Capitol City Liquor Co. Inc., a well-known District liquor distributor -- at one time considered one of the 100 largest black-owned companies in the nation -- is closing its doors.

Chester C. Carter, the firm's owner, said Capital City would close soon in light of rising interest rates, a nationwide pattern of declining liquor sales, and a decreasing city population."If there ever was a time to leave a business it's when you're still profitable and not going down the tubes," Carter said yesterday.

The firm -- which during 1970, its first year of operation, had sales of about $13.5 million -- was identified in1975 by Black Enterprise magazine as being the 12th-largest company in the nation owned by a black. Carter said sales for the past few years have averaged about $10 million a year.

Carter, a former U.S. deputy cheifprotocol, bought the business in 1970. He was an executive with the Joseph E. Seagram & Sons distillers corporation, the liquor firm that helpedhim obtain financing for the purchase.

Capitol City, located in the Northeast section of the District, served the District only and was an exclusive distributor to stores, bars and hotels of Seagrams products, Tanqueray gin, Paul Masson wines and 700 items, Carter said. He added that the unsold goods would be returned to their manufacturers.

Carter also said the "news is not grim" for most of ther firm's 50 employes. Many have chosen to retire and others have been placed with other firms in the industry, he said.

"It did not seem to me that I was in a very profitable position, so I'm taking my little equity and going elsewhere," he said. Carter said he would "slow down," hopefully get into the international consulting business and play golf.