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The Supreme Court on Tuesday grappled with a case that sounds local but has the makings of an international incident: whether the city of New York can take the nations of India and Mongolia to federal court in a dispute over property taxes. At stake in the case Permanent Mission of India to the United Nations v. The City of New York is more than $18 million in back taxes the city claims it is owed for the portions of the countries’ U.N. mission buildings that house employees. It is undisputed that the missions themselves are untaxable under international treaties, but the city claims that 20 residential floors of India’s 26-floor mission and the top half of Mongolia’s six-floor mission are subject to tax because they are used for staff housing, not diplomatic purposes. In New York City, unpaid property taxes become liens on the property. But when the city went to federal court to enforce the liens, India and Mongolia argued that the federal courts have no jurisdiction. The nations also argued that because the staff housing is essential to their missions, it should be tax-exempt like the missions themselves. Lower courts sided with New York, finding that a provision of the Foreign Sovereign Immunities Act allows for federal court jurisdiction in disputes over “immovable property.” Justices seemed to resist arguments from Kaye Scholer partner John Howley that the exception does not cover property-tax disputes. “A lien is an interest in the land,” said Justice Ruth Bader Ginsburg. “It runs with the land, doesn’t it?” Howley acknowledged that there are “some similarities” between a lien and a right in property that might be covered by the exception. But he said the New York City lien does not give it any right to own or exercise any right in the property at issue. Howley also won no points when he warned the Court that a ruling in favor of New York City would result in other nations taxing U.S. property in retaliation. “Whatever happens in this case to India and Mongolia is likely to happen to the United States around the world,” Howley said, “and that’s a foreign-policy question for the State Department to decide.” Justice Antonin Scalia shot back, “You mean we’ll have to start paying our taxes around the world? Is that a real problem for us? I don’t think so.” New York seemed to gain ground with an argument that the law plainly allows for federal court jurisdiction in cases like New York’s — and that if federal courts can’t hear the case, there is no way for the city to recover the taxes it is owed. “If we can’t bring this lawsuit . . . to try to foreclose or at least to have a declaration of our rights, this lawsuit can’t be brought anywhere,” said Michael Cardozo, New York City’s corporation counsel. Cardozo, making his debut before the high court, counts the late Supreme Court Justice Benjamin Cardozo as his great-grandfather’s first cousin. The federal government took a position that faced criticism from the bench on Tuesday. Apart from the jurisdictional issue, it has long argued that all nations should pay local property taxes in the United States. And in a 1985 case in the U.S. Court of Appeals for the 3rd Circuit involving a property-tax dispute between New Jersey and Libya, the government agreed that federal courts have jurisdiction over such cases. The Bush administration still wants governments to pay their taxes, but in the case before the Court on Tuesday, it reversed the government’s position on jurisdiction. It sided with Mongolia and India in arguing that federal courts have no jurisdiction to rule on the dispute. Essentially, while maintaining that foreign nations should pay taxes, the government argued against allowing local governments a forum for recovering the debt. Chief Justice John Roberts Jr. at one point speculated aloud the government may have changed its mind because “they just may be more sympathetic to India and Mongolia than they were to Libya.” But Roberts brought the issue up again when Sri Srinivasan, assistant to the solicitor general, rose to argue in the case. Reading from the government’s 1985 brief in City of Englewood v. Socialist People’s Libyan Arab Jamahiriya, Roberts asked pointedly, “What do you do with all the arguments? . . . Are those arguments no longer valid?” Srinivasan replied, “Well, we of course reviewed our position in that case, and we have come to the conclusion that it was incorrect.”
Tony Mauro can be contacted at [email protected].

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