A D.C. Superior Court judge has lowered substantially the property tax assessment on Washington's largest hotel, the Sheraton Washington, a decision that will cost the city government nearly $400,000.

Judge Iraline G. Barnes ordered on Friday that the assessment on the 1,500-room hotel located on 16 acres at 2660 Woodley Rd. NW be lowered from $80.3 million to $61.5 million, after finding that city assessors had valued the hotel incorrectly.

D.C. Corporation Counsel Judith M. Rogers, whose office represented the city government, was unavailable for comment.

A city assessor first valued the hotel at $96.2 million for the 1982 tax year, according to the judge's order.

The Sheraton Washington appealed that assessment to the city's Board of Equalization and Review, which lowered the value to $80.3 million. The hotel paid the resulting tax of $1.7 million and filed suit in D.C. Superior Court seeking a further reduction alleging that the city's "valuation of its property was arbitrary."

Under the judge's ruling the hotel's tax bill will be approximately $1.3 million. The city must refund the $400,000 difference.

Barnes also ruled that the assessment must remain at $61.5 million "unless there has been a lawful reassessment of the property." Since the city valued the Sheraton Washington at $96.2 million again this year, the hotel's lawyer John Risher said the District owes the hotel an additional refund.

In preliminary court motions, the city had defended the assessor's value but at the trial, the city hired an outside appraiser and placed "into evidence an entire new theory of valuation," Barnes' ruling said.

The outside appraiser, William Harps, set the value at $80.7 million--$16 million less that the value assigned by the city assessor, Paul Spruill.

Harps also told the court that Spruill had used the wrong method in determining the property's value. Spruill testified that he had arrived at the $96.2 million value by assessing the cost of construction of a new 990-room addition that the hotel was building.

Harps and the attorney for the hotel agreed that the assessment should have been based instead on the amount of income the hotel earned on its existing 523 rooms, according to the judge's order.

Judge Barnes agreed that Spruill's approach was incorrect and that the assessment should have been based on income.

But Harps based his estimate on income generated in the current tax year and not the income from 1982 when the assessment was made.

Barnes ruled that, "Mr. Harps' method seems to increase the risk that the District will base taxation on prospective value rather than actual value."