Clinton Rule Exempting U.N. Diplomats From Taxes Prevails

Conveniently opposed by Hillary Clinton when she represented New York in the U.S. Senate, a controversial State Department rule that exempts foreign diplomats from paying tens of millions of dollars in city property taxes has been upheld by an appellate court.

Implemented under Clinton’s tenure as Secretary of State, the measure she contested as a lawmaker excuses diplomats to the United Nations from paying New York City property taxes on the luxurious “mission” apartments owned by their government, resulting in a major blow to the city’s coffers. City officials estimate that the potential cost could exceed $250 million, according to one news report.

Like all property owners, foreign governments were required to pay taxes on homes for their consular staffs before the Obama Administration changed the policy, though they were exempt from being taxed on diplomatic offices. Many foreign governments simply blew it off over the years, racking up more than $260 million in unpaid taxes and interest.

As a federal lawmaker representing the area Clinton supported city officials in pursuing the money, but as Secretary of State she decided that foreign governments no longer need to pay tax on embassy apartments. So last June the State Department rescinded the century-old law requiring the diplomats to pay property taxes like the rest of Americans.

Before the Obama Administration changed the rules, New York officials tried collecting back taxes from two countries—India and Magnolia—which combined owe nearly $50 million dating back to the 1980s. A federal judge in Manhattan ruled in favor of the city after the U.S. Supreme Court said that it had the right to sue to collect property taxes on foreign missions to the United Nations.

But this week the Manhattan-based 2nd Circuit Court of Appeals excused the countries from their debt, citing the State Department’s new rule. “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 appeals panel wrote in its decision.