One of the District’s biggest fiscal problems is the inability to tax federal property. But but it has been able to levy a “possessory interest tax” on leases at federal properties—-which has long irked the Union Station Redevelopment Corporation, a non-profit that subleases the station to the New York City-based Ashkenazy Acquisition Corporation. Over the last few years, Councilmembers Jack Evans and Tommy Wells have tried to get them off the hook for the roughly $3 million they pay to the District annually, but have backed off in the face of fierce resistance.

Well, the Union Station people are fed up, and have finally sued the District on the grounds that the tax is unconstitutional.

“The District’s creative but unlawful end run is expressly prohibited by the Home Rule Act, impliedly preempted by the federal statute governing the Union Station property, and unauthorized by the DC tax code,” the complaint reads. “Moreover, the District’s administration of its ‘possessory interest tax’ runs afoul of the Supremacy Clause of the Constitution and the Fifth Amendment.”

The filing goes on to allege that the tax makes it harder to fund improvements to the station, including a six-year master plan that’s expected to cost $450 million, $80 million of which will be born by USRC and Ashkenazy. In addition, they say, the tax is also expected to fall on the intercity bus operators who’ll soon be housed within the station, making bus service more expensive for customers. Finally, they make the practical argument that passing the cost of the tax onto subtenants “increases the costs of doing business in Union Station and thereby makes it more difficult for USRC to maintain the Union Station as a fully occupied commercial center.”

I’m not a lawyer, so I can’t weigh in on the constitutional question. And it’s true that it’s a drag for a non-profit charged with preservation of an American icon to pay taxes. But it’s hard to buy the argument that charging Starbucks, Au Bon Pain, or Victoria’s Secret taxes on the property they occupy, just like they’d pay in any other commercial location, is somehow beyond the pale (Ashkenazy kicked the little guys out of the food court years ago). Union Station is now one of the hottest commercial locations in the city, serving as a shopping center for the H Street corridor as well as a hangout spot for all the tourists and business travelers who come through the city. I doubt Chipotle minds paying a premium to be there.

Photo by flickr user swe.anna