TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Saturday, December 26, 2009

NYC Congestion Charge: A User Fee, Not a Tax Covered by Diplomatic Immunity

Leslie A. Powell (J.D. 2010, Emory) has published Comment, User Fee or Tax: Does Diplomatic Immunity From Taxation Extend to New York City's Proposed Congestion Charge?, 23 Emory Int'l L. Rev. 231 (2009).  Here is the Conclusion:

Congestion pricing is simply a user fee charged to motorists. Congestion charges attempt to internalize the costs motorists place on society for inefficient road usage. A congestion charge that is a fee is primarily concerned with traffic restraint and road funding, unlike the motorway tolls that are in place for raising general revenue. The congestion charge proposed by both the Traffic Commission and Mayor Bloomberg is directly aimed at decreasing congestion in Manhattan’s CBD. While one purpose of the charge is to raise revenue, that revenue would be kept separate from the general revenue fund and used to increase the efficiency of transit in and around New York City. Consequently, the revenue-raising purpose does not transform the fee into a tax under New York law.

The VCDR provides diplomatic immunity from taxation but will not protect diplomats from paying New York City’s congestion charge. The VCDR’s exceptions, as well as reciprocity agreements and other bilateral and multi-lateral treaties, limit the extent of that immunity. In this case, diplomatic immunity would not relieve diplomats of the obligation to pay the congestion charge because an exception to immunity would apply. The congestion charge is for a specific service, for which diplomats are obligated to pay pursuant to Article 34(e) of the VCDR. The proposed congestion charge would fall within this explicit exception to immunity. Applying the factors articulated by several New York courts, the congestion charge constitutes a fee and not a tax: it provides a benefit; it is not compulsory; it is proportional to and reasonably associated with the benefit conferred; and the revenues raised are not used for general government purposes.

While Article 34 of the VCDR presents immunity from taxation, other language in the VCDR could prove problematic for New York City. Article 22 presents a practical problem because it protects the mission property from being attached if New York City were to obtain a judgment against a foreign state for non-payment. Article 26 limits a host state’s ability to restrict a diplomat’s movement. Together, these two articles provide additional challenges for New York City in imposing congestion charges on the resident diplomatic population.

Mayor Bloomberg’s congestion pricing experienced a setback when the New York Assembly declined to vote on the Traffic Commission’s proposal. Many deemed it an overly ambitious campaign by Mayor Bloomberg; however, the concept of congestion pricing had traction in the legislature and support from both citizens and politicians. Should the opportunity present itself again, the Assembly should move forward with the modified congestion pricing scheme proposed by the Traffic Commission. If such a plan is implemented, the details will determine diplomatic liability. The plan should require the allocation of all monies raised into a special fund separate from the general revenue fund and dedicated solely to congestion-related expenses. Maintaining separate and targeted funds will strengthen any argument that the charge is a fee, not a tax.

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You might be interested in a few points from London. I was a Member of the London Assembly (the body which holds the Mayor to account) when this issue of the tax status of the Congestion Charge became controversial - due to the non-payment of the charge by large embassies, on the grounds that it was a tax! A couple of points might be of interest - the US government claims that the C-Charge is a tax, and the EU ambassadors held a meeting after the US made its decision (on the basis of advice) and were also advised it was a tax. Last week the Russian ambassador also made this clear. One of the reasons which appears to have settled the matter for them was that the price of the charge increased by 60% (for no additional services). Similarly, I was told by one of the non paying embassies that states or nations cannot claim that something is not a tax/is a tax if that conflicts with international agreements on what in fact constitutes a tax. Additionally, after this, the Swedish appear to have taken advice and changed the name of the C-Charge to 'Congestion Tax'. And on a political note, I then challenged the Mayor to take legal advice or test it in court. I understood informally that the major non paying embassies would pay if a court ruled that it was NOT a tax. I was swayed in my own view on its status by the fact that the Mayor would not take this advice or publish it! I think that your last point is the key - but how easy is that to do?

Posted by: Damian Hockney | Dec 29, 2009 6:44:24 AM