Should the McDonald’s and Victoria’s Secret in Union Station get special tax benefits for operating in the historic rail station? The managers of Union Station think so, but both DC government and DCFPI think these businesses should be treated the same as other businesses in our city.
So now the answer is up to DC Superior Court Judge Judith Macaluso, as a result of a lawsuit filed by the Union Station Redevelopment Corporation earlier this summer.
At issue is the District’s possessory interest tax. This tax is a way for the city to tax businesses operating within federal buildings in the same way that DC assesses a commercial property tax on businesses in privately owned buildings. This is a big issue for our city, because so much of our property tax base is owned by the U.S. government or other non-profit institutions such as universities. Yet the days of going to the office cafeteria or dining hall have gone the way of the Betamax, and now federal government buildings and campus halls are filled with private, for-profit businesses such as Starbucks, Potbelly and other commercial chains. The District has argued that a Starbucks inside Union Station should be taxed in a similar way to Sidamo Coffee & Tea a few blocks away on H Street or any of the dozen Starbucks in and around Dupont Circle. DCFPI agrees.
Yet the managers of Union Station have refused to pay the possessory interest tax. Union Station Redevelopment Corporation says that the tax violates the District’s Home Rule Act and is unconstitutional, because they claim it violates the prohibition on taxing federal properties. For several years they have sought, unsuccessfully, special legislation making them exempt from the tax. DCFPI disagreed with that approach. Remember our video?
Now the issue has made its way to court, where the constitutional issues can be decided. DCFPI looks forward to Judge Macaluso’s decision. The refusal of Union Station’s managers to pay the tax may be an issue though, as the law generally says that a party must pay a tax to have standing to sue over it.
Several of the arguments in the lawsuit revolve around the District’s ability to tax a business within a federal building and whether that action is a tax on the federal government itself. As mentioned above, this is an important issue to iron out in court because of the impact on the District’s finances. According to the city’s Office of Tax and Revenue, there are approximately 215 properties subject to the possessory interest tax. Many of these are in buildings owned by the federal government. In the case of Union Station, the historic building is owned by the U.S. government but managed by a nonprofit known as the Union Station Redevelopment Corporation. The redevelopment corporation then leases the building to a for-profit management company, which executes leases with tenants like Chipotle and Chop’t. The tax would be on the commercial lessees of Union Station, not the nonprofit redevelopment corporation or the U.S. government.
Aside from the constitutional issues, Union Station’s managers claim that the tax puts a tremendous financial burden on them and might inhibit redevelopment plans. That doesn’t seem plausible, given that commercial development near Union Station is booming. The development of the streetcar line on H Street NE along with plans for increased residential, office, and commercial space around Union Station make it highly likely that the businesses within Union Station will continue to thrive.
The District will respond to the lawsuit by late September, and we hope that a ruling will clear up any questions about the tax so we can move forward.
