NEW YORK — India and other nations with diplomatic housing do not have to pay city property taxes, a federal appeals court ruled yesterday in a long-running dispute that once reached the Supreme Court.
The decision by the US Court of Appeals for the Second Circuit in Manhattan handed a victory to the governments of India and Mongolia, which had fought the city’s demands that they pay tens of millions of dollars in taxes for their Manhattan embassy buildings.
The three-judge panel said the State Department acted within its power in June 2009 when it established an exemption from taxes on property owned by foreign governments and used to house staff for permanent missions to the United Nations, the Organization of American States, or consular posts.
The Foreign Missions Act allows the State Department to issue tax exemptions that preempt state and municipal tax laws, the appeals court said.
“We are extremely disappointed,’’ said city attorney Michael A. Cardozo. “This provides a free ride for foreign countries owning certain properties in New York City while unnecessarily burdening local taxpayers.’’
Three years ago, the Supreme Court ruled that the city could sue countries to try to collect taxes on their properties. The following year, a lower court judge ordered India, Mongolia, and the Philippines to pay the city a total of $57.6 million in real estate taxes.
Cardozo said the city will appeal the latest ruling to the Supreme Court.
The State Department issued its tax exemptions while arguing that the United States would be subject to hundreds of millions of dollars in property taxes for its diplomatic properties in foreign countries if the exemptions were not allowed.
The appeals decision nullifies a lower judge’s finding that India owed $42.4 million in taxes related to a 26-story tower near the United Nations.