are in issue."
India contended that the exception only applied to lawsuits contesting ownership or possession of immovable property. The City argued that the exception encompassed "additional rights" which included tax liens.
The U.S Supreme Court sided with the Big Apple. Relying on precedent, the definition of a lien, and a lien's impact on the transfer of real property, the nation's highest court concluded that a tax lien is indeed a "right in immovable property," making the suit an exception to India's sovereign immunity, and thus affording U.S. courts jurisdiction to declare the lien valid.
Notwithstanding this victory, are there going to be some Karmic consequences here?
For a copy of the U.S. Supreme Court's decision in this case, please use this link: Permanent Mission of India to the UN v. New York City
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*This case also included a dispute with Mongolia over a $2.1 million tax bill. Since the legal issues were identical, and for the sake of simplicity, only the facts related to India's dispute have been recited herein.