local+business+taxes+and+real+property+tax ateneo 2011

8/3/2019 Local+Business+Taxes+and+Real+Property+Tax Ateneo 2011

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LOCAL BUSINESS TAXES &

REAL PROPERTY TAX

Atty. Vic C. Mamalateo

July 14, 2011ATENEO LAW SCHOOL


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SCOPE OF PRESENTATION

BOOK II: LOCAL TAXATION AND

FISCAL MATTERS TITLE ONE: LOCAL GOVERNMENT

TAXATION

TITLE TWO: REAL PROPERTY TAXATION


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LOCAL BUSINESS TAXES

Constitutional Basis Each local government unit shall have thepower to create its

own sources of revenue and to levy taxes, fees and chargessubject to such guidelines and limitations as the Congress may

provide, consistent with the basic policy of local autonomy.Such taxes, fees and charges shall accrue exclusively to thelocal governments (Sec. 5, Art. X, 1987 Constitution; Sec. 129, LGC).

However, local governments have no power to taxinstrumentalities of the National Government like PAGCOR.This doctrine emanates from the supremacy of the NationalGovernment over local governments. The power to tax cannotbe allowed to defeat an instrumentality or creation of the very

entity which has the inherent power to wield it. Localgovernment in such a system can only mean a measure ofdecentralization of the function of government(Basco v. PAGCOR).

To implement the constitutional provision, Congress enacted RA7160 (Local Government Code), effective Jan. 1, 1992.


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FUNDAMENTAL PRINCIPLES Taxation shall be uniform in each local government unit Taxes, fees, and charges shall be equitable and based as far as

practicable on taxpayers ability to pay; levied and collected onlyforpublic purposes; not be unjust, excessive, oppressive or

confiscatory; not be contrary to law, public policy and nationaleconomic policy, nor in restraint of trade The collection of local taxes, fees, charges and other impositions

shall in no case be let to any private person The revenue collected under the Code shall inure solelyto the

benefit of, and subject to disposition by, the local government

unit levying the tax, fee, charge or other imposition, unlessotherwise specifically provided for in the Code; and Each LGU shall, as far as practicable, evolve a progressive

system of taxation (Sec. 130, LGC).


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Tax shall not otherwise specifically enumerated in LGC or in the

NIRC, and the tax ordinance shall not be enacted without anyprior

public hearingconducted for the purpose (Sec. 186, LGC).

Although the Sanggunian had the control of records or the better

means of proof regarding the facts (that no public hearing was held)alleged, petitioners are not relieved from the burden of proving their

averments (People v. Pajenado, 31 SCRA 812). Proof that public hearings

were not held falls on petitioners shoulders (Reyes v. CA, 320 SCRA

486).


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COMMON LIMITATIONS ON LGUs Unless otherwise provided, the exercise of the taxing powers of

LGUs shall not extend to the levy of the following: Income tax, except when levied on banks and other financial

institutions

Documentary stamp tax Taxes on estates, inheritance, gifts, legacies and other

acquisitions mortis causa, except as otherwise provided in theCode

Customs duties, registration fees of vessels, etc. Taxes, fees and charges and other impositions upon goods

carried into or out of, or passing through, the territorialjurisdictions of local government units in the guise of charges forwharfage, tolls for bridges or otherwise, or other taxes, fees orcharges in any form whatsoever upon such goods ormerchandise


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COMMON LIMITATIONS ON LGUs Taxes, fees and charges on agricultural and aquatic products

when sold by the marginal farmers or fishermen Taxes on business enterprises certified to by the BOI as pioneer

or non-pioneer for a period of 6 and 4 years, respectively, from

the date of such registration Excise taxes on articles enumerated under NIRC and taxes, fees

or charges on petroleum products Percentage tax or VAT on sales or exchanges of goods or

services or similar transactions thereon, except as otherwiseprovided herein

Taxes on gross receipts of transportation contractors andpersons engaged in the transportation of passengers or freightfor hire and common carriers by air, land or water, except asprovided for in this Code

Taxes on premiums paid for reinsurance or retrocession


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COMMON LIMITATIONS ON LGUs

Taxes, fees or charges for the registration of motor vehicles and

for the issuance of all kinds of licenses or permits for the driving

thereof, except tricycles

Taxes, fees or charges on Philippine products actually exported,except as provided for in this Code

Taxes, fees or charges on Countryside Business and Barangay

Enterprises and on cooperatives duly organized and registered

under RA 6810 and 6938

Taxes, fees or charges of any kind on the National Government,

its agencies and instrumentalities, and local governments(Sec.

133, LGC).


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NIRC levies an excise tax on all quarry resources, regardless oforigin, whether extracted from public or private land. However, Sec.138, LGC expressly authorizes the provinces to impose excise taxon quarry resources extracted from public lands (Prov of Bulacan v. CA,299 SCRA 442 (1998).

The 6-year tax holiday provided under Sec. 133(g) of LGC should

commence on the date of its registration with BOI, not from thecommencement of its actual commercial operations as certified toby the BOI (supra).

Grantee of pipeline concession is a common carrier under the CivilCode and is exempt from local business tax under Sec. 133(j), LGC(First Phil Industrial Corp v CA, 300 SCRA 661 (1998). A common carrier is one who

holds himself out to the public as engaged in the business oftransportation of persons or property from place to place, for hire orcompensation, offering services to all persons who may choose toemploy and remunerate him. The true test is whether it is the legalduty to carry for all alike (US v Quinajon, 31 Phil 187; RA 386).


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Sec. 133(e), RA 7160 prohibits the imposition, in the guiseof wharfage, of fees as well as all other taxes or chargesin any form whatsoever on goods or merchandise. It isirrelevant if the fees imposed are actually for policesurveillance on the goods, because any other form of

imposition on goods passing thru the territorial jurisdictionof the municipality is clearly prohibited by Sec. 133(e).

Under Sec. 131(y), wharfage is defined as a fee assessedagainst the cargo of vessel based on quantity or weight. Itis apparent that a wharfage does not lose its basic

character by being labeled as a service fee for policesurveillance on all goods (Palma Dev Corp v. Mun of Malangas, Zambodel Sur, 413 SCRA 572 (2003).


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Petron Corp v. Mayor of Navotas

FACTS Petron maintains a depot or bulk plant at Navotas Fishport complex

and sells diesel fuels to vessels used in commercial fishing aroundMetro Manila. Navotas enacted Ordinance 92-03 (New NavotasRevenue Code) imposing business taxes on persons engaged inthe sale of petroleum products. On Mar 1, 2002, Petron receivedassessment for P6.2 M. Petron protested assessment, but this wasdenied by Navotas Treasurer. It was followed by Final Demand toPay from the Mayor within 5 days; otherwise, depot would beclosed. Petron thru counsel replied to the Mayor, but the Mayor didnot respond to this last letter.

On May 20, 2002, Petron filed with Malabon RTC a complaint for

cancellation of assessment for deficiency taxes with prayer for TRO.TRO was not issued by RTC upon manifestation of respondentsthat they would not proceed with closure until RTC shall havedecided on the merits.

However, case was pending, respondents refused to issue permits.


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Petron thus filed supplemental complaint with PreliminaryMandatory Injunction.

On May 5, 2003, RTC rendered decision dismissingPetrons complaint. Malabon RTC declared Art 232(h) ofIRR void because the Code purportedly does not containa provision prohibiting the imposition of business taxes onpetroleum products.

11 days later, Petron received Closure Order. Petronsought TRO but was denied. MR filed by Petron, but wasalso denied.

Petron went directly to SC on pure legal question thecorrect interpretation of Sec 133(h) of LGC andapplicability of Art 343(h) of IRR.

On Aug 4, 2003, SC issued TRO.


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SC DECISION Sec. 133 prescribes the limitations on capacity of LGUs to exercise

their taxing powers. Paragraph (h) of Sec 133 mentions 2 kinds oftaxes which cannot be imposed by LGUs, namely: (a) excise tax onarticles under NIRC, and (b) taxes, fees or charges on petroleumproducts.

Art 232 of IRR enumerates list of businesses subject to businesstaxes and paragraph (h) thereof does not allow imposition of localbusiness taxes on any business not otherwise specified in thepreceding paragraphs which the sanggunian concerned may deemproper to tax, but subject to this qualification any businessengaged in the production, distribution or sale of oil, gasoline and

other petroleum products shall not be subject to any local taximposed on this article. Petron argues that business taxes on its sale of diesel fuels

partakes of an excise tax, which is a tax upon the performance,carrying on, or the exercise of an activity. Malabon Mayor argues


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that what the provision prohibits is the imposition of excise taxes onpetroleum products, but not the imposition of business taxes on thesame, relying on the Court statement that a tax on business isdistinct from a tax on the article itself.

The meaning of excise tax has undergone a transformation,morphing from the Am Jur definition to its current signification which

is a tax on certain specified goods or articles. As Nolledo pointedout, excise taxes are imposed directly on certain specified goods;they are taxes on property. An excise tax is not excise where itdoes not subject directly the produce or goods to tax but indirectlyas an incident to, or in connection with, the business to be taxed.

It is this concept of excise tax which we can reasonably assume that

Congress had in mind and actually adopted when it crafted theCode. On second issue, the Court said there is no doubt that following the

1987 Constitution and the LGC, the fiscal autonomy of LGUs has


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received greater affirmation than ever. Thus, respondent cites thatin City Government of San Pablo v. Reyes, the SC stated ininterpreting statutory provisions on municipal fiscal powers, doubtswill have to be resolved in favor of municipal corporations. Suchpolicy is also echoed in Sec 5(a) of the LGC, which states that anyprovision on a power of LGU shall be liberally interpreted in its favor,

and in case of doubt, any question thereon shall be resolved in favorof devolution of powers and of the lower LGU.

However, Sec 5(b) proceeds that in case of doubt, any taxordinance or revenue measure shall be construed strictly againstthe LGU enacting it, and liberally in favor of the taxpayer. Evidently,local fiscal autonomy should not necessarily translate into abject

deference to the power of local government units to impose taxes. Congress has the constitutional authority to impose limitations onthe power to tax of LGUs, and Sec. 133 of LGC is one suchlimitation. The provision is the explicit statutory impediment to theenjoyment of absolute taxing power by LGU, not to mention thereality that such power is a delegated power. Another example isSec 133(g), where LGUs are disallowed from levying business taxeson enterprises certified by BOI.


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While Sec 133(h), LGC does not generally bar the

imposition of business taxes on articles burdened by

excise taxes under the NIRC tobacco, alcohol, mineral

and miscellaneous products, it specifically prohibits LGUs

from extending the levy of any kind of taxes, fees orcharges on petroleum products (Petron v. Malabon City,

2009).


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Tax on sand, gravel and other quarry resources (Sec. 138) Maximum rate shall not be more than 10% of FMV of materials extracted from public

lands or from beds of seas, rivers, and other public waters within the territorial jurisdictionof LGU.

Permit shall be issued exclusivelyby Provincial Governor, pursuant to an ordinance bySanggunian Panlalawigan.

Proceeds of tax shall be distributed to province, 30%; component city or municipality,30%, and barangay, where materials are extracted, 40%.

Province has no power to impose tax on quarry resources extracted from private land(Lee v. Pres Judge, 145 SCRA 408) in view of the limitations imposed by Secs 133 and151 of the NIRC (Zamboanga Electric Coop v. Buat, 243 SCRA 47).

Professional tax(Sec. 139) Professional is one who passes required government examination. Tax shall not exceed P300; it must be paid on or before Jan 31 of January. Person who has paid professional tax shall be entitled to practice his profession in any

part of the Phil. Amusement tax(Sec. 140) Annual fixed tax for every delivery truck or van of manufacturers or

producers, wholesalers of, dealers or retailers in, certain products (Sec.141).


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Sec. 13 of Local Tax Code mentions other places ofamusement, professional basketball games are definitelynot within its scope. Principle ofejusdem generis (general words are to be held as

applying only to persons or things of the same kind or class asthose specifically mentioned). One must refer to the priorenumeration of theaters, cinematographs, concert halls andcircuses with artistic expression as their common characteristics.Basketball caters to sports and gaming.

Even up to the present, category of amusement taxes on

professional basketball games as a national tax (Sec. 125,NIRC) remains the same. Sec. 140 of LGC retains the sameareas where provinces may levy amusement tax withoutincluding professional basketball games (PBA v. CA, 337 SCRA 358(2000).


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Iloilo City v. Smart Communications

But RA 7294 does not expressly provide what kind of taxes SMART is exemptedfrom. It is not clear whether the n lieu of all taxes provision in the franchise wouldinclude exemption from local or national taxation. And the uncertainty of the clause inRA 7294 must be construed strictly against SMART which claims the exemption.

The proviso in first paragraph of Sec 9 states it will continue to be liable for incometaxes. Second paragraph states the filing of tax returns and payment of taxes to CIR,and such returns shall be subject to audit by BIR. Nothing is mentioned in Sec 9about local taxes. The clear intent is for the in lieu of all taxes clause to apply only totaxes under the NIRC and not to local taxes (City of Iloilo v. SMART Communications, GR 167260,Feb 27, 2009).

Good faith and honest belief that one is not subject to tax on the basis of previousinterpretation of government agencies are sufficient justification to delete theimposition of surcharges and interest. In 1998, BLGF opined SMART should beconsidered exempt from tax. But in 2001 case, PLDT v. City of Davao, we declaredthat we do not find BLGFs interpretation of local tax laws to be authoritative andpersuasive. Its function is merely to provide consultative services and technical

assistance to LGUs. Unlike the CIR who has been given the express power to interpret the Tax Code, no

such power is given to the BLGF. SMARTs reliance on BLGF interpretation was thusmisplaced. Therefore, SMART is liable to pay surcharge and interest.


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BUSINESS TAXES IMPOSED BY MUNICIPALITIES Manufacturers, assemblers, repackers, processors, etc. of any

article of commerce of whatever kind or nature [Sec. 143(a)] Wholesalers, distributors, or dealers in any article of commerce

[Sec. 143(b)]

Exporters, and manufacturers, millers, producers, wholesalers,etc. of essential commodities [Sec. 143]

Retailers [Sec. 143(d)] Contractors [Sec. 143(e)] Banks and other financial institutions [Sec. 143(f)] Peddlers of any merchandise or article of commerce [Sec. 143(g)]

Any business, not otherwise specified above. On any businesssubject to excise, VAT, or percentage tax under the NIRC, therate shall be 2% of gross sales or receipts [Sec. 143(h)]

Municipalities within MMA may levy taxes at rates not exceeding50% of maximum rates prescribed above (Sec. 144, LGC).


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BUSINESS TAXES IMPOSED BY CITIES Except as otherwise provided in this Code, cities may

levy the taxes, fees and charges which the province ormunicipality may impose, provided that taxes, fees andcharges levied and collected by highly urbanized andindependent component cities shall accrue to them anddistributed in accordance with the provisions of thisCode.

The rates of taxes that the city may levy may exceedthe maximum rates allowed for the province or

municipality by not more than 50%, except the rates ofprofessional and amusement taxes (Sec. 151, LGC).


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EFFECTIVITY OF ORDINANCES(Sec. 59, LGC)

Unless otherwise stated in the ordinance, the same shall take

effect after 10 days from date a copy thereof is posted in all

bulletin board at the entrance of the provincial capitol or city,

municipal, orbarangayhall, and in at least 2 other conspicuousplaces in the LGU concerned. The secretary to the sanggunian

shall cause the posting not later than 5 days after approval

thereof. The text of the ordinance shall be disseminated and

posted in Filipino or English and in the language or dialect

understood by the majority of the people in the LGU, and the

secretary shall record such fact in a book kept for the purpose.

Gist of all ordinances with penal sanctions shall be published in

a newspaper of general circulation within the province where the


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EFFECTIVITY OF ORDINANCES

local legislative body belongs, and in its absence,

posting shall be made in all municipalities and cities of

the province where the sanggunian of origin is situated.

In the case of highly urbanized and independent

component cities, the main features of the ordinance

duly enacted shall, in addition to being posted, be

published once in a local newspaper of general

circulation within the city: Provided, That in theabsence thereof, the ordinance shall be published in

any newspaper of general circulation.


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TESTS OF VALID ORDINANCE

It must not contravene the Constitution or anystatute

It must not be unfair or oppressive It must not be partial or discriminatory

It must not prohibit but may regulate trade

It must be general and consistent with public

policy; and It must not be unreasonable (Magtajas v. Pryce Properties

Corp, 234 SCRA 225).


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APPEAL TO SECRETARY OF JUSTICEAny question on the constitutionality or legality of tax

ordinances or revenue measures may be raised onappeal within 30 days from the effectivity thereof to theSecretary of Justice, who shall render a decision within

60 days from the date of receipt of the appeal. The appeal shall not have the effect of suspending the

effectivity of the ordinance and the accrual andpayment of the tax, fee or charge levied therein.

Within 30 days after receipt of the decision or the lapseof 60-day period without the Secretary of Justice actingupon the appeal, the aggrieved party may file theappropriate proceedings with a court of competentjurisdiction (Sec. 187, LGC) within 30 days.


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The Secretary of Justice can only review the constitutionality or

legality of the tax ordinance. If warranted, he can revoke it on either

or both grounds, but he cannot substitute his own judgment for the

local government (Drilon v. Lim, 235 SCRA 135).

The three (3) periods in Sec. 187, LGC are mandatory(Hagonoy

Market Vendors Asso v. Mun of Hagonoy, GR 137021, Feb 6, 2002). The power

to tax is the most effective instrument to raise needed revenue. Any

delay in implementing tax measures would be to the detriment of the

public; hence, protests over tax ordinances are required to be done

with certain time frames (Mactan Cebu Intl Airport v Marcos, 261 SCRA 667).

The 3 separate periods are prerequisites before seeking redress incourt (Reyes v CA, GR 118233, Dec 10, 1999) and are set to prevent delays

as well as enhance the orderly and speedy discharge of judicial

functions.


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ACCRUAL AND PAYMENT OF TAX Local taxes, fees and charges accrue on the first day of the

calendar year. In case the effectivity of a new tax ordinance fallson any date other than the beginning of the quarter, the sameshall be considered as falling at the beginning of the nextensuing quarter and the new tax levy or revised rate due shallbegin to accrue therefrom (Sec. 166, LGC).

The tax period of local taxes, fees and charges shall be thecalendar year, except when otherwise provided in the Code (Sec.165, LGC), and such levies may be paid on quarterly installmentswithin 20 days of each subsequent quarter. The time forpayment may be extended by the Sanggunian concerned,

without surcharges or penalties, but only for a period notexceeding six months (Sec. 167, LGC). The sanggunian mayimpose a surcharge of 25% of the unpaid amount and 2%interest on unpaid taxes, but not to exceed 36 months (Sec. 168,LGC).


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For any delinquency, the Sanggunian may imposesurcharges of not exceeding 25% of the amount dueand interest at a rate not exceeding 2% per month untilthe delinquent amount is fully paid but not to exceed atotal interest corresponding to 36 months (Sec. 168,

LGC). The non-payment of the tax liability on its due date

subjects the taxpayer to corresponding surcharge andinterest. The execution of a promissory note by ataxpayer and its acceptance by the City Treasurer did

not relieve the taxpayer from its liability to pay thesurcharge and interest. The PN binds the taxpayer butdoes not constitute a contract so as to bar the citygovernment from suing the taxpayer for collection oftax liability (Pajaro v. Sandiganbayan).


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The City of Pasig is authorized to impose business taxon contractor based on gross receipts. Thus, when thecity assessed deficiency business tax based ontaxpayers gross revenue as reported in financial

statements, it committed a palpable error. It wouldresult in double taxation (Ericsson Telecommuni-cations v. City of Pasig, GR 176667, Nov. 22, 2007).


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SITUS OF THE TAX For the collection of taxes under Sec. 143 of this Code,

manufacturers, contractors, etc. maintaining or operating branchor sales outlets elsewhere shall record the sale in the branch orsales outlet making the sale or transaction, and the tax thereon

shall accrue and shall be paid to the municipality where suchbranch or sales outlet is located.

In cases where there is no such branch or sales outlet in the cityor municipality where the sale or transaction is made, the saleshall be duly recorded in the principal office and the taxes dueshall accrue and shall be paid to such city or municipality (wherethe principal office is located).


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SITUS OF THE TAX The following sales allocation shall apply to manufacturers,

contractors, producers, and exporters with factories, projectoffices, plants, and plantations in the pursuit of their business:

30% of all sales recorded in the principal office shall be taxable by

the city or municipality where the principal office is located; and 70% of all sales recorded in the principal office shall be taxable by

the city or municipality where the factory, project office, plant, orplantation is located.

In case a plantation located at a place other than the placewhere the factory is located, said 70% above shall be divided as

follows: 60% to the city or municipality where the factory is located; and

40% to the city or municipality where the plantation is located


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SITUS OF THE TAX In case where a manufacturer, assembler, producer, exporter or

contractor has 2 or more factories, project offices, plants orplantations located in different localities, the 70% salesallocation shall be pro-rated among the localities where thefactories, project offices, plants and plantations are located in

proportion to their respective volumes of production during theperiod for which the tax is due.

The foregoing sales allocation shall be applied irrespective ofwhether or not sales are made in the locality where the factory,project office, plant, or plantation is located (Sec. 150, LGC).

Branch a place which conducts operations of the business as an

extension of the principal office. Warehouse that accepts orders/orissues sales invoices independent of a branch with sales office is asales office. But an office used only as display area of the productswhere no stocks or items are stored for sale, although orders for theproducts may be received thereat, is not a branch or sales office.


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REMEDIES OF LGU FOR COLLECTION OF TAX Administrative remedy

Tax lien, and distraint and levy

Judicial remedy Civil action

PRESCRIPTIVE PERIOD To assess:

Without fraud, 5 years from the date they became due In case of fraud, 10 years from discovery of fraud or intent to evade

payment. This period may be suspended when (a) the Treasurer islegally prevented from making the assessment or collection; (b)taxpayer requests for reinvestigation and executes a waiver inwriting before expiration of period; and taxpayer is out of thecountry or otherwise cannot be located (Sec. 194(d), LGC).

To collect: No action for collection of the tax shall be instituted after the

expiration of such period (5 years) without such assessment havingbeen made


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REMEDIES OF TAXPAYERS

Prior to assessment Question constitutionality or legality of ordinance (e.g., tax is unjust,

confiscatory or oppressive) by filing an administrative appeal toSecretary of Justice within 30 days from date of effectivity (Sec. 187)

Action for declaratory relief After an assessment

Protest of the assessment within sixty (60) days from receipt ofassessment (Sec. 195, LGC)

Action for refund within 2 years from date of payment (Sec. 196, LGC)

Injunction against the collection of tax. Unless such suit is

forbidden by statute, a court of equity generally will interfere toprevent by injunction the collection of wrongful taxes, provided thereis no other adequate remedy to redress the injury to property whichwould be inflicted by enforcing payment of the tax (Valley Trading Cov. CFI et al, 171 SCRA 501 (1989).


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PROTEST OF ASSESSMENT When the correct tax, fee or charge is not paid, the local treasurer shall

issue a notice of assessment within the applicable prescriptive period(Sec. 194, LGC), stating the nature of the levy, amount of deficiency,surcharge, interest and penalty.

Taxpayer may file a written protest against the assessment with the

local treasurer; otherwise, the assessment shall become final andexecutory. The treasurer shall decide the protest within 60 days from the date of its

filing. If the treasurer finds the assessment to be wholly or partly correct, he

shall deny the protest with notice to taxpayer. The taxpayer shall have 30 days from date of receipt of the denial of the

protest or from the lapse of the 60-day period within which to appealwith the court of competent jurisdiction; otherwise, the assessmentbecomes conclusive and unappealable (Sec. 195, LGC).


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CLAIM FOR REFUND The filing of a written claim for refund with the local treasurer is a

condition precedent for maintaining a court action. If thetreasurer does not act on the written claim for refund and the 2-year period is about to expire, the taxpayer should initiate thecourt action for refund and consider the inaction of the treasurer

as a denial of his claim. The LGC failed to specifically provide for a period of appeal in

the event a decision is made by the treasurer on the claim forrefund, similar to that obtaining in the case of a denial on awritten protest of assessment.

It would seem that the Court may entertain the appeal so long as

the case for refund is filed with it within the 2-year period andwritten claim for refund or credit had earlier been submitted tothe treasurer. The applicable Statute of Limitations could befiled within 6 years from payment thereof as a case ofsolutioindebiti(Art. 1145, NCC) [Puyat & Sons v. City of Manila].


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REAL PROPERTY TAX

TITLE II: REAL PROPERTY TAXATION

Chapter I: General Provisions

Chapter II: Appraisal and Assessment Chapter III: Assessment Appeals

Chapter IV: Imposition of RPT

Chapter V: Special Levies on Real Property

Chapter VI: Collection of RPT

Chapter VII: Disposition of Proceeds


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REAL PROPERTY TAX

Real property tax is a tax on property.

It is a national tax. The realty tax is enforcedthroughout the Phil and not merely in a particularmunicipality or city, but the proceeds of the taxaccrue to the province, city or municipality andbarrio where the realty taxed is situated.

The province or city or a municipality within theMMA may levy an annual ad valorem tax on realproperty such as land, building, machinery, andother improvement not hereinafter specificallyexempted (Sec. 232, LGC).


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REAL PROPERTY TAX

SPECIAL ASSESSMENTS Imposed on lands specially benefited by public works projects or

improvements funded by LGU concerned. Special levy shall not exceed 60% of cost It does not apply to lands exempt from basic RPT (Sec. 240, LGC)

The test is that the assessment should not exceed the specialbenefit of the property. Special benefits refers to those which give to the property

owner an uncommon advantage as distinguished from thosebenefits that are shared by non-assessed property owners.

Special levy shall accrue on the first day of the quarter next

following the effectivity of the ordinance imposing such levy (Sec.245, LGC). Administrative remedies of taxpayer are the same and follow the

same procedures as assessment of RPT.


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REAL PROPERTY TAX

REAL PROPERTY SUBJECT TO RPT The tax is imposed on real property such as land, buildings,

machinery and other improvements not otherwise specificallyexempted under the Code (Sec. 232, LGC).

Machinery embraces machines, equipment, mechanical

contrivances, instruments, appliances or apparatus which mayor may not be attached, permanently or temporarily, to the realproperty. It includes thephysical facilities for production, theinstallations and appurtenant service facilities; those which aremobile, self-powered or self-propelled and not permanentlyattached to the real property but are actually, directly and

essentially used to meet the needs of the particular industry,business or activity, and which by their very nature and purposeare designed for, or necessary to its manufacturing, mining,commercial, industrial or agricultural purposes (Sec. 199(o), LGC).


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REAL PROPERTY TAX

REAL PROPERTY SUBJECT TO RPT

Improvements refers to valuable addition made to a

property or an amelioration in its condition, amounting

to more than a mere repair or replacement of parts

involving capital expenditures and labor which is

intended to enhance the value, beauty or utility or to

adopt it for new or further purpose(Sec. 199(m), LGC).


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REAL PROPERTY TAX

REAL PROPERTY Two tanks not embedded in the land are real property, because

they are improvements on the land, enhancing its utility andrendering it useful to the oil industry. They have been installedwith some degree of permanence as receptacles for

considerable quantities of oil needed by Meralco for itsoperations.

Meralcos steel towers were not considered as real property,because they were regarded as poles and under Meralcosfranchise, its poles are exempt from taxation. Moreover, thesteel towers were not attached to any land or building. They

were removable from their metal frames (Meralco v. CBAA, 1982)


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REAL PROPERTY TAX

REAL PROPERTY

Machinery and equipment consisting of

underground tanks, elevated tanks, water

tanks, gasoline pumps, computing pumps,water pumps, car washer, car and truck

hoists, air compressors and similar articles,

installed by Caltex in its gasoline stations,

located on leased lands, are real propertysubject to tax (Caltex Phil v. CBAA)


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REAL PROPERTY TAX

REAL PROPERTY Power barges, which are floating and movable, are real

property subject to tax. Art 415(a) of NCC provides thatdocks and structures which though floating areintended by their nature and object to remain at a fixed

place on a river, lake or coast are consideredimmovable property.

The mere understanding with NPC under theAgreement that it shall be responsible for the paymentof real property taxes and assessments does not justify

its exception. The privilege granted to NPC cannot beextended to FELS. The covenant does not bind thirdpersons not privy thereto (FELS Energy v. Prov of Batangas, 2007).


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FELS Energy v. Prov of Batangas

Under Sec 226 of RA 7160, the last action of the localassessor on a particular assessment shall be the notice ofassessment; it is this last action which gives the owner ofthe property the right to appeal to the LBAA.

The procedure does not permit the property owner theremedy of filing a motion for reconsideration before thelocal assessor. To allow this procedure would invitecorruption in the system of appraisal and assessment. Itconveniently courts a graft-prone situation where values

of real property may be initially set unreasonably high,and then subsequently reduced upon the request of theproperty owner(Callanta v Office of Ombudsman, Jan 30, 1998, cited in FELSEnergy v. Prov of Batangas, 2007).


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NPC v. CBAA, LBAA-La Union

Under the BOT Agreement, can the GOCC (NPC) be deemed the actual,direct and exclusive user of machinery and equipment for tax exemption? Ifnot, can it pass on its tax-exempt status to its BOT partner, a privatecorporation, thru the BOT agreement?

GOCC is exempt from RPT when it owns and/or actually uses themachinery and equipment for generation and transmission of electric power.In this case, it is BPPC, a non-government entity, which owns, maintains

and operates the machinery and equipment. Using these, it generateselectricity, which it then sells to NPC. NPC is not the registered owner ofmachinery and equipment. This is confirmed by BOT Agreement. Thus,Sec. 234 does not apply.

Liability for payment of RPT is determined by law and not by agreement ofthe parties. It must be expressly granted by law.

Tax exemption is also not transferable. And it is strictly construed. SC cited FELS Energy v. Prov of Batangas, where it was provided that NPC

shall pay all of FELSreal estate taxes and assessments. Exemption ofNPC was not recognized since it was not the actual, direct and exclusiveuser of the barge.


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NPC v. CBAA, LBAA-La Union

That BOT Agreement is merely a financingscheme, where BPPC is the financier and NPCis the actual user of properties is belied by theBOT Agreement itself. The proponent will

construct the project at its own cost andsubsequently operates and manages it. At theend of 15 years, the proponent transfers theownership of the facility to NPC. Thus, BPPC

has complete ownership both legal andbeneficial of the project (NPC v. CBAA, LBAA-La Union, GR171470, Jan 30, 2009).


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REAL PROPERTY TAX

REAL PROPERTY EXEMPT FROM TAX Real property owned by the Republic of the Phil or any of its

political subdivision, except when the beneficial use has beengranted, for consideration or otherwise, to a taxable person

Charitable institutions, churches, parsonages or conventsappurtenant thereto, mosques, non-profit or religiouscemeteries, and all lands, buildings and improvements actually,directly and exclusively used for religious, charitable oreducational purposes

All machineries and equipment that are actually, directly andexclusively used by local water districts and GOCC engaged inthe supply and distribution of water and/or generation and

transmission of electric power All real property owned by duly registered cooperatives under

RA 6938; and Machinery and equipment used for pollution control and

environmental protection (Sec. 234, LGC)


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REAL PROPERTY TAX

Except as provided herein, any exemption frompayment of RPT previously granted to, or presentlyenjoyed by, all persons, whether natural or juridical,including all GOCCs, are hereby withdrawn upon theeffectivity of this Code (Jan 1, 1992).

TESTS OF EXEMPTION Ownership exemption (government and cooperatives)

Character exemption (charitable institution, churches and non-profit or religious cemeteries)

Usage exemption (religious, charitable or educational purposes;local water districts and GOCCs engaged in water and electricpower; pollution control and environmental protection)


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REAL PROPERTY TAX

The test of exemption from taxation is the use ofthe property for the purposes mentioned in theConstitution (Abra Valley College v. Aquino, 162 SCRA 106).

The term exclusively used does not

necessarily mean total or absolute use forreligious, charitable and educational purposes.Even if the property is incidentally used for saidpurposes, the tax exemption will apply.Corollarily, if a property, although owned by a

religious, charitable and educational institution,is used for non-exempt purpose, the exemptionfrom tax shall not attach (Herrera v. QC-BAA, 3 SCRA 187).


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REAL PROPERTY TAX

Tax exemptions or incentives were withdrawn upon theeffectivity of LGC, except those granted to LWDs,cooperatives under RA 6938, non-stock, non-profithospitals and educational institutions, and unless providedin the LGC.

Even as to real property owned by the RP or its politicalsubdivisions, exemption is withdrawn ifbeneficial use hasbeen granted to a taxable person for consideration orotherwise.

SC noted the terms RP and National Government are

not interchangeable. The former is broader andsynonymous with the Govt of the RP. The latter refersto the entire machinery of the central government (MactanCebu Intl Airport Authority v. Marcos, 1996).


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REAL PROPERTY TAX

Sec. 3, RA 470 (Local Tax Code) exempts from taxation propertyowned by the Republic of the Phil.. The law makes no distinction between property held in a

sovereign, government or political capacity and those possessedin a private, proprietary and patrimonial character. Where thelaw does not distinguish, neither may we.

Taxes are financial burdens imposed for the purpose of raisingrevenues with which to defray the cost of operation of thegovernment, and a tax on the property of the government,whether national or local, would merely have the effect of takingmoney from one pocket to put it in another pocket(Board of

Assessment Appeals, Laguna v. CTA and NWSA). Government instrumentalities are exempt from RPT, but GOCCs

are subject to tax (MIAA case).


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REAL PROPERTY TAX

1. CA 182, which created NDC, contains no provision exemptingfrom payment of RPT on properties it may acquire. Besides, theseproperties are not devoted to public use but were acquired for resaleto qualified persons. Also, NDC does not come under municipal orpublic corporations in the sense that it may sue and be sued(NDC v.Prov of N Ecija, L-41223, 1983)

2. President reserved public land for warehousing purposes in favorof GOCC. Land is exempt from real property tax. The taxexemption of property owned by the Republic of the Phil. refers toproperties owned by the government and by its agencies which donot have separate and distinct personalities (unincorporated

entities). In this case, what appears to have been ceded to NDC was merelythe administration of the property while the government retainsownership of what has been declared for warehousing purposes.The government does not part with its title by reserving the land fora certain purpose (NDC v. Pacis, 215 SCRA 382).


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MIAA v. City of Paranaque

MIAA owns airport lands and buildings located in Paranaque City.

MIAA is not a GOCC under Sec 2(13) of the Introductory Provisions

of the Administrative Code because it is not organized as a stock or

non-stock corporation. Neither is MIAA a GOCC under Sec 16, Art

XII of the 1987 Constitution because MIAA is not required to meet

the text of economic viability. MIAA is a government instrumentalityvested with corporate powers and performing essential public

services pursuant to Sec 2(10) of the Administrative Code. As a

government instrumentality, MIAA is not subject to any kind of tax

by local governments under Sec 133(o) of LGC. The exception to

the exemption in Sec 234(a) does not apply to MIAA because MIAAis not a taxable entity under the LGC. Such exception applies only if

the beneficial use of real property owned by the Republic is given to

a taxable entity. The airport lands and buildings of MIAA are

properties devoted to public use and thus are properties of public

opinion, owned by the State or the Republic (MIAA v. CA, 2006).


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MIAA v. Pasay City

MIAA owns airport lands and buildings located in Pasay City.

Instrumentality refers to any agency of the national government, not

integrated within the department framework, vested with special functions or

jurisdiction by law, endowed with some if not all corporate powers,

administering special funds, and enjoying operational autonomy, usually

through a charter. This term includes regulatory agencies, charteredinstitutions and GOCC.

Instrumentality includes GOCC (Sec 2(10) Adm Code). This means that

a government instrumentality may or may not be a GOCC. Obviously, the

term government instrumentality is broader than the term GOCC.

GOCC refers to any agency organized as a stock or non-stock

corporation, vested with functions relating to public needs whethergovernmental or proprietary in nature, and owned by the Government

directly or through its instrumentalities either wholly, or, where applicable as

in the case of stock corporations to the extent of at least 51% of its capital

stock.


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MIAA v. Pasay City

Since MIAA is a government instrumentality vested with corporatepowers to perform efficiently its governmental functions, MIAA is like

any other government instrumentality, the only difference is that

MIAA is vested with corporate powers. When the law vests in a

government instrumentality corporate powers, the instrumentality

does not become a corporation. Unless the governmentinstrumentality is organized as a stock or non-stock corporation, it

remains a government instrumentality exercising not only

governmental but also corporate powers. Thus, MIAA exercises the

governmental powers of eminent domain, police authority and the

levying of fees and charges. At the same time, MIAA exercises allthe powers of a corporation under the Corporation Law, insofar as

these powers are not inconsistent with the provisions of this E.O.

Hence, MIAA is not liable to pay RPT (GR No. 163072, Apr 2, 2009).

Phil Fisheries De A th CA & Iloilo


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Phil Fisheries Dev Auth v. CA & Iloilo

City

PFDA is not a GOCC but an instrumentality of the national

government which is generally exempt from RPT.

However, said exemption does not apply to the portions of

the IFPC, consisting of breakwater, a landing quay, a

refrigeration building, market hall, municipal shed, anadministration building, water and fuel oil supply system

and other port-related facilities and machineries; title to

the land and buildings of the IFPC remained with the

Republic, which PFDA leased to private entities.Nonetheless, the IFPC, being property of public dominion,

cannot be sold at public auction to satisfy the tax

delinquency.


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PFDA v. Iloilo City

For an entity to be considered as GOCC, it must either be organizedas a stock or non-stock corporation. Two requirements are need to

create a stock corporation: (1) it has capital stock divided into

shares; and (2) it is authorized to distribute dividends and allotments

of surplus and profits to its stockholders. If only one requisite is

present, it cannot be properly classified as a stock corporation. Asfor non-stock corporations, they must have members and must not

distribute any part of their income to said members.

PFDA is not a GOCC. It has capital stock but it is not divided into

shares of stocks. It has no stockholders or voting shares; hence, it

is not a stock corporation. Neither is it a non-stock corporationbecause it has no members (PFDA v CA & Iloilo City, GR 169836, July 31,

2007).


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LRTA v. CBAA

Real property is classified for assessment purposes on the basis ofactual use, which is defined as the purpose for which the property

is principally or predominantly utilized by the person in possession

of the property.

Unlike public roads which are open for use by everyone, the LRT is

accessible only to those who pay the required fare. It is thusapparent that petitioner does not exist solely for public service, and

that the LRT carriageways and terminal stations are not exclusively

for public use. Although petitioner is a public utility, it is nonetheless

profit-earning. It actually uses those carriageways and terminal

stations in its public utility business and earns money therefrom. Real property owned by the government or any of its political

subdivisions and any GOCC so exempt by its charter is exempt

from RPT, but this exemption shall not apply where the beneficial

use has been granted, for consideration or otherwise to a taxable

person.


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REAL PROPERTY TAX

Records of the Constitutional Commission reveal that what isexempted is not the institution itself; those exempted from realestate taxes are lands, buildings and improvements actually, directlyand exclusively used for religious, charitable or educationalpurposes.

What is meant by actual, direct and exclusive use of the property for

charitable institutions is the direct and immediate and actualapplication of the property itself to the purposes for which thecharitable institution is organized. It is not the use of the incomefrom the real property that is determinative of whether the propertyis used for tax-exempt purposes.

In sum, SC ruled the portions of the land leased to private entitiesas well as those parts of the hospital leased to private individualsare not exempt from taxes (Lung Center of the Phil v. QC Assessor, GR144104, June 29, 2004).

Cit A f C b A i ti f


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City Assessor of Cebu v. Association of

Benevola de Cebu

SC DECISION

Chong Hua Hospital Medical Arts Center (CHHMAC) is an integralpart of CHH. It is undisputed that doctors and medical specialistsholding clinics in CHHMAC are those duly accredited by CHH. Thisfact alone takes away CHHMAC from being categorized as

commercial since tertiary hospital like CHH is required by law tohave a pool of physicians. The fact that doctors are holding office ina separate building (100 meters away) does not take away theessence and nature of their services vis--vis the over-all operationof the hospital and the benefits to the hospitals patients. Theirtransfer to a more spacious and convenient place and location for

the benefit of the hospitals patients does not remove them frombeing an integral part of the operation of the hospital. It would have been different if CHHMAC was also open for non-

accredited physicians.

City Assessor of Cebu v Association of


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City Assessor of Cebu v. Association of

Benevola de Cebu

Although CHHMAC facility is not indispensable, it is definitely incidental toand reasonably necessary for the operation of CHH. The operation of ahospital is not only for confinement and surgical operations where hospitalbeds and operating theaters are required. The usual course is that patientshave to be diagnosed, and then treatment and follow-up consultationsfollow or are required.

Charging rentals for the offices used by its accredited physicians cannot be

equated to a commercial venture. First, CHHMAC is only for its consultantsor accredited doctors and medical specialists. Second, charging of rentals isa practical necessity to recoup investment cost of building, to cover rentalsfor the lot, and to maintain the building and its facilities. Third, it pays propertaxes for its rental income, and fourth, the net income, if any, does not inureto any private or individual person as it will be used for other charitableprojects.

Secs 215 and 216, LGC provides hospital shall be treated as specialproperty subject to 10% special assessment level and not as commercialproperty subject to 35% level (City Assessor of Cebu v. Association of Benevola de Cebu,GR 152904, June 8, 2007).


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REAL PROPERTY TAX

FUNDAMENTAL PRINCIPLES The appraisal (process of determining value of property; put in writing

the value of property), assessment (notice that amount of tax is due anddemand for payment), levy and collection of real property fortaxation purposes shall be guided by the following:

Real property shall be appraised at its current and fair marketvalue

Real property shall be classified for assessment purposes on thebasis of its actual use

Real property shall be assessed on the basis of a uniformclassification within each local political subdivision

The appraisal, assessment and levy of real property and thecollection of the real property tax shall not be let to any privateperson

The appraisal and assessment of real property shall beequitable (Sec. 198, LGC)


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REAL PROPERTY TAX

The RPT for any year shall accrue on the first day ofJanuary and from that date it shall constitute a lien on theproperty which shall be superior to any other lien,mortgage, or encumbrance of any kind whatsoever, andshall be extinguished only upon payment of the delinquent

tax (Sec. 246, LGC). The collection of the RPT with interest and relatedexpenses, and the enforcement of the remedies in thisTitle, shall be the responsibility of the city or municipaltreasurer concerned. He may deputize the barangaytreasurer for all taxes on real property located in thebarangay, provided he is bonded and the premium onsuch bond shall be paid by the city or municipalgovernment (Sec. 247, LGC).


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REAL PROPERTY TAX

The provincial, city or municipal assessor shall prepare and submitto the treasurer of the local government unit, on or before Dec 31 ofeach year, an assessment roll containing a list of all persons whosereal properties have been newly assessed or reassessed and thevalues of such properties (Sec. 248, LGC).

The city or municipal treasurer shall post the dates the basic RPT

and SEF may be paid without interest. Such notice shall also bepublished in a newspaper of general circulation in the locality once aweek for 2 consecutive weeks (Sec. 249, LGC)

Basic RPT and SEF may be paid on installments, without interest,as follows: Q1: March 31; Q2: June 30; Q3: September 30; andQ4: December 31, except the special levy, payment of which shallbe governed by ordinance of the sanggunian concerned. Paymentof RPT shall first be applied to prior years delinquencies and

penalties (Sec. 250, LGC).


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REAL PROPERTY TAX

If basic RPT and SEF are paid in advance,the sanggunian may grant a discount notexceeding 20% of the annual tax due (Sec.

251, LGC). Annual depreciation equivalent to 5% ofthe fair market value of the machineryshall be granted, provided that when the

remaining value of machinery is at 20%,no further depreciation shall be allowed.


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REAL PROPERTY TAX

When RPT becomes delinquent, the treasurer shall immediatelycause a notice of delinquency to be posted in the capitol ormunicipal hall and in a publicly accessible and conspicuous place.The notice of delinquency shall also be published once a week for 2consecutive weeks in a newspaper of general circulation in theprovince, city or municipality.

Such notice shall state that distraint or levy may be issued andunless the tax and penalties are paid before of the year for whichthe tax is due, the delinquent real property will be sold at publicauction, except when the notice of assessment or specialassessment is contested administratively or judicially. Transfer oftitle to the purchaser shall be subject to the right of redemption ofthe delinquent owner or any person having legal interest therein

within one (1) year from the date of sale (Sec. 254, LGC). In case of failure to pay the tax, the unpaid amount shall be subject

to 2% interest per month until the delinquent tax shall have beenfully paid, but in no case shall total interest exceed 36 months (Sec.255, LGC).


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REAL PROPERTY TAX

REMEDIES OF TAXPAYER No protest shall be entertained, unless the tax is first

paid. There are cases decided by the Supreme Court where the taxpayer

is allowed to just file a surety bond, instead of paying the amount ofreal property tax being contested.

When a taxpayer desires for any reason to pay his taxunder protest, he shall indicate the amount or portionthereof which he is contesting, and such protest shallbe annotated on the tax receipts by writing thereon theword paid under protest. The amount paid under

protest shall be held in trust by the treasurer. The protest shall be confirmed in writing, with a

statement of the ground therefor, within 30 days fromdate of payment of tax.


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REAL PROPERTY TAX

REMEDIES OF TAXPAYERS If assessment is:

Illegal or void (assessor has no power to act at all) and paymentwas already made, remedy is to sue for refund in competentcourt;

Erroneous (assessor errs in the exercise of the power), fileappeal to LBAA of the province or city within 60 days fromreceipt of assessment

Petition under oath may be made by the owner or person havinglegal interest in the property to LBAA, attaching copies of TaxDeclarations and such affidavits or documents in support of theappeal (Sec. 226, LGC).

Failure to appeal within the statutory period renders the assessmentfinal and executory (Victorias Milling Co v CTA, 22 SCRA 1008).


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REAL PROPERTY TAX

REMEDIES OF TAXPAYER

The LBAA shall decide the appeal within 120 days

from receipt of the appeal. The decision of LBAA,

which must be based on substantial evidence

presented at the hearing or least contained in therecords, may be appealed within 30 days from receipt

thereof by the taxpayer to the CBAA, whose decision

shall be final and executory(Sec. 229, LGC).

Decisions of CBAA are appealable to CTAwithin 30 days from date of receipt (RA 9282).


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END OF PRESENTATION

Atty. Vic C. Mamalateo

Mobile: 0918-9037436

Email: [email protected];[email protected]
mailto:[email protected]:[email protected]:[email protected]:[email protected]

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