The challenge "represents an important new front in the emoluments war", according to Norman Eisen, head of the non-profit Citizens for Responsibility and Ethics in Washington (CREW) that also filed a similar suit in NY on behalf of private plaintiffs.
But the case from two Democratic AGs could stand a better chance in court as the first government action over allegations that Mr Trump, a Republican, violated the constitution's so-called emoluments clause.
Payments to the president's enterprises from foreign and domestic governments through his hospitality empire draw business away from Maryland and D.C. venues and put local governments under pressure to give Trump-owned businesses special treatment, according to the complaint.
"Never before has a President acted with such disregard for this constitutional prescription", Maryland Attorney General Brian Frosh and D.C. Attorney General Karl Racine wrote, referring to the Constitution's Emoluments Clause.
"In the emoluments clauses, we have these ancient air bags that were placed in the Constitution by the framers that are now being deployed", said Eisen, who has been advising the District and Maryland on their suit.
The attorneys general allege that Trump violated anti-corruption clauses in the USA constitution and broken promises to keep his public and private business interests separate, the Post also reported.
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"We are a nation of laws, and no one, including the president of the United States, is above the law", Racine said at a press conference. And presidents may not accept anything more than their salaries from either the federal or state governments.
"The actions of the attorneys general represent the kind of partisan grandstanding voters across the country have come to despise", RNC spokeswoman Lindsay Jancek said.
White House press secretary Sean Spicer brushed off the case as another example of "partisan politics" and said: "We'll continue to move to dismiss this case in the normal course of business". That is what I think this lawsuit is really about.
"We're getting in here to be the check and balance that it appears Congress is unwilling to be", said Racine. He has also been criticized for owning a hotel just blocks from the White House that is often frequented by both foreign diplomats and foreign businessmen.
The suit asks the court to block Trump from accepting foreign money.
Company policy detailed in a new pamphlet suggests that it is up to foreign governments, not Trump's hotels, to determine whether foreign governments self-report their business dealings. "The American people elected President Trump to lead this country, and it is time Democrats end their efforts to delegitimize his presidency", said Lindsay Jancek.
The attorneys general aren't the first to sue Trump over emoluments.
Legal scholars who have addressed the emoluments clauses as they pertain to President Trump have mixed opinions.