LOCAL GOVT TAXATION AND REAL PROPERTY charge or other imposition unless otherwise specifically
TAXATION provided herein; and,
1. LOCAL GOVERNMENT TAXATION
Art X. Sec 5. Each local government unit shall have the power
to create its own sources of revenues and to levy taxes, fees
and charges subject 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 the local governments.
SEC 129. Power to Create Source of Revenue - Each local
government unit shall exercise its power to create its own
sources of revenue and to levy taxes, fees, and charges subject
to the provisions herein, consistent with the basic policy of
local autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local government units.
a) Nature of Taxing Power of local government units
1. Direct – the power of the LGU to impose taxes although not
an inherent power is granted by a direct mandate of the
Constitution
2. Limited – although directly expressed by the Constitution,
the power is subject to limitations and guidelines as the
legislature may deem necessary to impose
3. Legislative in nature – the power to impose taxes is vested
solely in he legislative body of each respective LGU
4. Territorial – the same can only be exercised within the
territorial jurisdiction of a LGU
b) Fundamental Principles of governing local
government taxation
SECTION 130. Fundamental Principles. - The following
fundamental principles shall govern the exercise of the taxing
and other revenue-raising powers of local government units:
(1) Taxation shall be uniform in each local government unit;
(2) Taxes, fees, charges and other impositions shall:
(a) be equitable and based as far as practicable on
the taxpayer's ability to pay;
(b) be levied and collected only for public purposes;
(c) not be unjust, excessive, oppressive, or
confiscatory;
(d) not be contrary to law, public policy, national
economic policy, or in restraint of trade;
(3) The collection of local taxes, fees, charges and other
impositions shall in no case be left to any private person;
(4) The revenue collected pursuant to the provisions of this
Code shall inure solely to the benefit of, and be subject to
disposition by, the local gov’t unit levying the tax, fee,
(5) Each local government unit shall, as far as practicable,
evolve a progressive system of taxation.
c) Local Taxing power and Authority
SECTION 132. Local Taxing Authority - The power to impose
a tax, fee, or charge or to generate revenue under this Code
shall be exercised by the Sanggunian of the LGU concerned
through an appropriate ordinance.
d) Requisites of a valid ordinance.
1. It must not contravene the Constitution or any statute
2. It must not be unfair or oppressive
3. It must not be partial or discriminatory
4. It must not prohibit but may regulate trade
5. It must be general and consistent with public policy
6. It must not be unreasonable (Magtajas v. Pryce Properties
[234 SCRA 225])
e) Procedure for approval and effectivity of tax ordinance
1. Public hearing is required with quorum, voting and
approval and/or veto requirements complied with
2. Publication of ordinance within 10 days from approval for
3 consecutive days in an newspaper of general circulation
and/or posting in at least 2 conspicuous and publicly
accessible places
f) Principle of Pre-emption or Exclusionary Doctrine
When the nat’l govt elects to tax a particular area, it is
impliedly withholding from the LGU the delegated power to
tax the same field.
g) Limitations on taxing powers of LGU
SECTION 133. Common Limitations on the Taxing Powers of
Local Government Units. - Unless otherwise provided herein,
the exercise of the taxing powers of provinces, cities,
municipalities, and Barangays shall not extend to the levy of
the following:
(1) Income tax, except when levied on banks and other
financial institutions;
(2) Documentary stamp tax;
(3) Taxes on estates, inheritance, gifts, legacies and other
acquisitions mortis causa, except as otherwise provided
herein;
(4) Customs duties, registration fees vessels and wharfage on
wharves, tonnage dues, and all other kinds of customs fees,
charges and dues except wharfage on wharves constructed
and maintained by the local government unit concerned;
(5) Taxes, fee and charges and other impositions upon goods
carried into or out of, or passing through, the territorial
jurisdictions of local government units in the guise of charges
for wharfage, tolls for bridges or otherwise, or other taxes,
fees or charges in any form whatsoever upon such goods or
merchandise;
(6) Taxes, fees, or charges on agricultural and aquatic
products when sold by marginal farmers or fishermen;
(7) Taxes on business enterprises certified to by the Board of
Investments as pioneer or non-pioneer for a period of six (6)
and (4) four years, respectively from the date of registration;
(8) Excise taxes on articles enumerated under the National
Internal Revenue Code, as amended, and taxes, fees or charges
on petroleum products;
(9) Percentage or value added tax (VAT) on sales, barters or
exchanges or similar transactions on goods or services except
as otherwise provided herein;
(10) Taxes on the gross receipts of transaction contractors
and persons engaged in the transportation of passengers or
freight by hire and common carriers by air, land or water,
except as provided in this Code;
(11) Taxes on premium paid by way or reinsurance or
retrocession;
(12) Taxes, fees or charges for the registration of motor
vehicle and for the issuance of all kinds of licenses or permits
for the driving thereof, except tricycles;
(13) Taxes, fees or charges on Philippine products actually
exported, except as otherwise provided herein;
(14) Taxes, fees, or charges, on Countryside and Barangay
Business Enterprises and cooperatives duly registered under
R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred
thirty-eight (R.A. No. 6938) otherwise known as the
"Cooperatives Code of the Philippines" respectively; and
(15) Taxes, fees or charges, of any kind on the National
Government, its agencies and instrumentalities, and local
government units.
Entities exempt from local taxes
a. Local Water Districts
b. Cooperatives duly registered under RA 6938
c. Non-stock and non-profit hospitals
d. Educational institutions
h) Residual taxing power of LGU’s
LGUs may exercise the power to levy taxes, fees or charges on
any base or subject, provided that the taxes, fees, and charges
are
a. Not specifically enumerated in the LGC
b. Not taxed under the provisions of the NIRC
c. Not taxes under other applicable laws
i) Common revenue raising powers of LGU’s
Cities & Municipalites - Community Tax
All LGU’s
1. Service fees and charges for services rendered (Sec. 153)
2. Public utility charges (Sec. 154)
3. Toll fees or charges
Prescribe the terms and conditions and fix the rates for the
imposition of toll fees or charges for the use of any public
road, pier or wharf, waterway, bridge, ferry or
telecommunication system funded and constructed by the
LGU concerned: Provided, That no such toll fees or charges
shall be collected from officers and enlisted men of the AFP
and PNP on mission, post office personnel delivering mail,
physically-handicapped, and disabled citizens who are 65 yrs
or older. When public safety and welfare so requires, the
Sanggunian concerned may discontinue the collection of the
tolls, and thereafter the said facility shall be free and open for
public use.)
Scope of Taxing Power
j.) Taxing Power of Province
1. Local Transfer Tax of Real Property(Section 135, LGC)
-sale, donation, barter, or on any other mode of transferring
ownership or title of real property at the rate of not more than
fifty percent (50%) of one percent (1%) (based of SP of the
total consideration involved in the acquisition of the property
or of the fair market value in case the monetary consideration
involved in the transfer is not substantial, whichever is higher.
The sale, transfer or other disposition of real property
pursuant to R.A. No. 6657 shall be exempt from this tax.
2. Business Tax on Printing and Publication (Section 136 LGC)
3. Local Franchise Tax (Section 137, LGC)
4. Tax on Sand, Gravel and Other Quarry Resources (Section
138, LGC) may levy and collect not more than ten percent
(10%) of fair market value in the locality per cubic meter
5. Professional Tax (Section 139, LGC)
-pay the professional tax to the province where he practices
his profession or where he maintains his principal office in
case he practices his profession in several places
-such person who has paid the corresponding professional tax
shall be entitled to practice his profession in any part of
the Phils without being subjected to any other national or
local tax, license, or free for the practice of such profession
-payable annually on or before the thirty first (31st) day of
January
6.Amusement Tax (Section 140, LGC)
-collected from the proprietors, lessees, or operators of
theaters,cinemas, concert halls, circuses, boxing stadia, and
other places of amusement
- at a rate of not more than ten percent (10%) of the gross
receipts from admission fees.
7. Tax on Route Delivery Truck or Vans (Section 141, LGC)

k.) Taxing Powers of Municipalities
May levy taxes, fees, and charges not otherwise levied by
provinces. (Sec. 142)
1. Local Business Tax (Section 143, LGC)
2. Fees on business and occupation (Section 146, LGC)
3. Fees on sealing and licensing of weights and measures
(Section 148, LGC)
4. Fishery Rentals, Fees and charges (Section 149, LGC)
l.) Taxing Powers of Cities
They may levy taxes which the province and municipality may
impose. The tax rates, fees, and charges which the city may
levy may exceed the maximum rates allowed for the province
or municipality by not more than 50% except the rates of
professional and amusement taxes (see Sec 151, LGC)
m.) Taxing Powers of Barangay
1. Taxes on stores with fixed business establishments (gross
receipts of P50k or less for cities, P30k for municipalities)
2. Service fees for use of barangay-owned properties and
services rendered
3. Barangay clearance
4. Other fees and charges for (a) commercial breeding of
fighting cocks, cockpits and cockfighting; (b) on places of
recreation with admission fees; and (c) billboards, signboards
and outdoor advertisements
n.) Professional Tax
Professional tax is payable in the province where the taxpayer
practices his profession or where the principal office is
located in case he practices his profession in several places.
Note: (1) The taxpayer has the option. Such person who has
paid the corresponding professional tax shall be entitled to
practice his profession in any part of the Philippines without
being subjected to any national or local tax, license or fee for
the practice of such profession (see Sec/ 139, LGC)
(2) Professional tax may be imposed by a province or city but
not by a municipality or barangay
(3) Professionals exclusively employed in government shall
be exempt from payment
o.) Community Tax
Cities or municipalities may levy a community tax (Sec. 156)
Liable to Community Tax (Sec. 157)
1. Individual inhabitants 18 yrs of age or over who
- has been regularly employed on a wage or salary basis for at
least 30 consecutive working days during the yr
- engaged in business or occupation, or who owns real
property with an aggregate assessed value of P1k or more
- who is required by law to file an income tax return
(Rate of P5 and an add’l tax P1 for every P1k but not exceeding
P5k)
In the case of husband and wife, the additional tax herein
imposed shall be based upon the total property owned by
them and the total gross receipts or earnings derived by them.
2.Juridical (Sec. 158)
Every corporation no matter how created or organized,
whether domestic or resident foreign,
- engaged in or doing business in the Phils (P500 and an add’l
tax not exceeding P10k w/ the following schedule:
(1) For every P5k worth of real property in the Philippines
owned by it during the preceding year based on the valuation
used for the payt of RPT - P2.00; and
(2) For every P5k of gross receipts/earnings derived by it
from its business in the Phils during the preceding yr - P2.
The dividends received by a corporation from another
corporation however shall, for the purpose of the additional
tax, be considered as part of the gross receipts or earnings of
said corporation.
Exempt from the community tax (Sec. 159(
(1) Diplomatic and consular representatives; and
(2) Transient visitors when their stay in the Phils does not
exceed 3 months.
p.) Business Tax - based on gross receipts
Who are covered:
1. Manufacturers, assemblers and producers
2. Wholesalers, dealers and distributors
3. Exporters, manufacturers of essential commodities
4. Retailers (if both wholesale and retail, then pay both taxes)
5. Contractors
6. Banks and other financial institutions
7. Peddlers
8. Other business not specified
Note: Those already subject to tax under (1) to (7) can no
longer be subject to tax under (8) otherwise it will be deemed
as double taxation.
Before a business may be subject to local business
tax, the business must not be subject to VAT or percentage tax
under the NIRC or if the business is subject to excise, VAT or
percentage tax under the NIRC, the tax rate shall not exceed
2% of gross sales/ receipts of the preceding calendar year.
A business subject to tax shall, upon termination
thereof, submit a sworn statement of its gross sales or
receipts for the current year. If the tax paid during the year be
less than the tax due on said gross sales or receipts of the
current year, the difference shall be paid before the business
is considered officially retired. (Sec 145)
q.) Situs of Local Gov’t Taxation (Sec. 150) Note: Either of these remedies or both may be pursued
concurrently or simultaneously at the discretion of the LGU
w/ Recorded at Allocation concerned (Sec 174)
branch/sales
office s.) Remedies of taxpayer
Yes Branch/Sale None
office Prior to assessment
No Principal office None a. Question the constitutionality or legality of tax ordinances
on appeal (see Sec.187) (Administrative)
Note: An office may be considered a sales office (1) if the office b. Petition for declaratory relief as and when applicable
only accepts orders but does not issue sales invoice; (2) if the (Judicial)
office does not accept orders but issues sales invoices or (3) if Steps (30-60-30 days compliance is mandatory)
the office accepts orders and issues sales invoices 1. Appeal to the SOJ w/in 30 days from effectivity
2. The SOJ has 60 days to decide but an appeal does not
The following sales allocation shall apply to manufacturers suspend the effectivity of the ordinance
with factories, plants and plantations, etc.: 3. Within 30 days from the SOJ’s decision or after 60 days
inaction, an appeal may be filed with the RTC
Plantation & Allocation Allocation to
factory in same to factory, etc After Assessment
location principal a. Protest of assessment (Sec 195)
Yes 30% 70%
The 70% above shall 1. Assessment notice issued by local treasurer
be divided: 2. File written protest with the local treasurer within 30 days
1. Factory – 60% from date of payment
No 30% 3. The Treasurer has to decide within 60 days
2. Plantation – 40%
If 2 or more factories, 4. An appeal to the RTC is then available upon denial or 60-
etc = 70% is prorated day inaction by the treasurer
5. The RTC decision is appealable to the CTA En Banc
Note: Sec.150 (b) is only resorted to if there is no branch or 6. Appeal to the SC within 15 days from receipt of resolution.
sales office. In addition, the allocation shall be applied
irrespective of whether or not the sales are made in the Note:
locality where the factory, plant or plantation is located. (1) Unlike in RPT, no protest under payment is required.
(2) Review by RTC over denial of protest by the local treasurer
r.) Remedies of LGU falls within the court’s original jurisdiction.
(3) CTA held that the local Govt’s assessment for business
a. Administrative action taxes and other regulatory fees is civil in nature and basically
a personal action. For purposes of instituting actions in court,
i. Distraint of personal property the place where the taxpayer’s principal office is located may
ii. Levy upon real property also be considered as the proper venue.
iii. Compromise - Compromise is an agreement whereby (4) The failure of the taxpayer to file and perfect its appeal
the parties, by making reciprocal concessions, avoid with the RTC w/in the prescribed period deprives the Court
litigation or put an end to one already commenced. of the jurisdiction to entertain and determine the correctness
of the assessment made by the city treasurer.

b. Judicial action - LGU concerned may institute an ordinary
civil action with regular courts for the collection of delinquent
taxes w/in 5 years from the date the taxes, fees or charges
become due (Sec 138, 194)
b. Claim for refund (Sec 196)
- Written claim for refund must be filed with the local
treasurer
- Claim for refund before the courts should be filed
within 2 years from the date of payment or from the date the
taxpayer is entitled for refund
t.) Prescriptive Periods for assessment and collection
GR: An assessment must be made w/in 5 yrs from the date
they become due. Collection w/in 5 yrs from assessment.
Exp: If there is fraud or intent to evade payment of the tax,
assessment may be made w/in 10 yrs from discovery
Suspension of running of prescription
a. The treasurer is legally prevented from the assessment or
collection of the tax
b. The taxpayer requests for reinvestigation and executes a
waiver in writing before the expiration of the period within
which to assess or collect; and
c. The taxpayer is out of the country or otherwise cannot be
located
u. Claim for Refund or tax credit for erroneously or
illegally collected tax, fee or charge
The taxpayer must file a written claim within 2 years from the
date of payment of tax or from the date when the taxpayer is
entitled to refund.
CASES
1. Drilon vs Lim GR No. 112497 August 4, 1994
The principal issue in this case is the constitutionality
of Sec 187 of LGC. The SOJ (on appeal to him of four oil
companies and a taxpayer) declared Ord. No. 7794 (Manila
Revenue Code) null and void for non-compliance with the
procedure in the enactment of tax ordinances and for
containing certain provisions contrary to law and public
policy.
The SOJ can declare an ordinance void for not having
followed the requirements of the law but he cannot replace it
with his own law or he cannot say that is is unwise. In DRILON
V. LIM [AUGUST 4, 1994], then SOJ Drilon set aside the Manila
Revenue Code on two grounds, namely the inclusion of certain
ultra vires provisions and its non-compliance with the
prescribed procedure in its enactment. In ruling that the act
of then Sec. Drilon was proper, the SC noted that when the
Secretary alters or modifies or sets aside a tax ordinance, he
is not allowed to substitute his own judgment for the
judgment of the LGU that enacted the measure. In the said
case, Secretary Drilon only exercised supervision and not
control.
2. City of Manlia v. J. Angel Valera Colet GR NO. 120051
December 10. 2013
Doctrine
The omnibus grant of power to municipalities and cities under
Section 143(h) of the LGC cannot overcome the specific
exception/exemption in Section 133(j) of the same Code.
Facts:
City of Manila enacted the Manila Revenue Code. Sec
21(B) stated that, a yearly tax of 3% on the gross sales or
receipts of the previous year is hereby imposed on keepers of
garages, cars for rent or hire, transportation contractors,
persons who transport passenger or freight for hire, and
common carriers by land, air or water, except owners of
bancas and animal-drawn two-wheel vehicle which was
shortly amended by Ord No. 7807, lowering rate from 3% to
0.5% per annum.
Businesses affected assailed the constitutionality of
the ordinance. They claim that one common limitations on the
LGU’s taxing power is Sec 133(j) of LGC stating that 7 such
taxing powers shall not extend to the transportation business
and in case of any doubt, any tax ordinance shall be construed
strictly against the LGU enacting it and liberally in favor of the
taxpayer.
The City contended that it is irrelevant which of Sec.
133(j) and 143(h) of the LGC is the special or general
provision since there is an exempting clause in Sec 133, that
is, “Unless otherwise provided herein,” which means that
even if the businesses enumerated therein are exempted from
the levy of local tax, if there is a provision to the contrary, such
as Sec 143(h), the LGU could still impose the local tax.
Issue
WON Sec 21(B) of Manila Revenue Code, as amended
is valid and constitutional.
Ruling
No. Sec 21(B), as amended, is null and void for being
beyond the power of the City of Manila to enact, approve, and
implement under the LGC.
It is already well-settled that unlike the inherent
power to tax by the State, LGU’s taxing power must be
delegated by Congress and must be exercised within the
guidelines and limitations that Congress may provide.
Among the common limitations on the taxing power of LGUs
is Sec 133(j) of the LGC, which states that the taxing power of
LGUs shall not extend to "taxes on the gross receipts of
transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common
carriers by air, land or water, except as provided in this Code."
In contrast, Sec 143 (a) to (g) of LGC identify the
particular businesses taxable and fix tax rate for each while
Sec 143 (h) is the "catch-all provision" to impose tax "on any
business, not otherwise specified previously, which the LGU
concerned may deem proper to tax." This not a specific grant
of power to the LGU to impose business tax on the gross sales
or receipts of such a business.
The omnibus grant of power to LGU under Sec 143(h) cannot
overcome the specific exception/exemption in Sec 133(j). A
special and specific provision prevails over a general
provision irrespective of their relative positions in the statute.
In the case at bar, Manila cannot enact an ordinance
imposing business tax on the gross receipts of transportation
contractors, persons engaged in the transportation of
passengers or freight by hire, and common carriers by air,
land, or water, when it was already specifically prohibited
from doing so.
3. Manila Electric Company v. Province of Laguna (G.R.
No. 131359. May 5, 1999)
FACTS:
MERALCO was granted a franchise by several
municipal councils and the National Electrification
Administration to operate an electric light and power service
in the Laguna. Upon enactment of LGC, the prov’l gov;t issued
ordinance imposing franchise tax. MERALCO paid under
protest and later claims for refund because of the duplicity
with Sec 1 of P.D. No. 551 (Such franchise tax shall be payable
to the CIR and shalL be in lieu of all taxes and assessments of
whatever nature imposed by any national or local
authority)This was denied by the governor (Joey Lina) relying
on a more recent law (LGC). MERALCO filed with the RTC a
complaint for refund, but was dismissed. Hence, this petition.
ISSUE:
WON the imposition of franchise tax under the
provincial ordinance is violative of the non-impairment clause
of the Constitution and of P.D. 551.
HELD:
No. There is no violation of the non-impairment
clause for the same must yield to the inherent power of the
state (taxation). SC explained that prior to the 1987
Constitution; the taxing power of LGUs was exercised under
limited statutory authority. Under the present Constitution,
the taxing power of LGUs is deemed to exist, subject only to
specific exceptions that the law may prescribe. Otherwise
stated, the taxing power of LGUs is a direct grant of the
Constitution, and is not a delegated power of Congress. A
franchise partakes the nature of a grant which is beyond the
purview of the non-impairment clause of the Constitution.
Article XII, Section 11, of the 1987 Constitution, like its
precursor provisions in the 1935 and the 1973 Constitutions,
is explicit that no franchise for the operation of a public utility
shall be granted except under the condition that such
privilege shall be subject to amendment, alteration or repeal
by Congress as and when the common good so requires.The
provincial ordinance is valid and constitutional.
4. NPC vs City of Cabanatuan G.R. No.
FACTS:
NPC is a GOCC created under CA No. 120, as amended.
Petitioner sells electric power to the residents of Cabanatuan
City. Pursuant to an ordinance, Cabanatuan assessed NPC a
franchise tax amounting to P808,606.41, representing 75% of
1% of the latter’s gross receipts for the preceding year.
NPC refused to pay the tax assessment arguing that
the City has no authority to impose tax on govt entities. NPC
also contended that as a non-profit organization, it is
exempted from the payment of all forms of taxes, charges,
duties or fees in accordance with sec. 13 of Rep. Act No. 6395,
as amended.
City filed a collection suit in the RTC, demanding that
petitioner pay the assessed tax due, plus surcharge, alleging
that NPC’s exemption from local taxes has been repealed by
sec. 193 of the LGC, which reads as follows:
“Sec. 193. Withdrawal of Tax Exemption Privileges.-
Unless otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government owned or
controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock
and non-profit hospitals and educational institutions, are
hereby withdrawn upon the effectivity of this Code.”
RTC upheld NPC’s tax exemption. On appeal the CA
reversed the trial court’s Order on the ground that Sec. 193,
expressly withdrew the exemptions granted to NPC.
ISSUE:
WON the City has the authority to issue Ordinance and impose
an annual tax on “businesses enjoying a franchise
HELD: YES. One of the most significant provisions of the LGC
is the removal of the blanket exclusion of instrumentalities
and agencies of the National Government from the coverage
of local taxation. Although as a general rule, LGUs cannot
impose taxes, fees, or charges of any kind on the Nat’l Gov’t,
its agencies and instrumentalities, this rule now admits an
exception, i.e. when specific provisions of the LGC authorize
the LGUs to impose taxes, fees, or charges on the
aforementioned entities. The legislative purpose to withdraw
tax privileges enjoyed under existing laws or charter is clearly
manifested by the language used on Sec. 137 and 193
categorically withdrawing such exemption subject only to the
exceptions enumerated.
5. QC v. ABS-CBN GR 166408 Oct 6, 2008
Issue
WON broadcasting and telecommunication
companies liable to pay local transfer taxes?
Ruling
 No, these franchise holders are now subject to VAT.
6. PLDT v. CITY OF DAVAO GR. No. 143867
TAX EXEMPTIONS vs. TAX EXCLUSION; “IN LIEU OF ALL
TAXES” PROVISION
Facts:
PLDT paid a franchise tax equal to 3% of its gross
receipts. The franchise tax was paid “in lieu of all taxes on this
franchise or earnings thereof” pursuant to RA 7082. The
exemption from “all taxes on this franchise or earnings
thereof” was subsequently withdrawn by LGC, which at the
same time gave LGU’s the power to tax businesses enjoying a
franchise on the basis of income received or earned by them
within their territorial jurisdiction. The LGC took effect on
January 1, 1992.
The City of Davao enacted Ordinance in 1992
imposing a tax on businesses enjoying a franchise, a rate of
75% of 1% of the gross annual receipts.
Subsequently, Congress granted in favor of Globe
Globe and Smart franchises which contained “in leiu of all
taxes” provisos.
In 1995, it enacted RA 7925, or the Public
Telecommunication Policy of the Phils, Sec. 23 of which
provides that any advantage, favor, privilege, exemption, or
immunity granted under existing franchises, or may hereafter
be granted, shall ipso facto become part of previously granted
telecommunications franchises and shall be accorded
immediately and unconditionally to the grantees of such
franchises. The law took effect on March 16, 1995.
In Jan 1999, when PLDT applied for a mayor’s permit
to operate its Davao Metro exchange, it was required to pay
the local franchise tax which then had amounted to
P3,681,985.72. PLDT challenged the power of the city to
collect the local franchise tax and demanded a refund of what
had been paid as a local franchise tax for the year 1997 and
for the first to the third quarters of 1998.
Issue:
WON by virtue of RA 7925, Sec. 23, PLDT is again
entitled to the exemption from payment of the local franchise
tax in view of the grant of tax exemption to Globe and Smart.
Held:
No. Tax exemptions should be granted only by clear
and unequivocal provision of law "expressed in a language too
plain to be mistaken.
The word "exemption" in R.A. No. 7925 is not a direct,
"clear and unequivocal" way of communicating the legislative
intent. Nor does the term "exemption" in Sec. 23 of R.A. No.
7925 mean tax exemption. The term refers to exemption from
certain regulations and requirements imposed by the NTC.
7. PHILIPPINE MATCH CO. V. CITY OF CEBU GR L-30745
JANUARY 18, 1978
Facts:
Phil Match Co., Ltd., whose principal office and
factory is in Manila, is engaged in the manufacture of matches.
It ships cases or cartons of matches from Manila to its branch
office in Cebu City for storage, sale and distribution within the
territories and districts under its Cebu branch or the whole
Visayas-Mindanao region. Cebu City itself is just one of the
eleven districts under the company's Cebu City branch office.
The company does not question the tax on the sales
of matches consummated in Cebu City, meaning matches sold
and delivered within the city.
It assails the legality of the tax collected on out-of-
town deliveries of matches, to wit: (1) sales of matches
booked and paid for in Cebu City but shipped directly to
customers outside of the city; (2) transfers of matches to
salesmen assigned to different agencies outside of the city and
(3) shipments of matches to provincial customers pursuant to
salesmen's instructions.
Issue
WON Cebu City’s imposition of gross sales tax on
sales of matches stored by Philippine Match Co. in Cebu City
but delivered to customers outside the city valid.
Ruling
Yes. The city can validly tax the sales of matches to
customers outside of the city as long as the orders were
booked and paid for in the company’s branch office in the city.
Those matches can be regarded as sold in the city because the
matches were delivered to the carrier in Cebu City. Generally,
delivery to the carrier is delivery to the buyer. A different
interpretation would defeat the tax ordinance and encourage
tax evasion.
8. Ongsuco v. Malones GR 182065 Oct 27, 2009
Facts:
The Sangguniang Bayan of Maasin on Aug 17 1997
approved Municipal Ordinance No. 98-01 for increased
rentals for the stalls and the imposition of goodwill fees in the
amount of P20k and P15k for stalls located on the first and
second floors of the municipal public market, respectively.
The same Code authorized respondent to enter into lease
contracts over the said market stalls, and incorporated a
standard contract of lease for the stall holders at the
municipal public market.
Petitioners argued that public hearing was
mandatory in the imposition of goodwill fees. Sec 186 of LGC
1991 provides that an ordinance levying taxes, fees, or
charges shall not be enacted w/out any prior hearing
conducted for the purpose. Municipal Ordinance is invalid on
the ground that the conferences held on Aug 11, 1998 and Jan
22, 1999 could not be considered public hearings. Accdg to Art
277(b)(3) of the IRR of the LGC:
(3) The notice or notices shall specify the date or
dates and venue of the public hearing or hearings. The initial
public hearing shall be held not earlier than 10 days from the
sending out of the notice or notices, or the last day of
publication, or date of posting thereof, whichever is later.
The letter was sent to stall holders on 6 August 1998,
informing the latter of the meeting to be held, as was in fact
held, on 11 August 1998, only five days after notice.
// Respondent: Municipal Ordinance is valid. It
imposed goodwill fees to raise income to pay for the loan
obtained by the Municipality of Maasin for the renovation of
its public market. Said ordinance is not per se a tax or revenue
measure, but involves the operation and management of an
economic enterprise of the Municipality of Maasin as a local
government unit; thus, there was no mandatory requirement
to hold a public hearing for the enactment thereof. And, even
granting that a public hearing was required, respondent
insisted that public hearings take place on 11 August 1998
and 22 January 1999.
Issue
WON a public hearing conducted after the passage of
a tax ordinance cure the defect in its enactment (for failure to
hold one prior to the enactment).
Ruling
No. SC held that a public hearing conducted after the
passage of a tax ordinance does not cure the defect in its
enactment. The LGC requires that public hearings be held
prior to the enactment by the LGU of the ordinance levying
taxes, fees, and charges.
9. Cagayan Electric Power and Light Co. v. City of
Cagayan de Oro, G.R. 191761, November 14, 2012
DOCTRINE: Failure to appeal to the SOJ w/in the statutory
period of 30 days from the effectivity of the ordinance is fatal
to one’s cause.
FACTS:
On Jan 10, 2005, the Sangguniang Panlungsod of CDO
passed Ord. No. 9503-2005 imposing a tax on the lease or
rental of electric and/or telecommunication posts, poles or
towers by pole owners to other pole users at 10% of the
annual rental income derived from such lease or rental. The
City Council, in a letter dated Mar 15, 2005, informed
CEPALCO the passage of the subject ordinance.
On Sep 30, 2005, purportedly on pure question of
law, filed a petition for declaratory relief assailing the validity
of Ordinance before RTC, on the ground that the tax imposed
by the disputed ordinance is in reality a tax on income which
City of Cagayan de Oro may not impose. The lower court
rejected the contention for the reason that it is CEPALCO’s
business of leasing its posts to pole users that is directly taxed
- the tax is not upon the income but upon the privilege to
engage in business.
Moreover, the trial court found that CEPALCO’s
action is barred by prescription as it failed to raise an appeal
to the Secretary of Justice within the thirty-day period
provided in Section 187 of the Local Government Code.
[Section 187.
A. public hearings shall be conducted prior to the enactment
thereof:
B. any question on the constitutionality or legality of tax
ordinances or revenue measures may be raised on appeal
within thirty (30) days from the effectivity thereof to the
Secretary of Justice who shall render a decision within sixty
(60) days from the date of receipt of the appeal
C. Provided, however, That such appeal shall not have the
effect of suspending the effectivity of the ordinance and the
accrual and payment of the tax, fee, or charge levied therein:
D. Provided, finally, That within thirty (30) days after receipt
of the decision or the lapse of the sixty-day period without the
Secretary of Justice acting upon the appeal, the aggrieved
party may file appropriate proceedings with a court of
competent jurisdiction. ]
Issue
WON the 30-6-30 period rule is mandatory.
HELD:
Yes. The Court ruled that CEPALCO failed to exhaust
administrative remedies. Sec 5 of said ordinance provided
that the “Ordinance shall take effect after 15 days following its
publication in a local newspaper of general circulation for at
least three (3) consecutive issues.” Gold Star Daily published
Ordinance Feb 1-3, 2005. Ordinance thus took effect on Feb
19, 2005. CEPALCO filed its petition for declaratory relief
before the RTC on Sep 30, 2005, clearly beyond the 30-day
period provided in Sec 187. CEPALCO did not file anything
before the SOJ. Thus, the Court found that CEPALCO ignored
the mandatory nature of the statutory periods.
** relax the application of the rules in view of the
more substantive matters**
// SC agreed with the lower court that it is not an
imposition of an income tax. CEPALCO’s act of leasing for a
consideration the use of its posts, poles or towers to other
pole users falls under the Local Government Code’s definition
of business. Business is defined by Section 131(d) of the Local
Government Code as "trade or commercial activity regularly
engaged in as a means of livelihood or with a view to profit."
// The LGC withdrew tax exemption privileges
previously given to natural or juridical persons, and granted
local government units the power to impose franchise tax
// CEPALCO is mistaken when it states that a city can impose
a tax up to only one-half of what the province or city may
impose. A more circumspect reading of the Local Government
Code could have prevented this error. Section 151 of the Local
Government Code states that, subject to certain exceptions, a
city may exceed by "not more than 50%" the tax rates allowed
to provinces and municipalities. A province may impose a
franchise tax at a rate "not exceeding 50% of 1% of the gross
annual receipts." Following Section 151, a city may impose a
franchise tax of up to 0.0075 (or 0.75%) of a business’ gross
annual receipts for the preceding calendar year based on the
incoming receipt, or realized, within its territorial
jurisdiction. A municipality may impose a business tax at a
rate not exceeding "two percent of gross sales or receipts."
Following Section 151, a city may impose a business tax of up
to 0.03 (or 3%) of a business’ gross sales or receipts of the
preceding calendar year.
// CEPALCO also erred when it equates Section 137’s "gross
annual receipts" with Ordinance No. 9503-2005’s "annual
rental income." Section 2 of Ordinance No. 9503-2005
imposes "a tax on the lease or rental of electric and/or
telecommunication posts, poles or towers by pole owners to
other pole users at the rate of ten (10) percent of the annual
rental income derived therefrom," and not on CEPALCO’s
gross annual receipts. Thus, although the tax rate of 10% is
definitely higher than that imposable by cities as franchise or
business tax, the tax base of annual rental income of "electric
and/or telecommunication posts, poles or towers by pole
owners to other pole users" is definitely smaller than that
used by cities in the computation of franchise or business tax.
In effect, Ordinance No. 9503-2005 wants a slice of a smaller
pie.
// However, Ordinance is subject to the limitation set by
Section 143(h). Section 143 recognizes separate lines of
business and imposes different tax rates for different lines of
business. Section 143(h) states that "on any business subject
to VAT under NIRC, the rate of tax shall not exceed two
percent (2%) of gross sales or receipts of the preceding
calendar year" from the lease of goods or properties. Hence,
the 10% tax rate imposed by Ordinance clearly violates
Section 143(h) of the Local Government Code. VOID
10. YAMANE V. BA LEPANTO CONDOMINIUM CORP GR
154993 OCTOBER 25, 2005
Doctrine: What determines tax liability is the tax ordinance.
The LGC is simply the enabling law for the local legislative
body.
Facts::
Condominium Corp. is situated in Makati City
received a Notice of Assessment of its liability to pay the
correct city business taxes. The Assessment was silent as to
the statutory basis of the business taxes assessed. Corp.
responded with a written tax protest contending Assessment
has no basis and Corp not liable for business taxes
Makati Revenue Code imposes business tax on
owners or operators of any business. Corporation is not an
owner or operator of any business in the contemplation of the
Makati Revenue Code and even in the LGC.
It was submitted that the Corporation, as a
condominium corporation, was organized not for profit under
its articles of incorporation or by-laws to engage in profit-
making activities. The protest was rejected by the City
Treasurer.
Corporation filed an Appeal with the RTC of Makati
who dismissed the appeal for lack of merit. RTC concluded
that the activities of the Corporation fell squarely under the
definition of "business" thus subject to local business taxation.
Corporation filed a Petition for Review... with the Court of
Appeals.
CA declared that the Corporation was not liable to
pay business taxes to the City of Makati. The Corporation was
not engaged in profit. As its sole purpose was to hold title to
the common areas in the condominium and to maintain the
condominium, assessment collected from unit owners are
limited to those necessary to defray the expenses in the
maintenance of the common areas and management the
condominium. City Treasurer argued that the Corporation is
engaged in business, for the dues collected from the different
unit owners is utilized towards the beautification and
maintenance of the Condominium, resulting in "full
appreciative living values" for the condominium units which
would command better market prices should they be sold in
the future.
Issue
WON the City Govt of Makati can hold condominium
corporations liable to pay business taxes.
WON an LGU tax a condominium corporation
Ruling
The SC noted that the City Treasurer did not make
any reference to any provision of the Makati City Revenue
Code which would serve as legal authority for the collection of
business taxes from condominiums in the city. The Supreme
Court pointed out that in issuing a notice of assessment,
reference to the local tax ordinance is vital because the power
of LGUs to impose local taxes is exercised through the
appropriate ordinance enacted by the Sanggunian and not by
the LGC.
Condominium corporations are not “businesses” as
the same is defined under the LGC which is a “commercial
activity regularly engaged with a view to profit.” Even if a
condominium corporation can levy fees, these are used
merely to finance the expenses of the condominium and
nothing more.
11. ERICSSON TELECOMMUNICATIONS VS. CITY OF PASIG
GR 176667 Nov 22, 2007
Facts:
Petitioner was assessed a business tax deficiency for
the years 1998 and 1999 amounting to P9,466,885.00
and P4,993,682.00, respectively, based on its gross revenues
as reported in its audited financial statements for the years
1997 and 1998. Petitioner filed a Protest dated December 21,
2000, claiming that the computation of the local business tax
should be based on gross receipts and not on gross revenue.
The City of Pasig issued another Notice of Assessment to
petitioner on November 19, 2001, this time based on business
tax deficiencies for the years 2000 and 2001, amounting
to P4,665,775.51 and P4,710,242.93, respectively, based on
its gross revenues for the years 1999 and
2000. Again, petitioner filed a Protest on January 21, 2002,
reiterating its position that the local business tax should be
based on gross receipts and not gross revenue.
Issue:
WON the local business tax on contractors should be
based on gross receipts or gross revenue.
Ruling
The local business tax is imposed on gross receipts.
In the said case, the SC differentiated gross receipts and gross
revenue. Gross receipts include money or its equivalent
actually or constructively received in consideration of
services rendered or articles sold, exchanged, or leased,
whether actual or constructive whereas gross revenue covers
money or its equivalent actually or constructively received,
including the value of services rendered or articles sold,
exchanged or leased, the payment of which is yet to be
received.
12. ORLEYTE (PHIL. BRANCH) v CITY OF MAKATI (CTA
AC No. 80)
Doctrine: A corporation with no business operation, and is
merely an investor in another corporation, is not liable for
local business tax.
Facts::
Orleyte Company Phil. Branch (Orleyte) is a
corporation organized under laws of Cayman Islands and
licensed to establish a branch office in Makati to engage in the
construction and operation of geothermal plants including
investment in or forming of enterprises that will design,
construct, erect and assemble, commission and operate
power-generating plants and related facilities.
Orleyte together with another entity established
Ormat Leyte Co., Ltd. (OLCL), a limited partnership in the Phils
for the purpose in developing, financing, constructing,
owning, operating and maintaining geothermal facilities in
Leyte Province. It’s investment in OCLC was financed partly
by its branch capital and partly by advances from its
shareholders, the remainder of which is deposited in several
bank accounts.
On March 28, 2005, Makati City assessed Orleyte for
local business tax on its dividend income from investment in
OCLC and foreign exchange gains and interest income from
banks. The Notice of Assessment classified Orleyte as a
“Holding Company-Management Service” that is subject to
local business tax as a contractor of services.
Orleyte protested the Makati assessment but was
denied. Likewise, Makati RTC also denied its appeal. Orleyte
then appealed the RTC decision to the CTA and argued that
dividend income, foreign exchange gains, and interest income
are not subject to local business tax.
Issue
WON Orleyte's interest income, dividends and
foreign exchange gains are subject to local business tax.
Ruling
No. Sec 131 of the LGC defines “gross sales or
receipts” subject to local business tax to include the total
amount of money or its equivalent, representing the contract
price, compensation or service fee, including the amount
charged or material supplied with the services as well as
deposits or advance payments actually or constructively
received. Pursuant to such provisions, for an entity to be
liable for local business tax, it must be a contractor whose
activity consists essentially of sale of all kinds of services for a
fee.
Therefore, only income arising from Orleyte’s
services performed or to be performed for its customers is
subject to local business tax. Orleyte is not engaged in
commercial business based on affidavit of non-operation
which it has consistently submitted in its annual application
for business permit with Makati. Orleyte merely invested in
OCLC. Its financial statements show that it had only three
sources of revenues namely, equity in net earnings, foreign
exchange gain, and interest income. Clearly, Orleyte is not a
contractor engaged in providing a service for a fee, thus
Makati City as affirmed by RTC Makati erred in classifying
Orleyte as a Holding Company-Management Service. Court
finds the assessment has no factual and legal basis, so it
ordered its cancellation. Having no income arising from
services, Orleyte’s dividend income, foreign exchange
gains, and interest income do not form part of gross
receipts that are subject to local business tax.
REAL PROPERTY TAXATION
A.) Fundamental Principles (Sec. 198)
The appraisal, assessment, levy and collection of real
property tax shall be guided by the following fundamental
principles:
(a) Real property shall be appraised at its current and fair
market value;
(b) Real property shall be classified for assessment purposes
on the basis of its actual use;
(c) Real property shall be assessed on the basis of a uniform
classification within each local government unit;
(d) The appraisal, assessment, levy and collection of real
property tax shall not be let to any private person; and
(e) The appraisal and assessment of real property shall be
equitable.
B.) Nature of RPT
These are direct taxes imposed on the privilege to use
real property such as land, building, machinery and other
improvements unless specifically exempted.
a. It is a direct tax (burden)
b. Ad valorem tax based on the assessed value of the property
(amount)
c. Progressive in character depending to a certain extent on
the use and value of the property (rate)
d. Local tax
e. Imposed on the use and not on the ownership of the
property
f. Progressive in character depending to a certain extent on
the use and value of the property (rate)
C.) Power to levy real property tax (Sec. 232)
A province or city or a municipality within the
Metropolitan Manila Area may levy an annual ad valorem tax
on real property such as land, building, machinery, and other
improvement not hereinafter specifically exempted.
Rates of Levy. - A province or city or a municipality within the
Metropolitan Manila Area shall fix a uniform rate of basic real
property tax applicable to their respective localities as
follows:
(a) In the case of a province, at the rate not exceeding one
percent (1%) of the assessed value of real property; and
(b) In the case of a city or a municipality within the
Metropolitan Manila Area, at the rate not exceeding two
percent (2%) of the assessed value of real property.
Only provinces and cities as well as municipalities
within Metro Manila may impose RPTs.
D.) Exemption from RPT
a. Real property owned by the Republic or any of its political
subdivisions (except when beneficial use has been granted to
a taxable person)
b. Charitable institutions, churches, parsonages, or convents
appurtenant thereto, mosques, nonprofit or religious
cemeteries and all lands, buildings or improvements actually,
directly, and exclusively used for religious, charitable or
educational purposes
c. All machineries and equipment actually, directly and
exclusively used by local water districts and GOCCs engaged
in supply and distribution of water and/or generation and
transmission of electric power
d. All real property owned by duly registered cooperatives
e. Machinery and equipment used for pollution control and
environmental protection (includes infrastructure)
E.) Appraisal and assessment of real property tax
Assessment is the act or process of determining the value of
a property or proportion thereof subject to tax, including the
discovery, listing, classification, and appraisal of properties.
Assessment level is the percentage applied to the FMV of the
real property to determine the taxable value of the property.
Assessed value is the FMV of the real property multiplied by
the assessment level. It is synonymous with “taxable value”
Declaration of Real Property
Appraisal and assessment of real property tax
a) Rule on appraisal of real property at fair market value - All
real property, whether taxable or exempt, shall be appraised
at the current and FMV prevailing in the locality where the
property is situated (Sec. 201)
b) Declaration of real property by the Owner or Administrator
(Sec. 202)
A tax declaration only enables the assessor to identify the
property for purposes of determining the assessment levels.
It does not bind the assessor when he makes the assessment.
c) Listing of real property in assessment rolls
d) Preparation of schedules of fair market value
(i) Authority of assessor to take evidence
(ii) Amendment of schedule of fair market value
Rules on Assessment of RPT
GR: The assessment must be made within 5 years from the
date they become due
Exc: If there is fraud or intent to evade taxes, assessment
may be made within 10 years from discovery of fraud or
intent to evade.
F.) Types of RPT // RACIMS
Classes of Real Property for Assessment Purposes (accdg to
zoning ordinances)
(1) Residential
(2) Agricultural
(3) Commercial
(4) Industrial
(5) Mineral
(6) Special-lands, buildings, and other improvements
actually, directly and exclusively
(a) used for hospitals, cultural, or scientific purposes
(b) owned and used by local water districts
(c) Owned and used by GOCC rendering essential
public services
- in the supply and distribution of water
- generation and transmission of electric
power
Real property shall be classified, valued, and assessed on
the basis of its actual use regardless of where located,
whoever owns it, and whoever uses it.
G.) Collection of RPT
Collection of RPT must be made within 5 years from
assessment
Instances the running of the prescriptive period be suspended
1. Treasurer is legally prevented from assessing/ collecting
2. Taxpayer requests for reinvestigation and executes waiver
3. Taxpayer is out of the country or cannot be located
Instances there be a condonation or reduction of RPT
1. General failure of crops
2. Substantial decrease in the price of agricultural or agri-
based products
3. Calamity
4. When public interest so requires
Note: (1) In the case of (1) to (3), the condonation is done by
the Sanggunian concerned by ordinance and upon
recommendation of the Local Disaster Coordinating Council.
In the case of (4), only the President may exercise this power.
H.) Refund or Credit of RPT
Rule on refunds of RPT
1. Taxpayer must file the written claim within 2 years from
the date of payment of tax or from the date when the taxpayer
is entitled to reduction or adjustment.
2. The provincial treasurer has 60 days to decide the claim for
tax refund or credit.
I.) Remedies of LGU
1. Administrative action thru levy of real property
a. Distraint of personal property
b. Lien on property subject to tax
c. Levy on real property tax
2. Judicial action - civil action for the collection of RPT shall be
filed by the local treasurer in any court of competent
jurisdiction within 5 or 10 years wherein real property taxes
may be collected
Note: The above remedies are concurrent and simultaneous
J.) Taxpayer’s Remedy
a) Contesting an assessment of value of real property
(i) Appeal to the Local Board of Assessment Appeals
(ii) Appeal to the Central Board of Assessment Appeals
(iii) Effect of payment of tax
b) Payment of real property tax under protest-not required if
questioning the validity or constitutionality
(i) File protest with local treasurer
(ii) Appeal to the Local Board of Assessment Appeals
(iv) Appeal to the CTA
(v) Appeal to the Supreme Court
GR: Appeal shall not suspend the collection of RPT.
Exc: Where the taxpayer has shown a clear and unmistakable
right to refuse or hold in abeyance the payment of RPT.
K.) Local Board of Assessment Appeals
Composed of the Registrar of Deeds, as Chairman, the
provincial or city prosecutor and the provincial, or city
engineer as members, who shall serve as such in an ex officio
capacity without additional compensation.
L.) Central Board of Assessment Appeals
Composed of a chairman and 2 members to be appointed by
the President, who shall serve for a term of seven (7) years,
without reappointment. In no case shall any member be
appointed or designated in a temporary or acting capacity.
The chairman and the members of the Board shall be Filipino
citizens, at least forty (40) years old at the time of their
appointment, and members of the Bar or Certified Public
Accountants for at least 10 years immediately preceding their
appointment.
The Board shall have appellate jurisdiction over all
assessment cases decided by the Local Board of Assessment
appeals
M.) Payment of RPT under protest
Prior payment under protest is applicable only if the issue is
anchored on the correctness, reasonableness or
excessiveness of assessment, hence, considered a question of
fact
1. Pay the tax under protest and annotation of “paid under
protest” in receipt
2. File written protest with local treasurer within 30 days
from payment of the tax
3. Treasurer to decide within 60 days from receipt of the
protest
4. From treasurer’s decision or inaction, appeal to the LBAA
within 60 days
5. LBAA to decide within 120 days
6. Appeal LBAA decision to CBAA within 30 days from receipt
of adverse decision
7. CBAA appealable to CTA en banc within 30 days from
receipt of the adverse decision of the CBAA
8. Appeal to SC within 15 days from receipt of adverse
decision of CTA
Note: (1) In (4), if the treasurer’s decision is in favor of the
taxpayer, he may now apply for a tax refund or tax credit.
N.
Illegal Assessment
Erroneous Assessment
11. Demaala v. COA GR 199752 Feb. 17, 2015
The Sangguniang Panlalawigan of Palawan enacted
Provincial Ordinance which provides for an additional levy on
real property tax for the special education fund at the rate of
one-half percent or 0.5%. In conformity with the Ordinance,
Demaala, the mayor of the Municipality of Narra, Palawan
only collected 0.50% from the owners of real properties
within its territory.
However, the CoA questioned the levy of the
special education fund at the rate of only 0.5% rather than
at 1%, the rate stated in Section 235 of LCG.
ISSUE:
Whether a municipality within the Metropolitan
Manila Area, a city, or a province may have an additional levy
on real property for the special education fund at the rate of
less than 1%?
RULING:
// the power to impose an additional levy for the special
education fund is prefixed with “may,” thus, “may levy and
collect an annual tax of one percent (1%).”
DISCRETIONARY, not mandatory on the part of LGU to collect.
// It is respondent’s position that the option granted to a local
government unit is limited to the matter of whether it shall
actually collect, and that the rate at which it shall collect
(should it choose to do so) is fixed by Section 235.
// petitioner’s contention that the option given to a local
government unit extends not only to the matter of whether to
collect but also to the rate at which collection is to be made.
// the court sustained the position of petitioner. Section 235’s
permissive language is unqualified. Moreover, there is no
limiting qualifier to the articulated rate of 1% which
unequivocally indicates that any and all special education
fund collections must be at such rate.
YES, setting the rate of the additional levy for the special
education fund at less than 1% is within the taxing power of
local government units and is consistent with the guiding
constitutional principle of local autonomy.
Fiscal autonomy means that local governments have the
power to create their own sources of revenue in addition to
their equitable share in the national taxes released by the
national government, as well as the power to allocate their
resources in accordance with their own priorities.
12. Lung Center v. QC GR 144104 Jun 29, 2004
SC held that the hospital was not exempt from real property
tax on the portions of its property not actually, directly, and
exclusively used for charitable purposes. Thus, those leased
out for commercial purposes are subject to real property tax.
Those used by the hospital even if used for paying patients
remain exempt from real property taxes.
// theportions of the land leased to private entities as
well as those parts of the hospital leased to private
individuals are not exempt from such taxes. On the
other hand, the portions of the land occupied by the
hospital and portions of the hospital used for its
patients, whether paying or non-paying, are exempt
from real property taxes.
// those portions of its real property that are leased
to private entities are not exempt from real
property taxes as these are not actually, directly
and exclusively used for charitable purposes.
 13. GSIS v. City Treas of Manila GR 186242 Dec. 23,
2009
SC stated that the ruling in MIAA v. CA [JULY 20, 2006] argues
for the non-tax liability of the GSIS for RPT. The Court ruled
that GSIS is an instrumentality of the government and, as such,
is not a taxable juridical person for purposes of RPT.
14. FELS Energy v. Prov. Of Batangas
FELS entered into a lease contract with NAPOCOR
over two engine power barges at Balayan Bay Batangas. The
lease contract stipulated that NAPOCOR shall be responsible
for all taxes (including RPT on the barges), fees and charges
that FELS may be liable except income tax of FELS and its
employees and construction permit and environmental fees.
FELS was assessed for RPT and the LBAA upheld the
assessment stating that while the barges may be classified as
personal property, they are considered real property for RPT
purposes because they are installed at a specific location with
a character of permanency.
Issue
WON the power barges subject to RPT?
Ruling
Yes. First, Article 415(9) of the Civil Code provides
that “docks and structures which, though floating, are
intended by their nature and object to remain at a fixed place
on a river, lake or coast. Barges fall under this provision.
Second, FELS cannot claim exemption given that the
requirement is that to be exempt the machineries and
equipment must be actually, directly and exclusively used by
GOCCs engaged in the generation of power. Since the
agreement between FELS and NAPOCOR is that FELS will own
and operate the barges and not NAPOCOR.
15. NPC v. CBAA
Bauang Power Plant Corporation (BPPC) entered
into a Build-Operate-Transfer Agreement with NAPOCOR for
the construction of a powerplant. Under the agreement BPPC
was created to own, manage and operate the powerplant. The
BOT Agreement provided that after 15 years, the power plant
shall be transferred to NAPOCOR without payment of any
compensation and that NAPOCOR shall be responsible for
payment of RPT. BPPC was assessed for RPT. NAPOCOR filed
a petition to declare the properties exempt from RPT. The
Local Board of Assessment Appeals (LBAA) ruled that the
properties were not exempt as this is only available to a GOCC
which owns and/or actually uses the machineries and
equipment for generation and transmission of power. The
CBAA affirmed.
** Exempt from real property taxation are: (a) all
machineries and equipment; (b) [that are] actually, directly, and
exclusively used by; (c) [local water districts and] government-
owned or –controlled corporations engaged in the [supply and
distribution of water and/or] generation and transmission of
electric power. = Section 243(c)
Issue
WON the properties exempt from RPT
Ruling
No. NAPOCOR’s basis for exemption which is Section
243(c) provides that the machinery and equipment used for
generation and transmission of power must be actually,
directly and exclusively used by the GOCC. The machineries
and equipment here are owned by BPPC, subject only to the
transfer of these properties to NAPOCOR after the lapse of the
15-year period agreed upon. BPPC’s use of the machineries
and equipment are actual, direct and immediate while
NAPOCOR’s is contingent and, at this stage of the BOT
Agreement, not sufficient to support its claim for exemption.
16. NPC v. Province of Quezon
NAPOCOR entered into a BOT Agreement with Mirant
Pagbilao Corporation, whose tax liabilities the NAPOCOR has
contractually assumed where Mirant would build and finance
a power plant and transfer the same to NAPOCOR after 25
years without compensation.
Issue: Whether or not NAPOCOR is entitled to question validly
the assessment thereon.
Held: No. Legal interest is defined as interest in property or a
claim cognizable at law, equivalent to that of a legal owner who
has legal title to the property. Given this definition, NAPOCOR
is clearly not vested with the requisite interest to protest the tax
assessments, as it is not an entity having the legal title over the
machines. It has absolutely no solid claim of ownership or even
of use and possession of the machineries as the July 15, 2009
decision explained.
A BOT agreement is not a mere financing agreement.
Under BOT agreements, the private corporation/investors are the
owners of the facility or machinery concerned. Apparently, even
NAPOCOR and Mirant recognize this principle; article 2.12 of
their BOT agreement provides that until the transfer date, Mirant
shall directly or indirectly, own the power station and all the
fixtures, fitting, machinery and equipment on the site shall
operate, manage and maintain the power station for the purpose
of converting fuel of NAPOCOR into electricity.
The protest contemplated under section 252 is required where
there is a question as to the reasonableness or correctness of the
amount assessed. Hence if a taxpayer disputes the reasonableness
of an increase in a real property tax assessment, he is required to
“first pay the tax.” Otherwise, the city or municipal treasurer will
not act on his protest.
Ruling
SC ruled that NAPOCOR does not have the legal
interest that the law requires to give it personality to protest
the tax imposed by law on Mirant. Further, the machinery and
equipment must actually, directly and exclusively be used by
the GOCC. Here, NAPOCOR’s use is merely contingent.
17. MCIAA v. City of Lapulapu
Yes, MCIAA is exempt from RPT to those properties that are
actually, solely and exclusively used for public purpose.
MCIAA is not a GOCC because it is not organized as a
stock or non-stock corporation and because MCIAA is not
required to meet the test of economic viability. MCIAA is a
government instrumentality vested with corporate powers
and performing essential public services pursuant to Section
2(10) of the Introductory Provisions of the Administrative
Code. As a government instrumentality, MCIAA is not subject
to any kind of tax by LGU under Section 133(o) of the Local
Government Code. The exception to the exemption in Section
234(a) does not apply to MCIAA because MCIAA is not a
taxable entity under the Local Government Code. Such
exception applies only if the beneficial use of real property
owned by the Republic is given to a taxable entity.
Airport Lands and Buildings of MIAA are properties
devoted to public use and thus are properties of public
dominion. As properties of public dominion owned by the
Republic, there is no doubt whatsoever that the Airport Lands
and Buildings are expressly exempt from real estate tax under
Section 234(a) of the LGC.
18. MIAA v. City of Pasay
Petitioner Manila International Airport Authority (MIAA)
operates and administers the Ninoy Aquino International
Airport (NAIA) Complex under Executive Order No. 903 (EO
903),3 otherwise known as the Revised Charter of the Manila
International Airport Authority, issued by then President
Ferdinand E. Marcos. The NAIA Complex is located along the
border between Pasay City and Parañaque City. MIAA
received Final Notices of Real Property Tax Delinquency from
the City of Pasay for the taxable years 1992 to 2001. The Court
of Appeals upheld the power of the City of Pasay to impose
and collect realty taxes on the NAIA Pasay properties. MIAA
filed a motion for reconsideration, which the Court of Appeals
denied.
ISSUE:
The issue raised in this petition is whether the NAIA Pasay
properties of MIAA are exempt from real property tax.
RULING:
The Supreme Court held that the Airport Lands and Buildings
of MIAA are properties devoted to public use and thus are
properties of public dominion. Properties of public dominion
are owned by the State or the Republic. Article 420 of the Civil
Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals,
rivers, torrents, ports and bridges constructed by the State,
banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public
use, and are intended for some public service or for the
development of the national wealth.
The term "ports x x x constructed by the State"
includes airports and seaports. The Airport Lands and
Buildings of MIAA are intended for public use, and at the very
least intended for public service. Whether intended for public
use or public service, the Airport Lands and Buildings
are properties of public dominion. As properties of public
dominion, the Airport Lands and Buildings are owned by the
Republic and thus exempt from real estate tax under Section
234(a) of the Local Government Code.
19. City Assessor of Cebu v. Assn of Benevola de Cebu
BENEVOLA DE CEBU is a non-stock non-profit organization
and hospital. In 1990 It constructed a Medical Arts building
right beside it. In 1998 the CITY ASSESSOR OF CEBU issued a
certification classifying the new building as commercial and
assessed the building with a market value of roughly P28M,
coming up with an assessed value at around close to P10M at
the assessment level of 35% and not 10% which was then
currently imposed on private respondent (Benevola de
Cebu).
The City Assessor of Cebu, petitioner in this case claimed that
the building is used as commercial clinic/spaces for renting
out physicians and thus classified as commercial.
Benevola de Cebu contended that the building is used
ACTUALLY, DIRECTLY AND EXCLUSIVELY part of the hospital
and should have an assessment level of 10% as it was
currently imposed.
ISSUE: Whether or not the new building is liable to pay at the
35% assessment level?
RULING: NO. It is not commercial.
We hold that the new building is an integral part of the
hospital and should not be assessed as commercial.
Being a TERTIARY HOSPITAL, it is mandated to be fully
departmentalized and be equipped with the service
capabilities needed to support certified medical specialists
and other licensed physicians.
The fact that they are holding office in a separate building
does not take away the essence and nature of their services
vis-à-vis the overall operation of the hospital and to patients.
Under the Local Government Code, Sec. 26: “ALL BUILDINGS
AND OTHER IMPROVEMENTS THEREON actually, directly,
and exclusively used for hospitals, cultural or scientific
purposes and those owned and used by local water districts..
shall be classified as SPECIAL (NOT COMMERCIAL). “
ABC Association is a non-stock, non-profit organization
owned by Chong Hua Hospital in Cebu City. CHH likewise
owns the CHH Medical Arts Center. The City Assessor
assessed the CHH Medical Arts Center Building with the
assessment level of 35% for commercial buildings (instead of
the 10% special assessment imposed on XYZ hospital and its
buildings).
Issue
WON the medical arts center built to house its
doctors a separate commercial building.
Ruling
No. The SC ruled that the fact alone that doctors
holding clinics in the separate medical center are consultants
of the hospital and the ones who treat the patients takes way
the medical center from being categorized as commercial. SC
classified the medical arts center building as “special” for the
following reasons: (1) the medical arts center was an integral
part of the hospital; (2) the medical arts center facility was
incidental to and reasonably necessary for the operations of
the hospital; and (3) charging rentals for the offices used by
its accredited physicians was a practical necessity and could
not be equated to a commercial venture.
20. Sta Lucia Realty v. City of Pasig
Sta. Lucia owned a property of land in Pasig shown as
situated in Pasig in TCT. Due to consolidation to other land
located in Cainta and subseguent partition thereof, the new
TCT showed that it is all situtated in Cainta. Pasig filed a
petition to correct location w/c was granted. Subsequently,
Pasig filed against Sta. Lucia, a collection of real estate taxes
for the parcels of land covered by the subjects TCTs. Sta. Lucia
refused coz it was religiously paying said taxes to Cainta.
Cainta was then allowed to intervene and posed that the case
for the establishment of the boundary monuments would
show as to whose territory the subject lands belong or is
situated, it is a prejudicial question, mao dapat ma suspend sa
ang proceedings sa collection of tax.
Ruling
The Antipolo, Cainta RTC, wherein the boundary
dispute case between Pasig and Cainta is pending, would be
able to best determine once and for all the precise metes and
bounds of both Pasig’s and Cainta’s respective territorial
jurisdictions. The resolution of this dispute would necessarily
ascertain the extent and reach of each local government’s
authority, a prerequisite in the proper exercise of their
powers, one of which is the power of taxation.
Pending determination of the territorial boundaries
of Pasig and Cainta, Sta. Lucia is directed to deposit the
succeeding real property taxes due on the subject properties,
in an escrow account with the Land Bank of the Philippines.
21. Manila Electric Co v. City Assessor and Treasurer
of Lucena
MERALCO, a private corporation engaged in electric
distribution, and its transformers, electric posts, transmission
lines, insulators, and electric meters used commercially do
not qualify under any of the ownership, character, and usage
exemptions enumerated in Section 234 of the Local
Government Code. Not being among the recognized
exemptions from real property tax in Section 234 of the Local
Government Code, then the exemption of the transformers,
electric posts, transmission lines, insulators, and electric
meters of MERALCO from real property tax granted under its
franchise was among the exemptions withdrawn upon the
effectivity of the Local Government Code on January 1, 1998.
22. Capitol Wireless Inc. V. Prov’l Treasurer of
Batangas
Provincial Assessor of Batangas issued Assessments
of Real Property (ARP) against Capwire. In essence, the
Provincial Assessor had determined that the submarine cable
systems described in Capwire's Sworn Statement of True
Value of Real Properties are taxable real property, a
determination that was contested by Capwire in an exchange
of letters between the company and the public respondent.
Capwire received a Warrant of Levy and a Notice of Auction
Sale, respectively, from the respondent Provincial Treasurer.
Capwire filed a Petition for Prohibition and Declaration of
Nullity of Warrant of Levy, Notice of Auction Sale and/or
Auction Sale with the Regional Trial Court.
RTC issued an Order dismissing the petition for
failure of the petitioner Capwire to follow the requisite of
payment under protest as well as failure to appeal to the Local
Board of Assessment Appeals (LBAA). Capwire claims that it
saw no need to undergo administrative proceedings because
its petition raises purely legal questions.
The appellate court did not share this view and noted
that the case raises questions of fact, such as the extent to
which parts of the submarine cable system lie within the
territorial jurisdiction of the taxing authorities and Capwire
also failed to pay under protest.
Ruling
In disputes involving real property taxation, the
general rule is to require the taxpayer to first avail of
administrative remedies and pay the tax under protest before
allowing any resort to a judicial action, except when the
assessment itself is alleged to be illegal or is made without
legal authority.
Submarine or undersea communications cables are
akin to electric transmission lines which this Court has
recently declared in Manila Electric Company v. City Assessor
and City Treasurer of Lucena City, as "no longer exempted
from real property tax" and may qualify as "machinery"
subject to real property tax under the Local Government Code.
23. City of Lapulapu v. PEZA
PEZA was created by Special Economic Zone Act of
1995 to replace EPZA of Bataan and MEPZA of Mactan where
all properties were transferred to PEZA. Lapulapu assessed
RPT on properties located in Mactan. City pointed out that no
provision in the Special Economic Zone Act of 1995
specifically exempted the PEZA from payment of RPT like Sec
21 of PD No. 66 that explicitly provided for EPZA’s exemption.
Since no legal provision explicitly exempted the PEZA from
payment of RPT, the City argued that it can tax the PEZA.
Issue
Whether the PEZA is exempt from payment of real
property taxes ?
HELD :
YES, the PEZA is exempt from payment of real
property taxes. PEZA is an instrumentality of the national
government. The lands owned by the PEZA are real properties
owned by the Republic of the Philippines. So, the City of Lapu-
Lapu and the Province of Bataan cannot collect real property
taxes from the PEZA.

24. NPC v. Prov Treas of Benguet

NPC was assessed of RPT. It challenged legality of assessemnt

contending it is exempt. LBAA deferred the proceedings upon
NPC's payment under protest of the assessed amount, or upon
filing of a surety bond to cover the disputed amount of tax.
NPC filed a petition for review before the Central Board of
Assessment Appeals (CBAA) claiming that payment under
protest was not required before it could challenge the
authority of respondents to assess tax on tax exempt
properties before the LBAA.

Issue

WON payment under protest is necessary.

Ruling

Yes. Settled is the rule that should the taxpayer/real

property owner question the excessiveness or
reasonableness of the assessment, Section 252 of the LGC of
1991 directs that the taxpayer should first pay the tax due
before his protest can be entertained.