A U.S. District Court judge yesterday rejected the District of Columbia's bid to collect more than $700,000 in sales taxes from the nonprofit U.S. Capitol Historical Society, which has been selling everything from historical books and calendars to place mats and cuff links tax-free to support its operations.

Judge Charles R. Richey ruled that the society, which operates the Capitol Visitors Center on the U.S. Capitol grounds, is a federal instrumentality and thus exempt from taxation.

The District filed suit in November 1981 in D.C. Superior Court seeking to collect $743,029.30 in sales taxes, penalties and interest. The city argued that the society has grown into "an enormous business operating out of the Capitol Building and selling far more general merchandise" than educational and historical material.

Before that case could be decided, federal officials went to U.S. District Court in a separate action, asking Richey to declare the society a federal instrumentality exempt from local taxes. Yesterday's ruling came in response to that request.

Richey wrote that "perhaps the most important factor" in his decision was that the profits of the society--a corporation organized under District law and granted a federal charter in 1978--are "dedicated to achieving its purposes: to preserve and improve the Capitol, research, publish, create items, medals and materials of historical interest and to cooperate with congressional committees and federal agencies in the work of the society and the distribution of its products."