A return of capital is not subject to income tax because it is not income. It is literally just giving your own money back to you, hence the name "return of capital". However, when you receive a return of capital, your cost basis in the security is reduced by the amount of the return of capital, and the result of that is that when you eventually sell the security, the capital gain will be higher than it otherwise would have been.
Here's the legal basis for the above claims.
26 USC § 301(c)(2) says that a distribution from a corporation to its shareholders that is not made from the corporation's earnings and profits is not included in the gross income of the shareholder, subject to the exception mentioned later in this paragraph. However, 26 USC § 316(a) says essentially that a corporation must distribute all its earnings and profits before it can distribute capital. 26 USC § 301(c)(2) says that the taxpayer's basis in the security is reduced by the amount of the return of capital. 26 USC § 301(c)(3) says that if the return of capital is greater than the taxpayer's basis in the security, then the excess is treated as a capital gain and is included in gross income, unless the increase in value accrued before March 1, 1913 (in which case it is exempt from income tax).
It still remains to explain why the above scheme applies to REITs. 26 USC § 856 says that a REIT is a corporation, trust, or association satisfying a number of requirements. If the REIT is a corporation, then the above discussion concludes the matter. But what if it is a trust or association? In that case, 26 CFR 301.7701-2(b)(2) says that the term "corporation" for federal tax purposes includes an association determined under 26 CFR 301.7701-3. Meanwhile, 26 CFR 301.7701-3(c)(v)(B) says a REIT that, but for 26 CFR 301.7701-2(b)(2), would not be a corporation, is deemed to be an association. In turn, 26 CFR 301.7701-2(b)(2) thus makes a REIT a corporation for federal tax purposes, so the distribution scheme discussed above applies.