Week 9: December 19-20

Power of Taxation
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. (Section 5, Article X, 1991 LGC)
Local government units may exercise the power to levy taxes, fees or charges on any base or
subject not otherwise specifically enumerated herein or taxed under the provisions of the
National Internal Revenue Code, as amended, or other applicable laws: Provided, That the taxes,
fees, or charges shall not be unjust, excessive, oppressive, confiscatory or contrary to declared
national policy: Provided, further, That the ordinance levying such taxes, fees or charges shall
not be enacted without any prior public hearing conducted for the purpose. (Section 186, 1991
LGC)
The procedure for approval of local tax ordinances and revenue measures shall be in accordance
with the provisions of this Code: Provided, That public hearings shall be conducted for the
purpose prior to the enactment thereof: Provided, further, That 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: 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: 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. (Section 186, 1991 LGC)
Local government units may, through ordinances duly approved, grant tax exemptions,
incentives or reliefs under such terms and conditions as they may deem necessary. (Section 192,
1991 LGC)

Cases:

1. Mactan Cebu International Airport Authority vs. Marcos, G.R. No. 120082,
September 11, 1996

FACTS:

Under its charter, the MCIAA shall be exempt from realty taxes imposed by the National
Government or any of its political subdivisions, agencies and instrumentalities. In 1994, the
Local Government Unit (LGU) of Cebu City demanded payment for realty taxes on several
parcels of land belonging to MCIAA.

MCIAA objected to the same as baseless and unjustified, claiming its exemption under its
charter. Also, it cites the LGC stating that LGUs taxing power does not extend to taxes, fees
or charges of any kind on the National Government, its agencies and instrumentalities, and
local government units.

Cebu City countered, however, citing Sections 193 and 234 of the LGC which withdraw tax
exemptions of GOCCs and realty tax exemptions previously granted to ore presently enjoyed
by all persons, whether natural or juridical, including GOCCs.
 MCIAA paid tax under protest. It insisted that the taxing powers of LGUs do not extend to
the levy of taxes or fees of any kind on an instrumentality of the national government. It also
insisted that while it is indeed a GOCC, it nonetheless stands on the same footing as an
agency or instrumentality of the national government by the very nature of its powers and
functions.

ISSUES:

[1] Is MCIAA a taxable person?

[2] Is MCIAA exempt from realty taxation?

HELD:

[1] Yes, although it previously enjoyed exemption from realty tax under its charter (which
has already been withdrawn by the LGC), this exemption extended only to said tax, not to
other taxes. Hence, MCIAA is still a taxable person.

[2] No, MCIAA is not exempt from realty tax by the City of Cebu. First, its tax exemption
under its charter has already been withdrawn. Second, while it is true that LGUs cannot levy
tax on property of the Republic of the Philippines or the National Government (outside
Metro Manila), the beneficial use of property should not be given to a taxable person.

Here, MCIAA is already the owner of the parcels of land in question. Hence, even the
exemption under the LGC cannot apply.

2. Municipality of Cainta v. City of Pasig, G.R. Nos. 176703 & 176721 28 June 2017

SUMMARY OF RULING: Considering that the TCTs show that the subject properties are
located in Pasig, Pasig is deemed the LGU entitled to collect local business taxes and realty
taxes, as well as relevant fees and charges until an amendment, if any, to the location stated
therein is ordered by the land registration court after proper proceedings.

FACTS: Petitioner Uniwide does business on parcels of land covered by Transfer Certificate
of Title (TCT) Nos. 72983, 74003, and PT-74468 (subject properties). The location of the
parcels of land is indicated as being in Pasig.

In 1989, Uniwide applied for and was issued a building permit by Pasig for its building.
Uniwide also secured the requisite Mayor's Permit for its business from Pasig and
consequently paid thereto its business and realty taxes, fees, and other charges from 1989 to
1996.

However, beginning 1997, Uniwide did not file any application for renewal of its Mayor's
Permit in Pasig nor paid the local taxes thereto. Instead, it paid local taxes to Cainta after the
latter gave it notice, supported by documentary proof of its claims, that the subject properties
were within Cainta's territorial jurisdiction.

Pasig filed a case for collection of local business taxes, fees, and other legal charges due for
fiscal year 1997 against Uniwide with the RTC-Pasig. Uniwide, in turn, filed a third-party
complaint against Cainta for reimbursement of the taxes, fees, and other charges it had paid
to the latter in the event that Uniwide was adjudged liable for payment of taxes to Pasig.

On 6 May 1999, Uniwide sold the subject properties to Robinsons Land Corporation.

Prior to the institution of said tax collection case, Cainta had filed a petition for the
settlement of its boundary dispute with Pasig in RTC-Antipolo.

Cainta filed a Motion to Dismiss or Suspend Proceedings on the ground of litis pendentia on
6 November 2001, in view of the pending petition for settlement of the land boundary
dispute with Pasig. RTC-Pasig denied the motion. Reconsideration denied.

Thereafter, Cainta filed a petition for certiorari with the CA with prayer for TRO. No TRO
was issued. CA dismissed Cainta's petition.

RTC-Pasig ruled in favor of Pasig. Indefeasibility of the Torrens title indicating Pasig as
location. Cannot collaterally attack Torrens title. Pasig has the right to collect, administer,
and appraise business taxes, real estate taxes, and other fees and charges from 1997 up to the
present. Ordered Uniwide to pay Pasig local taxes and fees and real estate taxes beginning
1997, as well as attorney's fees at 500K plus costs.

As to Uniwide against Cainta, RTC-Pasig ruled for Uniwide. Directed Cainta to return these
amounts to Uniwide pursuant to the principle against unjust enrichment, plus attorney's fees
and costs.

ISSUES:

For local taxes, whether the location of property should be determined by that indicated in
the TCT despite documents showing otherwise;
Whether the action for tax collection can proceed despite the pendency of the boundary
dispute case and the petition for certiorari before the CA;
If ever, whether Pasig should recover the taxes due directly from Cainta, not from Uniwide;
Whether Uniwide should pay real propety taxes to Pasig as ordered by the RTC;
Whether Cainta should return the taxes paid by Uniwide; and
Whether the award of attorney's fees was proper.

HELD: THE PETITIONS ARE GRANTED.

FIRST ISSUE: For purposes of complying with local tax liabilities, the taxpayer is entitled to
rely on the location stated in the certificate of title.

Under the Local Government Code (LGC), local business taxes are payable for every
separate or distinct establishment or place where business subject to the tax is conducted,
which must be paid by the person conducting the same. Section 150 therein provides the situs
of taxation.The tax thereon shall accrue and shall be paid to the municipality where such
branch or sales outlet is located.

Since it is clear that local business taxes and realty taxes are to be collected by the local
government unit where the business is conducted or the real property is located, the
primordial question is: how is location determined for purposes of identifying the LGU
entitled to collect taxes.
The location stated in the certificate of title should be followed until amended through proper
judicial proceedings.
In Odsique v. Court of Appeals, the Supreme Court held that a certificate of title is
conclusive not only of ownership of the land but also its location.

Moreover, the Implementing Rules and Regulations (IRR) of the LGC provides that in case
of a boundary dispute, the status of the affected area prior to the dispute shall be maintained
and continued for all purposes. Until ordered by a land registration court to be amended, the
location stated in the TCTs shall be presumed correct and subsisting for the purpose of
determining which LGU has taxing jurisdiction over the subject properties.

SECOND ISSUE: The action for tax collection can proceed despite the pendency of the
boundary dispute case before the RTC-Antipolo and the petition for certiorari before the CA.

There was no litis pendentia or forum shopping as would justify the dismissal of the tax
collection case. The test to determine the existence of forum shopping is whether the
elements of litis pendentia are present, or whether a final judgment in one case amounts to
res judicata in the other.

Uniwide is not a party to the boundary dispute case between Cainta and Pasig, and the first
action is for settlement of boundary dispute while the second action is for collection of tax.

Judgment in the boundary dispute case will not amount to res judicata in the tax collection
case. Moreover, the boundary dispute case DOES NOT present a prejudicial question to
suspend of the tax collection case.

As to the petition in the CA, a special civil action for certiorari under Rule 65 is an original
or independent action. An independent action does not interrupt the course of the case unless
there be a writ of injunction stopping it.

THIRD ISSUE: There is also no merit to Uniwide's contention that Pasig should directly
recover from Cainta the tax payments under consideration, as a matter of expediting and
inexpensively settling the tax liabilities.

It is undisputed that Uniwide is the person conducting the business under consideration.
Thus, it is the person against whom Pasig may properly pursue for payment of local business
taxes.

FOURTH ISSUE: It is wrong to direct Uniwide to also pay real estate taxes to Pasig for the
applicable years. In its complaint, Pasig did not allege that Uniwide is also liable for payment
of real estate taxes.

In fact, as alleged by Pasig and admitted by Uniwide in its answer, the realty taxes for the
subject properties are paid by their registered owner. The subject TCTs are registered under
the name of Uniwide Sales Realty and Resources Corporation ("USRRC"), an affiliate of
Uniwide, and a corporation with separate and distinct personality from the latter which is not
a party to the case at bar, further considering that the subject properties had already been
conveyed to Robinsons Land Corporation on 6 May 1999.

In fine, for lack of sufficient proof to hold Uniwide liable for real estate taxes, it must only be
liable to pay local business taxes to Pasig for the applicable years.
 FIFTH ISSUE: Cainta is obligated to return the taxes erroneously paid to it by Uniwide
pursuant to the principle against unjust enrichment. The principle of unjust enrichment has
two conditions. First, a person must have been benefited without a real or valid basis or
justification. Second, the benefit was derived at another person's expense or damage.

As previously discussed, prior to final adjudication by the RTC-Antipolo on the boundary

dispute case and necessary amendment to the TCTs, Cainta has no apparent right to collect
the taxes on the subject properties. Thus, when Uniwide paid taxes to it, Cainta was benefited
without real or valid basis, which benefit was derived at the expense of both Uniwide and
Pasig.

SIXTH ISSUE: The award of attorney's fees is not proper.

The award of attorney's fees is improper because the RTC-Pasig automatically awarded the
same in the dispositive portion of its decision without stating the factual or legal basis
therefor in the body of the decision.

The award of attorney's fees is the exception rather than the general rule. As such, it is
necessary for the trial court to make findings of fact and law that would bring the case within
the exception and justify the grant of such award. The matter of attorney's fees cannot be
mentioned only in the dispositive portion of the decision. They must be clearly explained and
justified by the trial court in the body of its decision.

3. Petron Corporation v. Tiangco, G.R. No. 158881, April 16, 2008

FACTS:

Petron maintains a depot or bulk plant at the Navotas Fishport Complex, and through that
depot, it has engaged in the selling of diesel fuels to vessels used in commercial fishing in
and around Manila Bay.

Petron received a letter from the office of Navotas Mayor, respondent Toby Tiangco,
wherein the corporation was assessed taxes relative to the figures covering sale of diesel,
stating the total amount due of P6,259,087.62, a figure derived from the gross sales of the
depot from 1997 to 2001. The computation sheets that were attached to the letter made
reference to Ordinance 92-03, or the New Navotas Revenue Code (Navotas Revenue Code),
though such enactment was not cited in the letter itself.

Petron filed with the Malabon RTC a Complaint for Cancellation of Assessment for
Deficiency Taxes with Prayer for the Issuance of a Temporary Restraining Order (TRO)
and/or Preliminary Injunction. The RTC rendered its Decision dismissing Petron’s complaint
and ordering the payment of the assessed amount.

Petron has opted to assail the RTC Decision directly before this Court since the matter at
hand involves pure questions of law, a characterization conceded by the RTC Decision itself.
Particularly, the controversy hinges on the correct interpretation of Section 133(h) of the
LGC, and the applicability of Article 232 (h) of the IRR.

Section 133(h) of the LGC reads as follows:

Sec. 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:

xxx

(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as
amended, and taxes, fees or charges on petroleum products;

ISSUE:

Whether a local government unit is empowered under the Local Government Code to impose
business taxes on persons or entities engaged in the sale of petroleum products.

RULING:

Evidently, Section 133 prescribes the limitations on the capacity of local government units to
exercise their taxing powers otherwise granted to them under the LGC. Apparently,
paragraph (h) of the Section mentions two kinds of taxes which cannot be imposed by local
government units, namely: excise taxes on articles enumerated under the NIRC; and taxes,
fees or charges on petroleum products.

The power of a municipality to impose business taxes is provided for in Section 143 of the
LGC. Under the provision, a municipality is authorized to impose business taxes on a whole
host of business activities. Suffice it to say, unless there is another provision of law which
states otherwise, Section 143, broad in scope as it is, would undoubtedly cover the business
of selling diesel fuels, or any other petroleum product for that matter.

As earlier observed, Section 133(h) provides two kinds of taxes which cannot be imposed by
local government units: excise taxes on articles enumerated under the NIRC, as amended;
and taxes, fees or charges on petroleum products. There is no doubt that among the excise
taxes on articles enumerated under the NIRC are those levied on petroleum products, per
Section 148 of the NIRC.

The power of a municipality to impose business taxes derives from Section 143 of the Code
that specifically enumerates several types of business on which it may impose taxes,
including manufacturers, wholesalers, distributors, dealers of any article of commerce of
whatever nature; those engaged in the export or commerce of essential commodities;
retailers; contractors and other independent contractors; banks and financial institutions; and
peddlers engaged in the sale of any merchandise or article of commerce. This obviously
broad power is further supplemented by paragraph (h) of Section 143 which authorizes the
sanggunian to impose taxes on any other businesses not otherwise specified under Section
143 which the sanggunian concerned may deem proper to tax.

This ability of local government units to impose business or other local taxes is ultimately
rooted in the 1987 Constitution. Section 5, Article X assures that [e]ach local government
unit shall have the power to create its own sources of revenues and to levy taxes, fees and
charges, though the power is subject to such guidelines and limitations as the Congress may
provide. There is no doubt that following the 1987 Constitution and the Code, the fiscal
autonomy of local government units has received greater affirmation than ever. Previous
 decisions that have been skeptical of the viability, if not the wisdom of reposing fiscal
autonomy to local government units have fallen by the wayside.

Respondents cite our declaration in City Government of San Pablo v. Reyes that following
the 1987 Constitution the rule thenceforth in interpreting statutory provisions on municipal
fiscal powers, doubts will have to be resolved in favor of municipal corporations. Such
policy is also echoed in Section 5(a) of the Code, which states that any provision on a power
of a local government unit shall be liberally interpreted in its favor, and in case of doubt, any
question thereon shall be resolved in favor of devolution of powers and of the lower local
government unit. But somewhat conversely, Section 5(b) then proceeds to assert that [i]n
case of doubt, any tax ordinance or revenue measure shall be construed strictly against the
local government unit enacting it, and liberally in favor of the taxpayer. And this latter
qualification has to be respected as a constitutionally authorized limitation which Congress
has seen fit to provide. Evidently, local fiscal autonomy should not necessarily translate into
abject deference to the power of local government units to impose taxes.

4. Municipality of Alfonso Lista, Ifugao vs. Court of Appeals G.R. No. 191442, July 27,
2016

SUMMARY OF RULING: A pioneer enterprise registered with the BOI has a clear and
unmistakable right to be exempt from paying LBTs under the Local Government Code. However,
SNAPM's entitlement to a six-year exemption from LBTs already expired on July 12, 2013; hence,
the municipality now has the right to collect LBTs from SNAPM.

FACTS: SNAPM is a corporation engaged in the financing and acquisition of hydropower

generating facilities privatized by the Power Sector Assets and Liabilities Management Corporation
(PSALM). On December 31, 2006, SNAPM entered into an agreement with PSALM to acquire the
Magat Power Plant located along the boundary of Alfonso Lista, Ifugao, and Ramon, Isabela.
SNAPM registered its power plant operation as a pioneer enterprise with the Board of Investments
(BOI). BOI approved the application on July 12, 2007. The Local Government Code exempts BOI-
registered pioneer enterprises from the payment of local business taxes (LBTs) for a period of 6 years
from the date of registration. SNAPM however, overlooked this exemption and paid its LBTs for the
year 2007. On January 20, 2009, SNAPM realized its mistake and notified the officials of Alfonso
Lista, Ifugao, of its exemption from paying LBTs until July 11, 2013. However, the mayor refused to
recognize the exemption. He threatened to withhold the issuance of a mayor‘s Permit should SNAPM
refuse to pay its LBTs. On January 29, 2009, SNAPM paid its LBTs for the first quarter of 2009
under protest. In return, the mayor of Alfonso Lista issued a temporary mayor‘s permit effective only
until March 15, 2009. On February 16, 2009, SNAPM presented the Municipality with a letter from
the BOI that confirmed its exemption from paying LBTs for a period of six (6) years from July 12,
2007. Nevertheless, the municipality refused to recognize SNAPM‘s exemption.

March 4, 2009, SNAPM filed an administrative claim with the Municipal Treasurer for a tax refund
or tax credit of its paid LBTs. On March 6, 2009, SNAPM also filed a complaint for injunction (with
an application for a Temporary Restraining Order [TRO] and/or a writ of preliminary injunction)
before the RTC against the municipality. March 18, 2009, the RTC denied SNAPM‘s application for
a TRO.

ISSUE: Whether or not a pioneer enterprise registered with the BOI is exempt from local business
tax

HELD: A pioneer enterprise registered with the BOI has a clear and unmistakable right to be exempt
from paying LBTs under the Local Government Code. However, SNAPM's entitlement to a six-year
exemption from LBTs already expired on July 12, 2013; hence, the municipality now has the right to
collect LBTs from SNAPM.

5. Smart Communications vs. Municipality of Malvar, Batangas, G.R. No. 204429,

February 18, 2014
6. City of Pasig vs. MERALCO, GR No. 181710, March 7, 2018
7. National Power Corporation vs. City of Cabanatuan, G.R. No. 177332, October 1, 2014
8. Demaala v. COA, G.R. No. 199752, February 17, 2015
9. Film Development Council of the Philippines vs. City of Cebu et al, G.R. No. 204418,
June 16, 2015
10. Ferrer vs. Bautista, G.R. No. 210551, June 30, 2015
11. Metropolitan Waterworks and Sewerage System vs. The Local Government of Quezon
City, G.R. No. 194388, November 7, 2018
12. University of the Philippines vs. City Treasurer of Quezon City, G.R. No. 214044, June
19, 2019