Appraisal & Assessment of

Real Property Tax

Chapter 4
Limitations on the power of LGU to administer,
appraise, levy & collect real property taxes
• Inherent limitations
• Constitutional limitations
• Authorization limitation under RA7160
• Fundamental principles of appraisal, assessment, levy & collection
• Common limitations
• Collection shall accrue solely to the benefit of LGU
LGUs authorized to administer real property tax
• Provinces
• Cities
• Municipalities within Metropolitan Manila Area (MMA)
Municipalities outside MMA shall not levy real property tax but they
may impose special levy or assessment.
Assessment
• The act or process of determining the value of property or portion
thereof subject to tax, including discovery, listing, classification &
appraisal of properties
Appraisal
• The act or process of determining the value of property as of a
specific date for a specific purpose
Procedures for declaration, appraisal & assessment of real
property for tax purposes
• General Revision of Assessments and preparation of the Fair Market
Value Schedules
• Assistance rendered by various persons & officials in the listing,
appraisal & assessment of real property taxes
• Filing by the taxpayer of a tax declaration showing the description,
classification & value of his property
• Appraisal of the real property
• Assessment of the real property for tax purposes
Duties of Registrars of Deeds
• Prepare & submit abstract of his registry to the provincial, city &
municipal assessor
• Submission is within 6 months from RA7160 effectivity & every year
thereafter
• Abstract details:
a. Brief but sufficient description of real properties entered therein
b. Present owners
c. Date of their most recent transfer or alienation
Duties of building officials
• Furnish provincial, city & municipal assessor where property is
situated within 30 days
• Copy of permit for construction, addition, repair or renovation of a
building or permanent improvement on land or certificate of
registration for any machinery attached to land or building
Duties of Geodetic Engineers
• Submit free of charge to provincial, city & municipal assessor
• White or blue print copy of each of all approved original or
subdivision plans or maps of surveys executed by them
• Within 30 days from receipt of such plans Land Management Bureau
Duties of Notaries Public
• Furnish provincial, city and municipal assessor
• Copies of all contracts – selling, transferring, conveying, leasing or
mortgaging real property acknowledged by them
Duties of Insurance Companies
• Furnish the provincial, city or municipal assessor
• Copies of any contract or insurance policy on buildings, structure or
improvements insured by them
Rule on appraisal of real property
• All real property whether taxable or exempt shall be appraised at
CURRENT & FAIR MARKET VALUE prevailing in the locality where
property is situated
LGC SEC. 201
Fair market value
• The price at which a property may be sold by a seller who is not
compelled to sell and bought by a buyer who is not compelled to buy
LGC. SEC. 199
Fair market value (FMV) vs. assessed value (AV)

FMV
• Declared by the owner subject
to final determination by the
assessor
• The actual value of the real
property in the open market
AV
• Determined by the application of
the assessment level to the FMV
• Merely a percentage of the FMV
depending on the applicable
assessment level
Approaches in estimating fair market value
• Sales analysis approach
• Income capitalization approach
• Reproduction cost approach
Sales analysis approach
• Sales price paid in actual market transactions is considered by taking
into account valid sales data accumulated from various sources
Income Capitalization approach
• The value of an income-producing property is no more than the
return derived from it
• Net Operating Income (I) / Capitalization Rate (R) = Property Market
Value (V)
Reproduction cost approach
• Formal approach used exclusively in appraising man-made
improvements such as buildings and other structures, based on such
data as materials and labor costs to reproduce their new replica
Q&A
A proviso in an ordinance states that “parcels of land sold, ceded,
transferred and conveyed for remuneratory consideration after the
effectivity of this revision shall be subject to real estate tax based on
the actual amount reflected in the deed of conveyance or the current
approved zonal valuation prevailing at the time of sale, cession,
transfer or conveyance, whichever is higher, as evidenced by certificate
of payment of capital gains tax (CGT) issued therefore”. Is this valid?
Real property owners burdened by rental freezing
laws NOT subject to higher assessments
Reasons:
a. It has much lower value than those not subject to rental restrictions
b. Based on principle of social justice
c. The purpose of taxation is the promotion of common good
Acquisition cost cannot be & is not sole basis
of current & FMV of a property
• The current value of like properties and their actual or potential users
are also considered
• This is unrealistic as the value of real property does not remain
stagnant
Dams of Mining companies
• Tailings dams, being immovable in nature is subject to real property
tax
• Siltation dam and decant system which are intended for pollution
control:
• Exempt if assessment is after April 14, 1995 (passage of Mining Act RA7942)
• Subject to realty tax if assessment is before April 14, 1995
Listing of Real Property in Assessment Rolls
• As a general rule, real property shall be listed, valued and assessed in
the name of the owner or administrator, or anyone having legal
interest in the property
Listing of Real Property in Assessment Rolls …(continued)

• Undivided real property of deceased person:

1. Name of estate, or
2. Heirs and devisees without designating them individually
Listing of Real Property in Assessment Rolls …(continued)

• Undivided real property other than that owned by a deceased person:

➢In the name of one or more co-owners
➢Each heir, devisee or co-owner shall be liable severally and proportionately
for the payment of all real property taxes and other obligation with respect to
the undivided property
Listing of Real Property in Assessment Rolls …(continued)

• Real property of a corporation, partnership or association:

➢Same as individual
• Real property owned by the Republic
1. In the name of the possessor or grantee, if beneficial use is granted to him
2. Public Entity, if property is held for resale or lease
Effect of assessment
• It fixes and determines the tax liability of the taxpayer
• Assessor is mandated under Section 223 of LGC to give notice to the
person in whose name the property is declared within 30 days from
assessment
When the classification, appraisal & assessment made by assessor

• Declaration and listing of property for the first time

• Ongoing general revision of property classification or assessment
• Request made by declarant of property
Declaration of real property
• Purpose of tax declaration:
➢to determine the assessment levels
• Real property shall be classified, valued & assessed on the basis of
actual use regardless of:
• Where located
• Whoever owns it
• Whoever uses it
Nature of tax declaration
• It is not title to the property and does not prove ownership
• The only instance when court allowed tax declaration as proof of
ownership is in the absence of a certificate of title
• Real property tax receipts are good indicia of possession in the
concept of an owner
• Delayed tax declaration negates claim of possession in concept of
owner
Nature of tax declaration …(continued)
• Tax declaration in the name of a person who has no successional or
administrative rights to a decedent’s estate is null and void
• Non-declaration of a property for tax purposes does not necessarily
negate ownership
• Tax declarations enjoy presumption of regularity
Declaration of property by owner or administrator

• Owner or administrator shall file with provincial, city or municipal

assessor, a sworn statement declaring the true value of their property
• Filing shall be made once every 3 years during the period, January 1
to June 30 commencing with calendar year 1992
• LGC SEC. 202
Duty of person acquiring or improving property
• He shall file with provincial, city or municipal assessor, a sworn statement
declaring the true value of property within 60 days from acquisition or upon
completion or occupancy of improvement, whichever comes earlier
• Failure to do so will make the assessment in the name of the previous owner
binding
• LGC SEC. 203
Notification of transfer of real property ownership

• Persons transferring real property ownership shall notify provincial,

city or municipal assessor within 60 days from transfer
• Notification shall include mode of transfer, description of property
alienated, as well as name & address of transferee
Declaration of real property by assessor
• If the person fails to declare a real property within prescribed period,
the provincial, city or municipal assessor shall himself declare such
property and assess it for taxation
• No oath shall be required of this declaration made by assessor
• LGC SEC. 204
Real property identification system
• All real property declaration shall be kept and filed under a uniform
classification system
• LGC SEC. 207
Q&A
A lot in Caloocan is leased to a “Hospicio” to be used exclusively for
purely charitable purposes and is so used. The owner, an individual,
did not declare the lot for real property tax purposes on the belief that
it is exempt, being exclusively devoted to purely charitable purposes.
The assessor believed otherwise and issued a tax declaration and
assessment notice on the individual owner on the theory that the
owner is not himself exempt for he is not a charitable institution. Is the
assessor right in what he does?
Q&A
The real property of Mr. & Mrs. Angeles, situated in a commercial area
in front of the public market, was declared in their Tax Declaration as
residential because it had been used by them as their family residence
from the time of its construction in 2000. However, in January 2010,
when the spouses left for the USA to stay there permanently with their
children, the property has been rented to a single proprietor engaged
in the sale of appliances and agri-products. The Provincial Assessor
reclassified the property as commercial for tax purposes starting
January 2013. Mr. & Mrs. Angeles appealed to the Local Board of
Assessment Appeals contending that the Tax Declaration previously
classifying their property as residential is binding. Do you think their
appeal will succeed?
Preparation of schedules of fair market values
• To be done by assessor before any revision of property assessment
• Once complete, it must be published in a newspaper of general
circulation or posted in provincial capitol, city or municipal hall and in
2 other conspicuous places within the LGU concerned
• LGC SEC. 212
Authority of assessor to take evidence
• Assessor my summon owners or persons having legal interest therein
for the purpose of obtaining information on which to base the market
value of any real property
• LGC SEC. 213
Amendment of schedule of fair market values
• Provincial, city or municipal assessor may recommend to the
sanggunian amendments to correct errors in valuation in the
schedule of fair market values
• Sanggunian shall, by ordinance, act upon such recommendation
within 90 days from receipt
• LGC SEC. 214
Classes of Real Property
• Residential – for habitation
• Agricultural – for planting, livestock raising, salt-making, etc.
• Commercial – devoted principally for the object of profit
• Industrial – for industrial activity
• Mineral – lands for metallic & non-metallic minerals in sufficient
quantity
• Timberland – land covered with forest suitable or managed for timber
• Special
• LGC SEC.215
Special Classes of Real Property
• All lands, building and other improvements thereon, actually, directly
and exclusively used for hospitals, cultural or scientific purposes
• Those owned and used by local water districts and GOCCs engaged in
the supply & distribution of water and/or generation & transmission
of electric power
• These properties have lower assessment levels
• LGC SEC. 216
Basis of power to enact zoning ordinances
• Zoning classification is an exercise by the local government of police
power, NOT the power of eminent domain
• Official zoning map is an integral part of zoning ordinance
Actual Use of Property
• The purpose for which the property is principally or predominantly
utilized by the person in possession thereof
• It is the basis for assessment regardless of where located, whoever
owns it and whoever uses it
Assessment levels
• The percentage applied to the fair market value to determine the
taxable value of the property
• To be fixed by ordinances of sangguaniang panlalawigan, panlungsod
or bayan
Multiple Choice
For purposes of real property taxes, the tax rates are applied on:
a. Zonal values
b. Fair market values
c. Assessed values
d. Reproduction values
Maximum Assessment Level for Lands
Class: Assessment Levels

Residential 20%

Agricultural 40%

Commercial 50%

Industrial 50%

Mineral 50%

Timberland 20%
Maximum Assessment levels for Building &
other structures:
Residential: Fair market value over Value not over Assessment levels
P 175,000 0
P 175,000 300,000 10%
300,000 500,000 20%
500,000 750,000 25%
750,000 1,000,000 30%
1,000,000 2,000,000 35%
2,000,000 5,000,000 40%
5,000,000 10,000,000 50%
10,000,000 Over 60%
Maximum Assessment levels for Building &
other structures: …(continued)
Agricultural: Fair market value over Value not over Assessment level

P 300,000 25%
P 300,000 500,000 30%
500,000 750,000 35%
750,000 1,000,000 40%
1,000,000 2,000,000 45%
2,000,000 Over 50%
Maximum Assessment levels for Building &
other structures: …(continued)
Commercial: Fair market value over Value not over Assessment levels
P 300,000 30%
P 300,000 500,000 35%
500,000 750,000 40%
750,000 1,000,000 50%
1,000,000 2,000,000 60%
2,000,000 5,000,000 70%
5,000,000 10,000,000 75%
10,000,000 over 80%
Maximum Assessment levels for Building &
other structures: …(continued)
Timberland: Fair market value over Value not over Assessment levels
P 300,000 45%
P 300,000 500,000 50%
500,000 750,000 55%
750,000 1,000,000 60%
1,000,000 2,000,000 65%
2,000,000 over 70%
Maximum Assessment levels for:
Machineries:
CLASS: Assessment Levels
Agricultural 40%
Residential 50%
Commercial 80%
Industrial 80’%
Maximum Assessment levels for lands,
buildings, machineries & other improvements
Special Classes:
ACTUAL USE Assessment Levels
Cultural 15%
Scientific 15%
Hospital 15%
Local water districts 10%
Government owned /controlled 10%
corporation (GOCC) engaged in
supply/distribution of water/electric
power
Assessed value or taxable value
• The fair market value of the real property multiplied by the
assessment level
• Synonymous to taxable value
General revisions of assessments & property classification

• The provincial, city or municipal assessor shall undertake a general

revision of real property assessments within two (2) years after the
effectivity of RA7160 and every three (3) years thereafter.
• LGC SEC. 219
Reassessment
• Assigning of new values to property, particularly real estate as the
result of general, partial or individual reappraisal of property
Instances of reassessment
• Real property is declared and listed for taxation for the first time
• There is an ongoing general revision of property classification and
assessment
• A request is made by the person in whose name the property is
declared
Special Revision
• Within 90 days from partial or total destruction, major change in
actual use, any great or sudden inflation or deflation of property
values, gross illegality of assessment or other abnormal causes
Steps in mandatory general revision of real property assessments

1. Preparation of the Schedule of fair market values

2. The enactment of ordinances:
a. Levying an annual ad valorem tax on real property & additional tax for
Special Education Fund
b. Fixing the assessment levels to be applied to the current & fair market value
c. Providing necessary appropriation to defray expenses incident thereto
d. Adopting the Schedule of Fair Market Values prepared by assessors
Notification of new or revised assessment
• To be made in written form to the person named in the tax
declaration by personal delivery ,registered mail or through punong
barangay’s assistance
• To be done by assessor within 30 days from a new or revised
assessment
• LGC SEC. 223
Valuation of real property
• To be made by assessor in cases where:
a. Real property is declared & listed for taxation for the first time
b. There is an ongoing general revision of property classification & assessment
c. Request is made by the person in whose name the property is declared
• Assessment of real property shall not be increased oftener than once
every 3 years, except when new improvements substantially
increases its value or of any change in its actual use
• LGC SEC. 220
Date of effectivity of assessment or reassessment

• All assessments or reassessments made after the first day of January

of any year shall take effect on the first day of January of the
succeeding year
• For reassessments due to special reasons, it shall take effect at the
beginning of the quarter following the reassessment
Assessment of property subject to back taxes
• Applicable to real property declared for the first time
• Back taxes shall be for a period not more than 10 years prior to initial
assessment
• No interest if paid on or before end of the quarter following the date
the notice of assessment was received by owner, otherwise 2%
interest will be added until fully paid
Appraisal & assessment of machinery
• Brand New: Fair market value shall be the acquisition cost
• All other cases: Computed using this formula:
Remaining economic life
--------------------------------- x Replacement or reproduction cost
Estimated economic life
Included in Acquisition Cost of Machinery
For locally acquired machinery:
• Actual cost
• Cost of transportation, handling and installation at the present site
For imported machinery:
• Cost in foreign currency converted to peso using rates fixed by BSP
• Freight, insurance, bank & other charges, arrastre & handling, duties & taxes
• Cost of inland transportation, handling and installation
Replacement or Reproduction Cost
• Cost that would be incurred on the basis of current prices in acquiring
equally desirable substitute property, or
• Cost of reproducing a new replica of the property on the basis of
current prices with the same or closely similar material
Depreciation allowance of machinery
• At a rate not exceeding 5% of original cost, replacement cost or
reproduction cost
• 20% of cost, replacement cost or reproduction cost shall be
maintained and assigned so long as it is still useful & in operation
End