(CN) – The 2nd Circuit has upheld the State Department’s controversial decision to exempt foreign diplomats from paying New York City property taxes on mission apartments. The ruling excuses diplomats from Mongolia and India from paying more than $46 million in back taxes and interest.
“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 Manhattan-based appeals court ruled.
The ruling exempts the Indian mission to the United Nations from paying $45.7 million in back taxes and interest accrued since 2008, and excuses the $4.7 million owed by the Mongolian mission.
Diplomats from around the world had racked up more than $260 million in unpaid taxes and interest when the State Department decided last June that foreign governments no longer need to pay tax on embassy apartments for low-level employees.
The ruling is a blow to New York City Mayor Michael Bloomberg, who has called the State Department’s decision “patently unfair to New Yorkers and Americans.”
The city’s legal department said it would appeal the decision to the 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 … to impose New York City real-estate taxes on foreign missions,” Corporation Counsel Michael Cardozo told the New York Post.
The Mongolian and Indian missions have insisted that their entire embassies should be tax-exempt under international and city law.
They also objected to the city’s allegedly “exorbitant” interest rates, which ranged from 15 to 25.5 percent.