Earlier quoted context omitted.
Indeed. My father in law was denied an ID when he moved to a different state. He is a US citizen of Pakistani origin, and the DMV staff refused to issue him a drivers' license because they were convinced that the was not a US citizen. He showed them his US passport. They claimed it was fake. He showed them his drivers license from his home state. They rejected it. He showed them his veterans card identifying him as a…
It sounds like the DMV staff you encountered were bigots. I would report them. Get the local media involved. Offer to wait while they call the police since having a fake passport is a crime.
If the local media even covered it, I'd expect their angle to be the suspicious brown guy who was prevented from infiltrating our political system by heroic DMV staff.