Just off the majestic Capitol rotunda, a handsome paneled souvenir stand attracts swarms of tourists with everything from bronze cuff links embossed with the Capitol dome to historical books and bric-a-brac.
The little stand and its three other Capitol outlets pull in proceeds of $1.5 million a year, but have never charged consumers a penny in sales tax. Now District of Columbia officials say the stand's owner, the U.S. Capitol Historical Society, should be collecting tax on most of the items. Indeed, the District says the society owes more than $740,000 in back taxes and has gone to court to collect.
Instead of fighting a bunch of history buffs, however,city officials now find themselves in a feud with a former congressman, the U.S. Department of Justice and one of the most influential Republicans on the Hill.
"I doubt that Congress has relinquished jurisdiction over the Capitol Building to Mayor Marion Barry," said Rep. Barber Conable (R-N.Y.), who has introduced a resolution that would exempt the society from all past and future sales taxes.
To that, one top D.C. financial official says, "We're not going after the Capitol or Congress by any stretch of the imagination. It's just that we feel the society is selling items that fall under the tax statute that Congress also passed."
The dispute that escalated into a frenzied feud with Congress this month began in 1979 when District officials notified the society that it owed a back tax bill of more than $740,000 based on sales of "commercial items" similar to ones found in other stores around the city, according to J. Walter Lund, associate director of the Department of Finance and Revenue.
The society disputed the claim and last November District officials sued in Superior Court to collect the back taxes. D.C. officials argued in court documents that the society, since its founding in 1962, has grown into "an enormous business operating out of the Capitol Building" and selling far more "general merchandise" than educational and historical material. The educational and historical items may remain tax exempt, officials said.
"But every item we have has some relation to history," society president Fred Schwengel countered yesterday. "Every medal you buy has a history with it. Postcards have a history on the back."
Schwengel, drawing on powers of oratory honed during 18 years as a congressman from Iowa, threw his arms back and intoned, "We're the most unselfish, the most giving thing on the Hill." Since the society pours its proceeds back into historical and renovation projects at the Capitol, Schwengel said, "My conscience is clear on this tax thing."
D.C. officials, however, point to the society's sales of items such as place mats, jewelry, film and cameras as examples of taxable merchandise. In selling those things, they "crossed the boundary into commercial sales," according to Lund.
But beyond the dispute about the merchandise are two larger questions that brought in the Justice Department and Congress--the society's contentions that is a federal entity and therefore immune from taxes and that it is outside the District's jurisdiction because it is located in the Capitol.
Lawyers for the society asserted in court documents that it is a "federal instrumentality," an entity so tied to the federal government that it is tax immune. Furthermore, the lawyers argued, D.C. cannot impose a tax because any activity in the Capitol Building or its grounds is under the exclusive jurisdiction of the federal government.
D.C. officials have countered that, before being taken to court, the society never described itself as an "instrumentality" and that it performs no function that the government can't do without. Previous court cases, according to lawyers for the District, fail to support the contention that it cannot impose taxes just because the sales are made on Capitol Hill.
While the dispute awaits a court hearing, Conable, much to the dismay of District officials, continues to press his legislation, which has already been approved by the Judiciary Committee and is headed for the House floor.
"If District officials haven't got anything better to do than collect $700,000 from what is in effect an arm of Congress, they are in trouble for things to do," said an irate Conable.
"No, we're not in trouble for things to do," Lund said when told of Conable's remark.. "But in this day and age, $700,000 is an important amount of money."