India, Mongolia win big in diplomatic tax war with city

An appeals court today tossed out more than $46 million in city tax liens against the Indian and Mongolian missions to the United Nations.

The federal Second Circuit Court of Appeals in Manhattan said a controversial decision by the State Department to exempt diplomatic staff residences from $7 million a year in property taxes also applied retroactively to the past-due bills.

The three-judge panel said that "while there is perhaps some unfairness to the city...this unfairness inheres in the federal government's unquestioned supremacy in the management of foreign relations."

The unanimous ruling lets India off the hook for $42.5 million in back taxes and interest, and Mongolia for another $4.4 million.

Those bills were among $260 million in tax debts racked up by various deadbeat nations that own property in the Big Apple.

Mayor Bloomberg blasted the State Department last year after it quietly reversed a 136-year-old policy of requring foreign governments to pay taxes on housing for UN and consular staffers.

The move -- exposed by The Post -- was a stunning flip-flop by Secretary of State Hillary Clinton, who supported collecting the taxes when she was New York's junior senator.

Officials said the rule was changed because other countries don't impose apply similar taxes on US properties overseas, and the issue was becoming a "diplomatic irritant."

City Corporation Counsel Michael Cardozo said the city would take the case to the U.S. Supreme Court.

“We are extremely disappointed that the court has upheld the State Department’s extraordinary exercise of power to nullify New York City's right, as previously upheld by the courts, to impose New York City real estate taxes on foreign missions," Cardozo said.

"This provides a free ride for foreign countries owning certain properties in New York City while unnecessarily burdening local taxpayers. We have prevailed in the U.S. Supreme Court previously on related issues, and again plan to seek review of this decision in that Court."


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