Two D.C. Council members have asked the city’s inspector general to start an investigation into whether the District ever collected millions of dollars from a controversial real estate tax.
At-large Councilman David Catania and Ward 3 Councilwoman Mary Cheh sent a letter to D.C. Inspector General Charles Willoughby on Tuesday asking him to start the probe in an effort to unravel what has become a heated debate over whether the city missed a chance to collect revenue due from developers.
D.C. Chief Financial Officer Natwar Gandhi and Attorney General Irvin Nathan have both said the CFO collected a tax first applied to commercial real estate in 2001 until Gandhi’s office changed course in 2007 and decided to drop it. The collection of the tax was first questioned by a group of attorneys in January who say the city has missed out on millions of dollars in uncollected revenue. Earlier this month, The Washington Examiner reported that the change in policy could leave the city open to a multimillion-dollar lawsuit from businesses that paid the tax before the rule was changed.
“To date neither Dr. Gandhi nor any of his staff have provided satisfactory answers to my questions,” Catania wrote. “Indeed all attempts he had undertaken to explain [the implementation of the tax] between 2001 to 2011 raise more questions than answers.”
A spokesman for Gandhi declined to comment. Willougby could not be reached.
Earlier this year, real estate attorney Jeffrey Mitchell approached the city looking for a contract to audit the tax office to see if the city had missed out on hundreds of millions of tax dollars on refinanced commercial mortgages. According to Mitchell, the 2001 law required the city to tax the entire amount of the original mortgage. His initial belief was that the city had only taxed the refinanced portion of the mortgage for more than a decade. In his letter earlier this month, though, Nathan said Gandhi had taxed the entire mortgage from 2001-2007, and then reinterpreted the law and only taxed the refinanced portion thereafter.
Nathan said Gandhi’s application of the law is legal.
“Whichever way this issue is conceptualized,” Nathan wrote, “I continue to believe there is not sufficient basis to conclude that the CFO’s current policy and practice of applying the recordation tax in this way are unreasonable or unlawful.”
