The District, it was announced Friday, has settled a lawsuit over an arcane tax dispute with two groups managing space at Union Station. The agreement will pump $7.5 million into city coffers, but it also leaves the underlying question — whether the District has the power to tax economic activity on federal property — unresolved.
Union Station Redevelopment Corp., the nonprofit that controls most of the station’s non-railroad space, and the contractor operating the retail space there filed suit against the city in 2011, challenging the legitimacy of the “possessory interest tax.”
The PIT was concocted by D.C. lawmakers to address a loophole of sorts in city taxation: Government buildings, like Union Station, are exempt from property tax, but they often have for-profit tenants doing business that isn’t government-related. The PIT is levied on those businesses located on tax-exempt property, substituting for the lost property tax revenue.
The Union Station folks argued in their lawsuit that the tax is an affront to the Home Rule Act and the constitution itself. Last year, a D.C. Superior Court judge ruled they had no standing to sue unless they actually paid the tax first.
That brings us to today’s settlement, in which the two Union Station groups agreed to pay the PIT levied between 2008 and 2012, minus interest and penalties. According to Ted Gest, a spokesman for the District’s attorney general, the groups have also agreed to pay their 2013 tax bill.
What happens in 2014? Not clear.
Beverley K. Swaim-Staley, president and CEO of the Union Station Redevelopment Corp., said her group is pleased the dispute is resolved for the past years. But asked about the future, she lapsed into generalities: “We’re looking at what the best possible plan is going forward,” she said.
So let’s read between the lines:
Option A: The Union Station groups could go ahead and pay the PIT going forward, an approximately $2 million a year obligation. However, if they were going to do that, it probably would have been laid out in the settlement. It wasn’t.
Option B: They could refile the lawsuit. D.C. Attorney General Irvin B. Nathan said in a statement that the settlement would “allow the parties to avoid the uncertainties and expenses of unnecessary further litigation.” But we’ll see how long that turns out to be true: Now that the Union Station groups have actually paid the PIT, they have standing to challenge it.
Option C: They could have lawmakers step in. The Union Station folks have previously sought an PIT exemption from the D.C. Council, but it has thus far gone nowhere. The settlement could be an attempt to clear the decks for a renewed attempt at an exemption.