D.C. Councilman David Catania has asked the city’s attorney general and the council’s general counsel to provide him opinions on Chief Financial Officer Natwar Gandhi’s interpretation of a commercial real estate tax law that a group of attorney’s say has cost the city more than $100 million.
In response to questions from Ward 2 Councilman Jack Evans about the issue, Gandhi said last week that he stands by how his office has interpreted the law. He has also asked Evans to introduce legislation on his behalf that would clarify the law’s language.
In 2001, the council passed a series of bills to reform the city’s tax code. Among those bills was one that allowed the city to tax refinanced commercial mortgages. The D.C. Office of Tax and Revenue, which Gandhi oversees, has been taxing commercial property on the refinanced portion of the mortgage.
But real estate attorneys Jeffrey Mitchell and Douglas Patton say the office should have been taxing the entire amount of the original loan. For example, if a commercial property owner has a $100 million loan and refinances $50 million of it, the city has taxed the $50 million. Mitchell and Patton say it should tax the $100 million.
In a letter sent to Gandhi on Thursday, Catania said Gandhi’s explanation to the council supporting Gandhi’s interpretation is “disingenuous.”
“In short, while your attempt to create ‘ambiguity’ surrounding what is plain and clear may make for a good media strategy, it reveals troubling inability to be forthcoming with District taxpayers,” Catania wrote.
A spokesman for Gandhi declined to comment.
In his explanation, Gandhi said the legislative record surrounding the bill backs his interpretation. But Catania points to testimony given at a hearing for the bill in 2001 that appear to counter Gandhi.
In one, the Apartment and Office Building Association of Metropolitan Washington shows that the group believed the full mortgage, not just the refinanced portion, would be taxed by the bill.
“The proposed language would permit the full recordation tax to be applied to the entire amount refinanced if the existing debt was not subject to recordation tax,” the testimony says. “We would suggest eliminating this ‘catch-up’ provision for old debt that is now being refinanced.”
The District of Columbia Land Title Association used stronger language.
“The loss of availability of favorable tax treatment on refinances [of commercial property mortgages] places an onerous tax burden on commercial property owners in the District of Columbia,” the group testified.
Patton and Mitchell say after the bill became law, District real estate attorneys believed the new tax applied to the entire mortgage so strongly that they spent the past decade trying to evade it.
