Filed

D.C. Superior Court

06/30/2016 14:32PM
Clerk of the Court

SUPERIOR COURT OF THE DISTRICT OF COLUMBIA

TAX DIVISION
TRUMP OLD POST OFFICE, LLC,
A Delaware Limited Liability Company,
725 Fifth Avenue,
New York, NY 10022,
Petitioner,
v.
DISTRICT OF COLUMBIA,
1350 Pennsylvania Avenue, N.W.,
Washington, D.C. 20001,
Respondent.

)
)
)
)
)
)
)
)
)
)
)
)
)
)
)

Docket No. 2016 CVT 000010

PETITION
1.

This is a Petition challenging the amount of the possessory interest tax assessed

against a property that is under development. Petitioners name is Trump Old Post Office, LLC,
and the address of its principal office is 725 Fifth Avenue, New York, NY 10022.
2.

Petitioner does not contest its obligation to pay possessory interest taxes. Rather,

Petitioner contests the valuation that the District of Columbia (the District or Respondent)
placed on the shell of a non-operational building undergoing a massive conversion to a hotel,
which resulted in an assessment of possessory interest taxes that is neither equitable nor
reasonable.
3.

The valuation prepared by the District in assessing possessory interest taxes

against the Petitioner results from the Districts use of a flawed methodology. For example, the

Districts valuation methodology ignores the highest and best use by assuming, incorrectly, that
the Property was a hypothetical, fully functional and rent-producing commercial office building.
4.

As of the valuation dates for Tax Years 2015 and 2016, Petitioner most assuredly

did not have a possessory interest in a functional office building.

(a)

On January 1, 2014, the valuation date for Tax Year 2015, Petitioner had

not even secured possession of the Property from the United States General Services
Administration (the GSA). Petitioner eventually secured possession of the Property, as an
empty building, in August 2014.
(b)

On January 1, 2015, the valuation date for Tax Year 2016, Petitioner was

just a few months into the demolition of non-historical features and furniture, fixtures and
equipment that had been abandoned by the GSA, in connection with its multi-year conversion of
the Property to a hotel.
5.

Nor did Petitioner possess an interest in real property that generated positive net

income, contrary to the fictional office building assumed by the District in its valuation. When it
was operated as an office building by the GSA, District officials publicly acknowledged that the
Property was losing upwards of $6.5 million a year. On information and belief, those losses are
understated, as they do not include items such as insurance, real estate tax and adequate
maintenance for ongoing operations, none of which were being paid by the GSA. Indeed,
Petitioner obtained its possessory interest as the result of an RFP process because the Old Post
Office was not economically viable as a commercial office building.
6.

In its fictional office building valuation, the District also ignores the substantial

expenses incurred by Petitioner to convert and, eventually, operate a hotel at the Old Post Office.
In addition to the substantial lease expenses incurred by Petitioner, there is a more than $200

million dollar investment that Petitioner is making to convert the Property to a luxury hotel. The
costs associated with converting from a non-functioning shell of a commercial office building to
a luxury hotel as well as operating the hotel once open are extraordinary, because of Petitioners
commitment to preserve historical structures and features and the vast size of the building. And
once the Property opens to the public as a hotel, which is anticipated in the fall of 2016,
Petitioner will incur higher than average operating expenses because of the historical and
structural features of the Old Post Office.
7.

As a consequence of relying on a flawed valuation methodology, the Districts

assessment effectively imposes a tax obligation on Petitioner for the shell of a building
undergoing conversion to a hotel that is higher than the average tax assessed against fully
operational and stabilized luxury hotels in the District of Columbia. Taxing the Petitioner based
on an assessment that values the possessory interest in the shell of what eventually will become a
luxury hotel higher than the District values fully operational and stabilized luxury hotels in the
District -- including, for example, the Mandarin Oriental, The St. Regis and The Ritz-Carlton -is clearly improper, and confirms the Districts flawed valuation methodology.
8.

While Petitioner already has paid all taxes assessed by the District using its

flawed valuation methodology, it asks this Court to correct the Districts erroneous valuation so
that the assessments for Tax Years 2015 and 2016 capture the actual market value of Petitioners
possessory interest and are equalized.
JURISDICTION
9.

Petitioner appeals pursuant to D.C. Code 47-825.01a(g), 47-3303, 47-3304,

and 47-1005.01 from assessments of possessory interest taxes.

10.

The taxes in controversy are possessory interest taxes assessed against Petitioners

leasehold interest in Lots 368 through 374 in Square PI00 and improvements thereon known as
the Trump International Old Post Office Hotel, 1100 Pennsylvania Avenue, N.W., Washington,
D.C. (the Property) for Tax Years 2015 and 2016. The total amount of the taxes based on
Respondents assessments for the tax years in controversy is $1,674,705.16 for Tax Year 2015
and $1,674,705.16 for Tax Year 2016.
11.

Petitioner is the lessee of the Property and is legally obligated to pay all

possessory interest taxes assessed against the Property for Tax Years 2015 and 2016. Petitioner
is therefore the party aggrieved by Respondents possessory interest tax assessments.
12.

After receiving Respondents proposed assessments of the seven lots comprising

the Property for Tax Year 2015, Petitioner filed first-level appeals with the Office of Tax and
Revenue on May 6, 2015, challenging the proposed assessments. Petitioner filed a further appeal
with the District of Columbia Real Property Tax Appeals Commission (the Commission) on
August 10, 2015. The Commission sustained the Office of Tax and Revenues assessments for
Tax Year 2015 in a decision dated November 12, 2015.
13.

After receiving Respondents proposed assessments of the seven lots comprising

the Property for Tax Year 2016, Petitioner filed first-level appeals with the Office of Tax and
Revenue on March 17, 2015, challenging the proposed assessments. Petitioner filed a further
appeal with the Commission on August 10, 2015. The Commission sustained the Office of Tax
and Revenues assessments for Tax Year 2016 in a decision dated October 20, 2015.
14.

On March 1, 2016, Petitioner received notice of the Office of Tax and Revenues

proposed assessments for Tax Year 2017, which remained the same as its assessments for Tax
Years 2015 and 2016. Accordingly, any errors in the assessments for Tax Years 2015 and 2016

were repeated for Tax Year 2017. Those assessments for Tax Year 2017 are presently subject to
a first-level appeal to the Office of Tax and Revenue, which was filed on March 30, 2016.
15.

Taxes for Tax Year 2015 based on the Districts assessments were $1,674,705.16,

and were timely paid in full, with semi-annual payments on March 31, 2015 and November 18,
2015. Taxes for Tax Year 2016 based on the Districts assessments were $1,674,705.16, half of
which were paid on March 29, 2016, with the second semi-annual payment to be timely made in
September 2016.
ASSIGNMENTS OF ERROR AND FACTS IN SUPPORT THEREOF
16.

The assessments of taxes for Tax Years 2015 and 2016 are based upon the

following errors:
(a)

Respondent failed to employ proper assessment methodology.

(b)

The assessments fail to give appropriate consideration to the true market

value, taking into consideration size, location, usage, zoning, government imposed restrictions,
operating costs, replacement cost, earning capacity, and the condition of the Property.
(c)

Respondent failed to use and rely upon the best sources of information

available to it to determine the market value of the Property.

(d)

Respondent assumed improper and insupportable discount and

capitalization rates, as well as incorrect income and expense data.

(e)

Respondent has assessed other, similar properties in the District of

Columbia at approximately 100% of estimated market value. Respondent assessed the Property
in excess of 100% of its estimated market value.

(f)

The assessments are excessive in that they are not fairly equalized with,

and the assessed value is not in equal and uniform proportion to, other valuations and
assessments made by Respondent.
(g)

The assessments are discriminatory, amount to a taking of Petitioners

property without due process of law, and are a denial of equal protection of the law in
contravention of the Fifth and Fourteenth Amendments of the United States Constitution.
17.

Petitioner relies upon the following facts as sustaining these assignments of error:
(a)

Respondent failed to employ proper assessment methodology. By way of

illustration, the assessments neglected to distinguish between the valuation of the real property
(which Petitioner does not own) and Petitioners leasehold interest. The assessments also do not
consider the highest and best use, and instead rely on a fictitious valuation of a rent-producing
commercial office building during assessment periods when the improvements were merely a
non-functional shell building that was specifically the subject of a request for proposals because
it was no longer economically viable as a commercial office building.
(b)

The market value, taking into consideration size, location, usage, zoning,

government imposed restrictions, operating costs, replacement cost, earning capacity, and the
condition of the Property indicate that the valuations placed upon it by Respondent are arbitrary,
unreasonable, and excessive. For example, the valuations failed to consider the operating history
of the Property as an office building prior to Petitioner securing its leasehold interest, which
establishes that the Property could not be profitably operated as an office building and that some
alternative use would be required. The valuations also neglected to consider the substantial costs
that would need to be incurred to convert the Property to its highest and best use, as well as the

limitations arising out of historical and government imposed restrictions. Appropriate

consideration of these factors requires that the assessed valuations and taxes be reduced.
(c)

Respondent failed to use and rely upon the best sources of information

available to it to determine the market value of the Property. For example, on information and
belief, Respondent had access to but declined to consider comparable properties undergoing
conversions. Respondent also neglected to consider the actual operating history of the Property
prior to conversion, as well as the circumstances that led to the GSA soliciting requests for
proposals to convert the Property to its highest and best use.
(d)

Respondent assumed improper and insupportable discount and

capitalization rates, as well as incorrect income and expense data. For example, in addition to
using hypothetical rental income and expenses attributable to an operational office building
while the Property was closed and undergoing conversion to a hotel, Respondent neglected to
deduct lease expenses, and thereby overstated the value of Petitioners possessory interest.
Respondent also failed to consider the higher than average operating expenses associated with
the Property, especially given the vast size and historic preservation requirements of the Old Post
Office.
(e)

Respondent has assessed other, similar properties in the District of

Columbia at approximately 100% of estimated market value. Respondent assessed the Property
in excess of 100% of its estimated market value.
(f)

The market value, taking into consideration size, location, usage, zoning,

government imposed restrictions, operating costs, replacement cost, earning capacity, and the
condition of the Property indicate that the assessed valuations Respondent placed upon the land
and improvements have not been equalized with other similar properties in the District of

Columbia, and in fact are higher than the average per room assessment on fully operational and
stabilized luxury hotels in the District, including without limitation the Mandarin Oriental, The
St. Regis and The Ritz-Carlton. In relation to these and other similar properties, Respondent has
placed higher assessed valuations on the Property and has imposed higher taxes on the Property.
WHEREFORE, Petitioner prays that the Court enter an order granting the following
relief:
1.

Reducing the assessed value of the Property for Tax Years 2015 and 2016 to its

true estimated market value, and reducing the possessory interest taxes accordingly;
2.

Directing Respondent to refund to Petitioner that portion of the possessory

interest taxes paid on the Property for Tax Years 2015 and 2016 that is judged to be excessive,
together with any penalties and interest thereon from the date of the filing of this petition; and
3.

Granting such other and further relief as this Court may deem just and proper.

Dated: June 30, 2016

Respectfully submitted,
/s/ William M. Bosch
William M. Bosch (D.C. Bar No. 444247)
Bryan L. Adkins (D.C. Bar No. 988408)
ARNOLD & PORTER LLP
601 Massachusetts Avenue, N.W.
Washington, D.C. 20001-3743
Telephone: (202) 942-5000
Facsimile: (202) 942-5999
William.Bosch@aporter.com
Attorneys for Petitioner