Local-and-rptaxation-cgbp-2017 (1).pptx

Local and Real Property Taxation

by:

Atty. Nicasio C. Cabaneiro, CPA

Outline of this Seminar • Discuss General Principles pertinent to Local and Real property Taxation pursuant to Rep. Act No. 7160 (Local Gov’t. Code) • LGC is divided into 2 parts: Local Government Taxation and Real Property Taxation o Local Government Taxation covers imposition of license taxes and other burdens of provinces, cities, municipalities and barangays o Real Property Taxation covers a system of levy on real property imposed on a country-wide basis

• Cite Remedies of taxpayers aggrieved by actions of Sanggunian in the implementation of Rep. Act. No. 7160 and other jurisprudences

Objectives of this Seminar • Understand the inhabitants’ rights and obligations with LGUs • Be aware of the responsibilities of Local Officials in the effective discharge of duties to inhabitants • Determine ways to safeguard the self-sufficiency of LGUs in the light of the taxing powers granted by the constitution • Know how to seek redress should inhabitants be saddled with multiple and unreasonable impositions

• Discuss pertinent cases decided by the courts related to remedies of taxpayers against sanctions of the Sanggunian on ordinances issued

Sec.5 Article X of the 1982 Constitution “Each LGU shall have the power to create its own sources of revenue 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.”

• To implement this provision, Congress enacted Rep. Act No. 7160 Local Government Code of 1991 • Code was enacted on Oct. 10, 1991 and took effect on Jan. 01, 1992

Role of Congress • Congress cannot abolish Local Government’s power to tax as it cannot abrogate what is expressly granted by fundamental law • Only authority conferred to Congress is to provide the guidelines and limitations on the local government’s exercise of the power to tax • These guidelines and limitations are found in Local Government Code of 1991

Limitations Imposed on Congress Legislature must ensure that: 1. Taxpayer will not be overburdened with multiple and unreasonable impositions 2. Each LGU will have its fair share of available resources

3. Resources of the National Government will not be unduly disturbed 4. Local Taxation will be fair, uniform and just Manila Electric Co. vs. Province of Laguna, et.al. (G.R. No. 131359, May 5, 1999); NAPOCOR vs. City of Cabanatuan (G.R. No. 149110, April 9, 2003)

Fundamental Principles 1. Uniform in each Local Government Unit (LGU)

2. Taxes, Fees and Charges must be: a. Equitable and based on ability to pay b. Levied for public purpose c. Not excessive, unjust, oppressive or confiscatory d. Not contrary to law, public policy, national economic policy or in restraint of trade e. Cannot be let to any private person f. Progressive rate of tax (as far as practicable)

Excessive & Oppressive Taxation • In the case of First Philippine Industrial Corp. vs. CA (G.R. No. 125948, Dec. 29, 1998) • Petitioner assailed the validity of the ordinance that imposes a Local Tax while it is already paying a 3% Common Carrier’s Tax under the Tax Code

• Court ruled that to tax again the petitioner on Gross Receipts in its transportation of petroleum business would defeat the purpose of LGC under Sec. 130 • This section prohibits excessive and oppressive taxation

Rule of Interpretation on Taxes “In case of doubt, any tax ordinance or revenue measure shall be construed strictly against the LGU enacting it, and liberally in favor of the taxpayer. Any tax exemption, incentive or relief granted by any LGU pursuant to the provisions of this Code shall be construed strictly against the person claiming it.” - Sec. 5(b) of Local Gov’t. Code

Provisions of LGC are not self-operating since local taxing authority is limited under the ff. provisions: • Sec. 132 – “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.” • Sec. 54 to 59 provides for approval, review and effectivity of ordinances • Sec. 189 directs that there must be a public hearing prior to the enactment of any local tax ordinance or revenue measure

“Not so Inherent” Power to Tax • Power to Tax granted to local governments has boundary or limits

• Sec. 25 - Art. II in relation to Sec. 2 - Art. X of the Constitution lays down the rule that taxpayers should not to be saddled with multiple and unreasonable impositions • Since this power is not inherent, LG’s exercise of taxing powers must be consistent with limitations imposed by Congress • Power of LGU to impose tax must be anchored on an ordinance and in accordance with the LGC

Local Taxing Power and Authority 1. Cities – Sangguniang Panlungsod 2. Provinces – Sangguniang Panlalawigan 3. Municipalities – Sangguniang Pambayan 4. Barangay - Barangay Council

How does an Ordinance becomes a Law? 1. Must be made in writing accompanied by a note stating why it should be approved 2. Must be posted simultaneously in at least 4 public places within 10 days from filing 3. Written notices must be sent to affected parties 4. Must be referred to an appropriate Sanggunian Committee 5. Must prepare copies of proposed ordinance in the form it was passed on 2nd reading and provide a copy to each Sanggunian member

How does an Ordinance becomes a law? – cont. 6. Sanggunian holds public hearing 10 days after notices are sent or the last day of publication of proposed ordinance, whichever is later 7. Sanggunian passes the proposed ordinance and prepares the Minutes 8. Must be approved by majority of members present during the meeting for an ordinance to be valid 9. Approved ordinance must be stamped with the Seal of Sanggunian and recorded in their books

How does an Ordinance becomes a law? – cont. 10. Must be submitted and approved by the Mayor or Governor 11. Sanggunian can override a veto with 2/3 votes 12. Must be published in a local newspaper within 10 days of its approval before it takes effect (Tax ordinance will be null and void if it fails to comply with publication requirement [Coca-Cola vs. City of Manila, G.R. No. 156252, June 27,2006] )

13. Ordinance undergoes review

Common Limitations on Taxing Powers of LGUs Sec. 133 – Unless otherwise provided herein, 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 Fis) 2. Documentary Stamp Tax

3. Tax on estate, inheritance, gift, legacy and other acquisitions mortis causa 4. Customs duties, registration fees of vessel, wharfage on wharves, tonnage dues, customs fees Note: Opening phrase of Sec. 133, “Unless otherwise provided herein” means that the limitations are ABSOLUTE unless exceptions are specifically provided

Common Limitations on Taxing Powers of LGUs – cont. 5. Taxes, fees and charges upon goods carried into or out of territorial jurisdictions of LGUs 6. Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen

7. Taxes on business enterprises certified by BOI as pioneer or nonpioneer for a period of 6 and 4 years, respectively, from date of registration 8. Excise taxes on articles enumerated under NIRC and taxes, fees or charges on petroleum products

Common Limitations on Taxing Powers of LGUs – cont. 9. Percentage or VAT on sales, barters, or exchange of similar transactions on goods or services 10. Taxes on gross receipts of transportation contractors and persons engaged in the transportation of passengers, freight by hire and common carriers by air, land or water, except as provided in this Code The phrase “Except as provided in this code” refers to authority of LGs to levy annual fixed taxes on delivery vans of manufacturers, producers or dealers and also on the operation and franchising of tricycles (IRR of LGC, Art. 221[i])

Common Limitations on Taxing Powers of LGUs – cont. Same provision is found in Rep. Act No. 7716 - Expanded VAT Law, prohibition against taxation of common carriers by LGUs was reinforced as follows: “Gross receipts of common carriers derived from incoming and outgoing freight shall not be subject to local taxes imposed under Rep. Act. No. 7160 – LGC of 1991”

“Common carriers” in the Civil Code makes no distinction as to means of transporting whether by land, water or air. (First Phil Industrial Corp. vs CA G.R. No. 125948, Dec. 29, 1998)

11. Taxes on premiums paid by way of reinsurance or retrocession

12. Taxes, fees or charges for the registration of motor vehicles and for issuance of all kinds of licenses/ permits for driving except tricycles

Common Limitations on Taxing Powers of LGUs – cont. 13. Taxes, fees or charges on PH products actually exported, except as provided Sales of products from Export Processing Zones are not subject to Local Tax but preferential rate under Sec. 143c not exceeding ½ of rates prescribed under Sec. 143a, b and d 14. Taxes, fees or charges on Countryside and Barangay Business Enterprises (CBBEs) and Cooperatives registered under RA No. 6810 and 6398 CBBEs have been replaced by Barangay Micro Business Enterprises (BMBEs) under Rep. Act No. 9178

Common Limitations on Taxing Powers of LGUs – cont. 15. Taxes, fees or charges of any kind on the National Government, its agencies, instrumentalities and LGUs Property must be owned by the government or by its unincorporated agency to be covered by the tax exemption

TAXING POWERS OF LGUs Part I – Local Business Taxation  PROVINCE  Scope of its taxing power – “Except as otherwise provided in this Code, province may levy only the taxes, fees and charges as provided in this article.”

Clarification on Excise Tax on Petroleum • In the case of Petron Corp. vs. Tiangco (G.R. No. 158881, April 16, 2008) • Court ruled that since law does not distinguish, LGUs are prohibited from imposing not only excise tax on petroleum products but all taxes, fees and charges

• Sec. 133[h] comprehends a wider range of subjects and articles already covered under Excise Taxation of the Tax Code • While LGUs are authorized to burden other classes of goods with “taxes, fees and charges”, specific prohibition is imposed barring the levy of other types of taxes on petroleum products

Clarification on Taxes of Business Enterprises (BOI) • LGUs are prohibited from taxing business enterprises certified by BOI as Pioneer or Non-pioneer for a period of 6 and 4 years, respectively, from date of registration • Grant of Income Tax Holiday (ITH) for Registered Enterprises under E.O. 226 (Omnibus Investment Code of 1987) is subject to the ff. rules: o Fully-exempt – for 6 years from commercial operation for pioneer firms and 4 years for non-pioneer firms o Proportionate – for a period of 3 years from commercial operation, Registered Expanding Firms shall be entitled to ITH proportionate to their expansion under terms provided by BOI (E.O. 226, Title III, Art. 39)

Terms on Reinsurance Premiums • Reinsurance – Insurer procures a 3rd person to insure him against loss or liability by reason of such original insurance • Retrocession – Transaction where an insurer/ insurance entity (retrocessionaire) agrees to indemnify another insurance entity (reinsurer) against all or part of the loss that the latter sustains under a policy of reinsurance it has issued

Clarification on Marginal Farmer • Under Sec. 133, LGUs are prohibited to impose taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers • Marginal Farmer or Fisherman – individual engaged in subsistence farming or fishing which shall be limited to sale, barter or exchange of agricultural or marine products produced by himself and his immediate family (LGC, Sec. 131[p])

Exceptions to Sec. 133 • Customs duties are prohibited to be imposed by LGUs except on: o Wharfage on wharves constructed and maintained by the LGU

concerned o Issuance of licenses for operation of fishing vessels of 3 tons or less by

municipalities (LGC, Sec. 149[b][3] and cities (LGC, Sec. 151)

• Wharfage – fee assessed against the cargo of the vessel engaged in foreign or domestic trade based on quantity, weight or measure, received and/or discharged by the vessel (LGC, Sec. 131[y])

Exceptions to Sec. 133 – cont. • LGUs cannot impose taxes, fees, charges and other impositions upon goods carried into, out of, or passing through the territorial jurisdiction of LGUs • Municipalities have the power to tax or impose fees on vehicles using its roads but cannot tax the goods transported by vehicles

• LGUs may prescribe the terms and conditions for the imposition of toll fees on use of any public road, pier or wharf funded and constructed by them • Service fee imposed on vehicles using municipal roads leading to the wharf is valid

Exceptions to Sec. 133 – cont. • Sec. 133[e] of LGC prohibits the imposition (in the guise of wharfage and all other taxes) on goods or merchandise • So, it is irrelevant if the fees imposed are actually for police surveillance on goods because any other form of imposition passing through territorial jurisdiction of the municipality is clearly prohibited • Sec. 133[e] Palma Development Corp. vs. Municipality of Malangas (G.R. No. 152492, Oct. 16, 2003)

Exceptions to Sec. 133 – cont. • LGUs are prohibited to impose Percentage or VAT on sales or similar transactions on goods or services except: o By Provinces/ Cities (LGC, Secs. 136 and 140) - Taxes on Business of Printing/ Publication and Amusement Tax on Admission Fees

o By Municipalities/ Cities (LGC, Sec. 143) - Percentage Taxes on gross sales of manufacturers, wholesalers, distributors, dealers, and contractors

Exceptions to Sec. 133 – cont. • While LGUs are prohibited to impose taxes, fees or other charges on PH products actually exported, municipalities may impose taxes on exporters of essential commodities (LGC, Sec. 143[c] and Sec. 151) • In the case of Steniel Mindanao Packaging Corp. vs. City Treasurer of Davao (CTA AC No. 39, Nov. 27, 2008), Court said that to be considered an “exporter”, it is necessary that the business entity is engaged in exportation of goods • If taxpayer does not export its packaging materials but sells them to export-oriented enterprises, it is locally taxable as manufacturer under Sec. 143[a] of the LGC

Exclusionary Doctrine/ Principle of Pre-emption • Where National Government elects to tax a particular area, it withholds from the Local government the delegated power to tax the same field • Doctrine of Pre-emption principally rests on the intention of Congress

• Conversely, should Congress allow municipal corporations to cover fields of taxation it already occupies, then Doctrine of Pre-emption will not apply

Exclusionary Doctrine/ Principle of Pre-emption – cont. • This was ruled in the case of Victorias Milling Co. Inc. vs. Municipality of Victorias, Negros Occidental, (G.R. No. L21183, Sept. 27, 1968) • This is a jurisprudence under PD 231, LTC pursuant to 1973 Constitution

Taxing Powers of LGUs 1. Common Revenue-Raising Powers (Secs. 153-155) 2. Specific Powers (Secs. 135-143; 147-149; 151-152) 3. Community Tax (Sec. 156) 4. Residual Taxing Powers (Sec. 186)

Common Revenue-raising Power Terms 1. Toll – fee imposed on goods, or persons traveling public roads or bridges

2. Charge – pecuniary liability, as rents or fees against persons or property (LGC, Sec. 131[g]) 3. Fee – charge fixed by law or ordinance for the regulation or inspection of business (LGC, Sec. 131[l])

It includes charges fixed by law or agency for the services of a public officer in the discharge of his official duties (IRR of LGC, Art. 220[l]) Note: When public safety and welfare requires, the Sanggunian concerned may discontinue tcollection of tolls and said facility shall be free and open for public use (LGC, Sec. 155)

Common Revenue-raising Powers • SC ruled that it is the right of each LG to collect fees and charges in the exercise of its police power • Respective Sanggunian of each LG may by ordinance impose fees as long as these are commensurate with the cost of supervision of the acts sought to be regulated

• This is pursuant to Sec. 153 and 155 of LGC of 1991 (RA 7160)

Examples of Common Revenue-raising Powers 1. Reasonable fees and charges for services rendered (LGC, Sec. 153) 2. Public utility charges for operation of public utilities owned, operated and maintained by LGUs within their jurisdiction (LGC, Sec. 154) 3. 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

Examples of Common Revenue-raising Powers – cont. • Exception on reasonable fees and charges for services rendered (LGC, Sec. 153): 1. Officers and enlisted men of the AFP 2. Members of PNP on mission

3. Post Office personnel delivering mail 4. Physically handicapped and disabled citizens who are 65 years or older (LGC, Sec. 155)

Specific Powers of Provinces to Impose Taxes

a. Tax on Transfer of Real Property Ownership • Exemption from Transfer Tax has been granted to NHA (under RA 7279), Urban Development and Housing Act of 1997 (which later became an enactment) and prevails over LGC • Also exempted are Sales of individual lots/ house and lots by private sector developers of a low cost/ socialized housing project • Transfer Tax - based on total sale price of the property or its FMV and not on zonal values prescribed by BIR • Rate: Not exceeding 50% of 1% of total consideration or FMV of property, whichever is higher

b. Tax on Business of Printing and Publication • Imposed on business engaged in printing and/ or publication of books, cards, posters, leaflets, handbills, certificates, receipts, pamphlets and others of similar nature • Receipts from printing and publication of books and other reading materials prescribed by DECS as school text or reference are exempted from tax • Rate: 50% of 1% of the gross annual receipts for the preceding calendar year. In case of newly started business, tax shall not exceed 1/20 of 1% of the capital investment

c. Franchise Tax • May only be imposed on cities and provinces • Even if it is the municipality that granted the franchise, only the province may impose and collect tax • Sec. 197 of LGC withdrew the exemption or incentives granted to persons whether natural or juridical including GOCCs

c. Franchise Tax – cont. • Eg. San Pablo City may impose a Franchise Tax on Meralco City Gov’t of San Pablo vs. Meralco (G.R. No. 127708, March 25, 1999) • Rate: 50% of 1% of gross annual receipts for the preceding calendar year; 1/20 of 1% of capital investment in case of newly started business

c. Franchise Tax - cont. • Art. 12 - Sec. 11 of the Constitution recognizes the power of Congress to issue franchises for the operation of a public utility… to citizens of the PH or to corporations organized under the PH laws • Franchise Tax is imposed on legislative franchises of state-chartered corporations granted by the State

• Franchise tax is also imposed by LGUs on commercial franchises such as McDonald’s, Wendy’s, Pizza Hut, Dunkin Donuts, KFC, etc.

Franchise Tax Not Levied as an Ordinary Corp. • In the case of National Power Corp. vs. Cabanatuan City (G.R. No. 149110, April 9, 2003) • Franchise Tax - tax on the privilege of transacting business and exercising a corporate franchise granted by the state • It is not levied on a corporation simply for existing as a corporation, but on its exercise of the exclusive rights or privileges granted to it by the government

Franchise Tax Not Levied as an Ordinary Corp. – cont. • In the case of CIR vs. Philippine Airlines Inc. (G.R. No. 160528, Oct. 9, 2006, SC stated that “franchise” is a legislative grant to operate a public utility • It has been ruled that to be considered a public utility, the activity must be one of “public use”

Franchise & Local Business Tax Imposition • In the case of Sky Cable Corporation vs. Quezon City, (CTA AC No. 102, February 10, 2014) • It was ruled that simultaneous imposition of Franchise and Local Business Tax by the same taxing authority on the same subject matter and for the same taxable period does not constitute double taxation • Business Tax was imposed for the privilege of engaging in the business of contracting a system of communication • Franchise Tax was imposed for the exercise of enjoying a franchise

d. Tax on Sand, Gravel and Other Quarry Resources • DENR issued guidelines in the utilization and disposition of sand and lahar materials in the mineral reservation on laharaffected areas such as Pampanga, Tarlac and Zambales • DENR also provided guidelines on power of province to levy tax for extracted lahar material ceases

• A province may levy and collect tax on sand, gravel and others extracted only from public lands

d. Tax on Sand, Gravel and Other Quarry Resources – cont. • Sale of quarry resources from private lands is subject to Excise Tax and VAT under Sec. 106 of the NIRC • Rate: 10% of FMV per cubic meter of sand, gravel and other quarry resources

Sand & Gravel Fee • In the case of Province of Cagayan vs. Joseph Lasam Lara (G.R. No. 188500, July 24, 2013) • It was ruled that payment of Local Tax on sand, gravel and quarry resources and obtaining Business Permit from the LG are prerequisites before one can engage in quarrying operations

e. Professional Tax • Professionals who paid their Professional Tax to LGUs must still pay the License Fee of Professional Regulation Commission • SGV is subject to payment of Business Tax as an independent contractor as well as the payment of Mayor’s Permit Fee and other regulatory fees • General Professional Partnership (GPP) is not subject to a Local Business Tax or other tax as a Contractor

e. Professional Tax – cont. • Partners who compose the GPP are also not subject to Local Business Tax since they are already subject to Professional Tax • Amount: Php300 per profession

f. Amusement Tax • Amusement Places include “Places of Recreation” where one seeks admission to entertain himself by direct participation and admission fee must be paid • Admission fee is 10% of the gross receipts • Amusement Places include theaters, cinemas, concert halls, circuses and other similar places • These places are subject to 30% Amusement Tax and Business Tax based on Gross Receipts

Businesses Not Subject to Amusement Tax • In the case of Pelizloy Realty Corp. vs. Province of Benguet (G.R. No. 183137, Apr. 10, 2013) • It was ruled that resorts, swimming pools, bath houses, hot springs and tourist sports are not considered among “other places of amusement”, applying the Principle of Ejusdem generis

• Sec.140 of the LGC mentioned “proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement” shall be taxed at a rate of not more than 30% of the gross receipts from admission fees

No VAT on those covered by Amusement Tax • In the case of CIR vs. SM Prime Holdings Inc. (G.R. No. 183505, Feb. 26, 2010) • It was ruled that it is the intent of the Legislature not to impose VAT on persons already covered by Amusement Tax

• Thus, gross receipts derived from admission tickets in showing films or movies are subject to amusement tax and not VAT • It was emphasized that exemption from VAT is only limited to admission tickets • It does not extend to purchase or lease of cinematographic films which are subject to VAT

Places Not Subject to Amusement Tax • Under Sec. 125 of NIRC, the ff. places upon which provinces/cities cannot impose Amusement Tax (because the Tax Code already imposes Amusement Tax) include: o o o o o o o

Cockpits Cabarets Night or Day clubs Boxing Exhibitions Professional Basketball Games Jai-Alai Racetracks

g. Annual Fixed Tax for Delivery Truck, Van, Manufacturer/ Producer/ Wholesaler/ Dealer/ Retailer in Certain Products • Those who paid Annual Fixed Tax in the province may undertake deliveries in all municipalities within that province • Rate: Not exceeding Php500 for every delivery truck

Specific Powers of Municipalities to Impose Taxes

CITY and MUNICIPALITY City: • City may levy taxes, fees and charges which the province or municipality impose • The rate that the city can levy may exceed the max rate (allowed for province/ municipality) by not more than 50% except rates of professional and amusement taxes • Other businesses not classified in the previous slides may be subject to Excise Tax, VAT and Percentage Tax under NIRC

• Tax Rate shall not exceed 2% of Gross Sales or Receipts of the preceding calendar year

CITY and MUNICIPALITY Municipality: • A municipality may levy taxes, fees and charges not taxed by the province • Municipalities within Metro Manila Area may levy taxes at rates which shall not exceed 50% of the max rates prescribed under Sec. 143 • Municipalities may impose and collect reasonable charges on business and occupation except… those reserved to the province under Sec. 139 on the practice of any profession commensurate with the cost of regulation, inspection, and licensing

Barangay • Taxes on stores/ retailers with gross sales of Php 50K in cities and Php30K in municipalities at a rate not exceeding 1% on such gross sales or receipts • Barangay Clearance– requirement before the city or municipality can issue a license or permit • Application for clearance must be acted within 7 days to issue the license and Sangguniang Barangay may impose a fee

Barangay • Service Fee – rendered in connection with the regulation or use of barangay-owned properties • Service Fees are also charged to: o Commercial breeding of fighting cocks and cockpits o In places of recreation which charge admission fees

o On billboards, signboards, neon signs and outdoor advertisements

Residual Power of Local Government • This is the power of LGU to levy taxes, fees or charges on any subject not specifically enumerated or taxed under NIRC • Exercise of this power is allowed provided that taxes are not unjust, excessive, oppressive, confiscatory or contrary to declared national policy

• It is not against any of the Fundamental Principles of Local Taxation • Prior Public Hearing is required before this power can be exercised

Permit and Regulatory Fees • Power of LGUs to impose and collect fees is provided under Sec. 146 of the Code and Art. 233 of its Implementing Rules and Regs.

• Imposition of fees and charges are as follows: o Sec. 147 Fees and Charges – LGU may impose and collect reasonable fees on business and occupation commensurate with the cost of regulation, inspection and licensing before any person may engage in such business or practice of profession o Art. 233 (IRR) Fees and Charges – LGU may impose and collect reasonable fees on business and occupation provided that such fees shall only be commensurate with the cost of issuing the license and expenses incurred in the conduct of necessary inspection

o No fee shall be based on capital investment or gross sales or receipts of the person or business liable

Receipts from Overseas Construction Projects Exempted from Local Tax • Bureau of Local Gov’t. – Finance in an opinion dated May 16, 2017 requested by Thermaprime Drilling Corp. • Bureau reiterated that cities and municipalities have no authority to impose and collect Local Business Tax on Gross receipts realized by specialty contractor from its overseas constructive projects • Thermaprime is a corp. engaged in well drilling work that has a principal office in Pasig City

Receipts from Overseas Construction Projects Exempted from Local Tax – cont. • The co. has no branches or sales outlets but maintains project offices in different localities in the Philippines • It was registered as a Specialty Contractor at the Phil. Overseas Construction Board • The co. also offers its well drilling and construction services to overseas clients • This is in consonance with the opinion rendered in favor of Gulf-Asia Int’l. Corp. on May 30, 2005 that service contract totally consummated outside PH shall not be subject to Local Business Tax

Local Business Tax on Toll Fees • In the case of Manila North Tollways Corp. vs. The Municipality of Guiguinto, Bulacan (CTA AC No. 82, Dec. 3, 2012) • The business of Manila North Tollways Corp. is to maintain and operate NLEX for a fee so it falls within the classification of a “contractor” under Sec. 131(h) of the LGC • Its liability as a contractor shall be computed on the basis of gross receipts and not on gross revenue

Holding Company Exempted from Business Tax • In Michigan Holdings, Inc. vs. City Treasurer of Makati City (CTA EB No.1093, June 17, 2015) • It was ruled that a holding company is exempted from Local Business Tax on dividend income

• While Sec.143(f) of the LGC expressly allows local taxation on banks and other financial institutions on their dividend income, the institutions enumerated appears exclusive and holding company is not one of those mentioned

Holding Company Subject to Local Business Tax • Generally, LGUs cannot levy Income Tax except on banks and FIs

• But if the Holding Company’s Art. of Incorporation shows its primary purpose is extensive enough to cover most of the principal functions of a financial intermediary… it can be treated as a Non-bank Financial Intermediary for Local Business Tax Purposes under Sec. 143 (f) of R.A. 7160 (Te Deum Resources, Inc. vs. Davao City (CTA AC No. 150, Feb. 10, 2017)

Non-bank Financial Intermediary for Local Business Tax Purposes • CTA in Toda Holdings vs. Davao City (CTA AC No. 138, Feb. 09, 2017) cited the basic requirements to be considered as Financial Intermediary: 1. Entity is authorized by BSP to perform quasi-banking activities 2. Principal functions include lending, investing or placement of funds or evidence of indebtedness coursed through them for their own account of for other’s account 3. Entity must perform said functions on a regular basis and not an isolated transaction

Non-bank Financial Intermediary for Local Business Tax Purposes – cont. • In the previous case, Court stated that the Corp. is not authorized by BSP • The 2nd and 3rd requirement were not met • While the Art. of Incorporation covers the functions of a Non-Bank Financial Intermediary, it was not shown that these functions are “principal” in nature as distinguished from incidental or secondary

Power to Adjust Local Tax Rate • LGUs shall adjust the tax rates prescribed in the code, not often than once every 5 years but in no case to exceed 10% of the rates fixed in the code (LGC, Sec. 191)

Power to Impose Surcharges/ Interest • Sanggunian may impose a surcharge, not exceeding 25% of the taxes, charges, or fees not paid on time and … an interest rate of not more than 2% per month of the unpaid tax, charge or fee including surcharge, but in no case shall have the same total 36 months (LGC, Sec. 168)

Illustration • Mr. Taxpayer failed to pay Local Tax on his business for the year 2016 in a total amount of Php1,000 • He was assessed by LGU on June 20, 2017 • Sanggunian imposed a 25% surcharge and a 2% interest per month as penalties for late payment.

• How much is his total tax liability including surcharges and interests? Local Tax payable ------------------------------ Php 1,000 Surcharge - Php1,000 x 25% --------------250 Interest - Php1,000 x 2% x 6*---------------120 Total Local Tax Liability ------------------------- Php1,370 * The 6-month period shall be counted after January 20, 2017

Requisites for Imposition of Fees Rates should be: 1. Within the range of rate provided by LGC 2. Uniform throughout the political subdivision 3. Fair and Reasonable to Taxpayers

LGU’s may, by ordinance: • Grant tax exemptions or provide relief in case of natural calamities, civil disturbance, general failure of crops • Exemption shall be granted in the next calendar year and only for a period of 12 months • Grant tax incentives to new investments and for a definite period not exceeding one year • Tax Exemption Certificate shall be conferred through the issuance of a non-transferable tax exemption certificate (IRR of LGC, Art. 282)

Tax Exemptions Abolished by the LGC • Tax Exemptions were withdrawn under Sec. 193 of the LGC • The rule that Special Law must prevail over the provisions of a General Law does not apply as legislative purpose to withdraw tax privileges enjoyed under existing laws or charters

• It is apparent from the express provisions of the LGC City of San Pablo, Laguna vs. Reyes (G.R. No. 127708, March 25, 1999)

Tax Exemptions Abolished by the LGC – cont. • Withdrawal of tax exemptions provided in the LGC can only affect franchises granted prior to the effectivity of the law • Petitioner’s franchise which was granted 2 months after the effectivity of the LGC is not covered by the said withdrawal • “In lieu of all taxes” clause applies only to NIR Taxes and not to Local taxes • This clause from R.A. 7294 was rendered ineffective by the advent of the VAT law Smart Communications Inc. vs. City of Davao (G.R. No. 155491, Sept. 16, 2008)

List of Entities Still Enjoying Exemption 1. Local Water Districts 2. Cooperatives duly registered under R.A. 6938 3. Non-stock and Non-profit Hospitals and Educational Institutions

4. Business enterprises certified by BOI as Pioneer or Non-pioneer for a period of 6 and 4 years from date of registration

List of Entities Still Enjoying Exemption – cont. 5. Business entity registered under R.A. 6810 (Countryside and Barangay Business Enterprises 6. Printer and/or publisher of books or other reading materials prescribed by DECS as school texts or references as to receipts from printing or publication (IRR of LGC, Art. 283)

Guidelines for Granting Tax Exemptions • May be granted in cases of natural calamities, civil disturbance, general failure of crops or adverse economic conditions • Grant shall be through an ordinance • Any exemption granted to a type of business shall apply to all businesses similarly situated • The same may take effect only during the calendar year not exceeding 12 months as may be provided in the ordinance • In case of shared revenues, exemption shall only extend to the LGU granting such exemption

Guidelines for Granting Tax Incentives • Granted to new investments in the locality and the ordinance shall prescribe the terms and conditions

• Grant shall be for a period not exceeding one (1) year • Grant shall be through an ordinance passed prior to January 1 of any year

• Tax incentive granted to a type of business shall apply to all businesses similarly situated

Situs of Tax for Businesses • In case a plantation is located at a place other than the place where the factory is located, the 70% shall be divided as follows: o 60% to the city or municipality where factory is located o 40% to the city or municipality where plantation is located

• If there are 2 or more factories in several locations, 70% shall be prorated based on respective volumes of production

Situs of Tax for Businesses – cont. • Sales in Principal Office – Tax due to LG where principal office is located • Sales in Branches – Tax due to LG where branch office is located • For Businesses with Factories, Project Offices, Plants and Plantations o 30% of Sales recorded in Principal Office – Taxable where principal office is located o 70% of Sales recorded in Principal Office – Taxable where factory, project office, plant or plantation is located

Situs of Tax for Businesses- cont. In the case of City of Makati vs. Nippon Express Philippines Corp., (CTA AC Case No. 76, Feb. 17, 2012)  Court ruled that for collection of Local Taxes, revenues of

branches outside Makati should not be part of the tax base in determining of Local Business Tax paid in Makati  Makati City maintained that it has the authority to assess Business

Taxes on revenues not properly taxed in branches

Situs of Tax for Businesses- cont.  Assuming that there was wrong or under declaration of the total

taxable earnings in its Paranaque City branch, the tax properly belongs to Paranaque City  The action of the City Treasurer of Makati is impermissible

because to do so would be sanctioning upon the prerogatives of another co-equal and autonomous local government

Civil Remedies to Enforce Collection 1. Administrative Remedy by issuance of Warrant of Distraint, Levy or Garnishment 2. Judicial Action • Either of these remedies may be pursued simultaneously at the discretion of the LGU

Procedure on Distraint and Levy for Purpose of Satisfying Local Taxes 1. Local Treasurer shall upon written notice, seize sufficient personal property to satisfy the tax and other charges 2. Real property may be levied on or before, simultaneously, or after distraint of personal property • Officer posts notice in the office of LGU Chief Executive where property is distrained and in at least 2 other public places stating the time which is not less than 20 days after the notice and place of sale of distrained goods • Before the sale, goods distrained shall be reported to the owner if all charges are paid already

Procedure on Distraint and Levy for Purpose of Satisfying Local Taxes – cont. 3. At the time and place fixed in the notice, Officer conducting the sale shall sell the goods distrained at public auction to the highest bidder for cash o Within 5 days, Officer shall report the sale to the LGU Chief Executive o Excess of Proceeds shall be returned to the owner of the property sold o If property distrained is not disposed within 120 days, it shall be considered sold to LGU for the assessment amount made by the committee on appraisal

o Tax Delinquencies shall be cancelled

Tax Base for Local Business Tax • Case of Ericsson Telecommunications Inc. vs. Pasig City (Nov. 22, 2007) o It was ruled that imposition of Local Business Tax based on gross revenue will result in double taxation by the same jurisdiction o Petitioner’s revenue for taxable year will include gross receipts already reported during the previous year and for which local business tax has already been paid o SC said that the LG committed a palpable error when it assessed the business tax of local taxpayer based its gross revenue as reported in its AFS

o Sec. 143 of the LGC and Sec. 22e of Pasig Revenue Code provided that tax should be based on gross receipts

Local Tax on Condo Dues • Case of City Treasurer of Makati vs. BA Lepanto Condominium Corp. (Oct. 25, 2005) • It was ruled that a condominium corp. is generally exempt from Local Business Tax under LGC, irrespective of any local ordinance that seeks to declare otherwise • City Treasurer failed to prove that the corp. is engaged in business activities beyond the statutory purpose of a condo corp. • Dues assessed against unit owners are to defray the expenses of the condo project • There is no contemplation of business and collecting tax violates due process of law

Inaction of Treasurer on Protest of Local Taxpayer • A taxpayer dissatisfied with Local Treasurer’s denial or inaction on his protest over an assessment has 30 days within which to appeal to a Court of Competent Jurisdiction • This period is to be reckoned from taxpayer’s receipt of denial of his protest or lapse of the 60-day period within which Local Treasurer is required to decide the protest from the moment of its filing • Sec. 195 of LGC does not elaborate on how appeal is to be made

Inaction of Treasurer on Protest of Local Taxpayer – cont. • Remedies of reckoning from denial or inaction are considered mutually exclusive • Court of Competent Jurisdiction is the RTC in exercise of its original jurisdiction and appeals therefrom must be filed with the CTA within 30 days from receipt of the decision • Team Pacific Corporation vs. Daza as Municipal Treasurer of Taguig, (G.R. No. 167732, July 11, 2012)

Case of Bagatsing vs. Ramirez (74 SCRA 306) • SC ruled that exhaustion of administrative remedies before resort to judicial bodies is not an absolute rule

• This principle is disregarded when it does not provide a plain, speedy and adequate remedy • This may be relaxed when the application can cause great and irreparable damage

No Injunction Rule • Unlike the Tax Reform Code of 1997 that provides the “No Injunction Rule”, LTC does not prohibit an injunction against collection of local taxes under Sec. 218 • To declare the nullity of a tax ordinance, it cannot be said that damages caused to taxpayer would be irreparable against the gov’t. whose lifeblood comes from taxes • Injunction cannot be issued pending a case on tax ordinance simply because it is alleged to be unconstitutional or invalid

No Injunction Rule – cont. • Until so declared, presumption is that it is valid and constitutional • Another alternative is for taxpayer to pay the tax before an assessment is issued by the local treasurer and then claim a refund under the conditions expressed in Sec. 196 of the LGC

Appeal to the Secretary of Justice (Sec. 187 of the LGC) provides: “Any question on the constitutionality or legality of tax ordinances or revenue measures may be raised on appeal within thirty (30) days from effectivity thereof to the Sec. of Justice who shall render a decision within sixty (60) days from receipt of the appeal.” • Appeal shall not suspend effectivity of the ordinance, accrual and payment of tax • Within 30 days after receipt of decision or lapse of 60-day period without Sec. of Justice acting upon the appeal, aggrieved party may file appropriate proceedings with a Court of Competent Jurisdiction • This refers to RTC when case is resolved in exercise of its original jurisdiction

• Any adverse decision is appealable to CTA under Rep. Act. 9282 • LGC is explicit on grant of administrative appeal to the Sec. of Justice on questions involving legality of a tax ordinance or revenue measure • Appeal is available only within 30 days from effectivity of ordinance • When no longer available, taxpayer may not be precluded from seeking judicial recourse such as by action for declaratory relief • Eg. Before an assessment is made, issued on and before payment is made by taxpayer

• If tax has already been paid, a written claim for refund or credit may be filed with local treasurer from whose action, judicial recourse may be within 2 years from payment of tax or from date the taxpayer is entitled to refund or credit (Sec. 196, LGC) • If no action is taken by Treasurer and 2-year period is about to lapse, taxpayer can consider such inaction as denial • Taxpayer can initiate court action so as not to foreclose this right by prescription

Remedies of Taxpayers 1. Remedies Prior to an Assessment

• Administrative Appeal to the Secretary of Justice • Action for Declaratory Relief as when applicable 2. Remedies After an Assessment • Protest of the Assessment • An Action for Refund

Declaratory Relief • Refers to judgment of a court that determines the rights of parties without ordering anything to be done or awarding damages • Theory is that an early resolution of legal rights will resolve some or all other issues on matters being disputed • Party seeking a declaratory judgment in effect makes a request for an official declaration of the status of a matter in controversy

Declaratory Relief • An action for declaratory relief under Rule 63 of the Rules of Court is applicable if: o Subject matter of controversy is an ordinance o Terms and validity of ordinance is doubtful and require judicial construction

o Must be before breach, as where Petitioner paid under protest fees imposed in an ordinance o There is an actual justiciable controversy

o No adequate relief through other means o Controversy ripe for adjudication

Writ of Prohibition • In the case of Benguet Electric Cooperative vs. Municipality of La Trinidad, Benguet (CTA AC No. 85, June 7, 2013) • It was ruled that taxpayer cannot seek issuance of Writ of Prohibition to enjoin LGU from collecting assessments which became final on account of taxpayer’s failure to appeal the same with RTC within 30 days from denial of protest

No Injunction Rule • In the case of Angeles City vs. Angeles City Electric Corp. (June 29, 2010)

• Citing also the Case of Valley Trading Co. vs. CFI of Isabela, SC ruled that: • “Unlike in NIRC, the Local Tax Code does not contain any specific provision prohibiting injunction where local taxes are involved but cannot negate the procedural rules under Rule 58.” • Under this rule, applicant is entitled to relief if performance of the act will create injustice and prevent damage to applicant until the merits of the case can be heard

Claim for Refund or Tax Credit • Filing of a written claim for refund with Local Treasurer is a condition precedent for maintaining a Court action • If Local Treasurer does not act on written claim for refund and 2year prescriptive period is about to expire, taxpayer should initiate the court action for refund and consider Treasurer’s inaction as denial of his claim for refund • It was opined that court may entertain the appeal as long as the case for refund is filed within the 2-year prescriptive period and written claim for refund or credit had earlier been submitted to Local Treasurer

When Does Local Business Tax Accrues? • SC made a distinction between Annual Income Tax and Local Business Tax to determine when local business tax accrues o Income Tax - tax on income realized in 1 taxable year but payable on the ff. year o Local Business Tax - paid for privilege of carrying on business in the year tax is paid

• In the year an establishment terminates its business, they would be required to pay the difference if tax is collected • It is based on previous year’s gross sales or receipts less than actual tax due from current year’s gross sales or receipts as of date of transfer or retirement Mobil Philippines Inc. vs. City Treasurer of Makati, (G.R. No. 154902, July 14, 2005)

Time of Payment of Local Tax • Unless provided by LGC, Local Tax, Fees and Charges shall be paid within the first 20 days of January or of each subsequent quarter as the case may be • A surcharge of 25% is imposed on any unpaid taxes and interest at rate not exceeding 2% from the date it is due until paid but in no case to exceed 36 months

Payment under Protest • In cases where deficiency exists between amounts of taxes being paid by taxpayer and computation of tax liability by such authorities… • It has been the recurring practice of Local Gov’t. Agencies to compel taxpayers to “Pay under Protest” whatever tax liabilities they may have computed • Refusal to pay will lead to consequences such as failure to secure necessary business permits and clearances • Is it proper? SC ruled that City Treasurer is not compelled to accept as full compliance a tax payment that in his assessment is deficient and incorrect since such act requires the exercise of judgment Romulo D. San Juan vs. Ricardo L. Castro, (G.R. 174617, December 27, 2007)

Payment under Protest – cont. • “Payment under Protest” can only be found under Sec. 252 of LGC which provides that no protest shall be entertained unless taxpayer pays the tax first. It shall be annotated on the tax receipt the words “Paid under Protest”. • Protest in writing must be filed within 30 days from payment of tax to Treasurer who shall decide the protest within 60 days • Procedure required forms part of Title 2 Chapter 6 – Collection of Real Property Tax • Remaining option for LGUs is to find legal support from their respective charters, Local Revenue or Tax Ordinances • Otherwise, LGUs are all inviting the filing of suits against them

CTA Jurisdiction on Local Tax Cases In the case of City of Manila vs. SM Prime Holdings, et.al. (Feb. 04, 2014), SC ruled that: • Even if CTA has exclusive appellate jurisdiction over decisions of RTC in Local Tax Cases originally decided by them… • There is no statement under RA 1125 nor RA 9282 which avers that CTA has jurisdiction over Petitions for Certiorari assailing interlocutory orders issued by RTC in Local Tax Cases filed before it

Assailing Validity of an Ordinance • A dissatisfied taxpayer who questions legality of a tax ordinance is required to file his appeal to the Sec. of Justice within 30 days from its effectivity • In case Secretary decides the appeal, a period of 30 days is allowed for an aggrieved party to go to court • If Secretary does not act within 60 days, a party could already proceed to seek relief in court • These 3 separate periods are given for compliance as a prerequisite before seeking redress in a competent court

Assailing Validity of an Ordinance – cont. • Such statutory periods are set to prevent delays and enhance the orderly and speedy discharge of judicial functions • For this reason, Courts construe these provisions of statutes as mandatory Cagayan Electric Power and Light Co. Inc. vs. City of Cagayan de Oro, (G.R. No. 191761, November 14, 2012)

Assailing Validity of an Ordinance – cont. • When disputing an ordinance, there is no need to make written protest • Written protest is only needed when protesting against an assessment • Taxpayer may file a complaint assailing validity of an ordinance and request for refund of its perceived overpayments even without filing first a protest on payment of taxes due under the ordinance Jardine Davies Insurance Brokers vs. Aliposa, (G.R. No. 118900, Feb. 27, 2003)

Case of San Miguel Corp. vs. Hon. Celso Avelino and City of Mandaue (89 SCRA 69) • SC ruled that RTC judge has authority to pass upon validity of a City Tax Ordinance even if its validity has been contested before the Sec. of Justice and a decision was rendered • Appeal from decision of Sec. of Justice cannot be construed to deprive Courts of jurisdiction to pass upon validity of City Tax Ordinance • To construe that would bar what would be a proper case cognizable by a court in exercise of its power of judicial review

• LGC of 1991 expressly allows a party aggrieved by decision of Sec. of Justice to file appropriate proceeding with a Court of Competent Jurisdiction

Assailing Validity of an Ordinance (New Rule) In the case of Michigan Holdings, Inc. vs. City Treasurer of Makati, (CTA AC Case No. 99, Sept. 19, 2013) • It was ruled that any question on legality and validity of a tax ordinance or a revenue measure implemented by LGU should be appealed to the Secretary of Justice and not before the Regional Trial Court

Taxpayer Remedies Against Local Tax Assessment • Under Sec. 195 of RA 7160, Taxpayer may file a written protest with the Treasurer within 60 days from receipt of assessment notice • From date of filing the protest letter, Treasurer has another 60 days to resolve the protest • In case of denial, Taxpayer has a 30-day period from receipt of denial to file an appeal with the Court of Competent Jurisdiction • Assessment becomes conclusive if a Taxpayer fails to appeal with RTC within 30 days from lapse of 60-day period given to the Treasurer to decide on the case

Taxpayer Remedies Against Local Tax Assessment – cont. • Taxpayer must remain vigilant throughout the process because if Treasurer failed to issue a decision on the administrative appeal, assessment would become conclusive • Taxpayer should file an appeal to the Court within the given 30-day period • Taxpayer must be aware that in local tax assessment cases, inaction of Local Treasurer is an affirmation of the validity of assessment equaling to issuance of denial to the appeal

Taxpayer Remedies against a Local Tax Assessment – cont. • Taxpayer should consider that use of the word “Appeal” (referring to remedy available to written protests) were denied by respective Local Treasurers under Sec. 195 of LGC since it is a misnomer • SC ruled that LGC does not expressly confer appellate jurisdiction on RTC from the denial of a tax protest by a Local Treasurer • Per Sec. 22 of B.P. 129, Appellate Jurisdiction applies only to cases decided by Metropolitan and Municipal Trial Courts

Proper Venue for an Appeal In the case of PLDT vs. Balanga City Treasurer, CTA En Banc (June 03, 2009), SC ruled that: • Where the act of a Public Official is the object of litigation, suit must be filed in the RTC whose territorial jurisdiction encompasses the place where the respondent official is holding office

• Since it is outside territorial limits, Court has no power to enforce its order • It is important for a taxpayer to know the available remedies and proper procedure

Liability of Local Gov’t. Officials for Damages In the case of Ormoc Sugar Co. vs. Treasurer of Ormoc City, 22 SCRA 603, SC ruled that: • LG Officials are liable for damages on acts of its officers such as in interest payments when collection of local taxes is attended by arbitrariness

• Taxpayer may direct his action against the erring public official if the latter acted with malice or inexcusable negligence

Liability of Local Gov’t. Officials for Damages • In the case of Philippine Match Co., Ltd. vs the City of Cebu (G.R. No. L-30745, Jan. 18, 1978) • The issue is whether Cebu City can tax sales of matches which were perfected and paid for in Cebu City but were delivered to customers outside the city • It was ruled on appeal that Cebu City has the right to tax since delivery to the carrier is considered delivery to the buyer • Court also ruled that the City Treasurer should not be held liable for damages since he acted within scope of his authority when he interpreted the ordinance

Period for Filing Refund Claim In the case of Allied Banking Corp. vs. Quezon City Local Gov’t. (Sept. 15, 2006), SC ruled that: • Entitlement to tax refund does not necessarily call for automatic payment of the sum claimed • It must be proven based on tax declarations, affidavits and other documentary evidences • Claim for refund of Realty Tax may be pursued under Sec. 253 of LGC within 2 years from finality of the decision

Withdrawal of Tax Incentives • Withdrawal of Tax Exemptions provided in LGC can only affect franchises granted prior to effectivity of the law • Considering that taxpayer’s franchise was granted 2 months after effectivity of said law, it was not covered by the said withdrawal • “In Lieu of All Taxes” clause applies only on NIR Taxes and not to Local Taxes • Moreover, this clause in the franchise under Rep. Act 7294 was rendered ineffective by the advent of the VAT Law Smart Communications Inc. vs. City of Davao, (G.R. No. 155491, Sept. 16, 2008)

Bureau of Local Gov’t. Finance BLGF was created under EO No. 127 to perform the ff. functions:

• Assist in the formulation and implementation of policies on Local Gov’t. Revenue Administration and Fund Management • Exercise administrative, technical supervision and coordination over the Treasury and Assessment Operation of Local Gov’t.

• Develop plans and programs for improvement of Resource Mgt. System, Collection Enforcement Mechanisms and Credit Utilization Schemes at local levels

Bureau of Local Gov’t. Finance – cont. BLGF was created under EO No. 127 to perform the ff. functions: • Provide consultative services and technical assistance to LG and gen. public on local taxation, real property assessment and other matters • Exercise line supervisions over its regional offices and local treasury, assessment and other related matters • Perform other functions as may be assigned by the Sec. of Finance or Undersecretary for Domestic Operations

Guidelines for Granting Tax Exemptions • Granted in case of natural calamities, civil disturbance, gen. failure of crops or adverse economic conditions • Grant shall be through an ordinance • Any exemption granted to a type of business shall apply to all businesses similarly situated • Grant takes effect only during the calendar year not exceeding 12 months as provided in the ordinance • In case of shared revenues, relief of exemption shall only extend to LGU granting such exemption

Double Taxation • Coca-Cola Bottlers, Inc. (CCBI) paid Local Business Tax to City of Manila as a manufacturer but it is expressly exempted from Business Tax under a different section applied to businesses subject to Excise, VAT or Percentage Tax under the Local Tax Code • City of Manila subsequently amended the ordinance by deleting the provision exempting businesses under a different section in the ordinance • This amendment was declared null and void by SC

• CCBI filed a claim for tax refund for taxes paid under the void ordinance

Double Taxation – cont. • SC ruled that CCBI is entitled to refund because there was indeed double taxation subjecting the company to both Secs. 14 and 21 of Tax Ordinance. The ff. are being imposed: a. Same Purpose – Contribute to the city revenues for conducting

business within the city b. Same Subject Matter – Privilege of doing business within the city c. Same Taxing Jurisdiction – City of Manila d. Same Taxing Periods – Per calendar year

e. Same Kind or Character – Local Business Tax imposed on gross

sales or receipts

City of Manila vs. Coca-Cola Bottlers, Inc. (G.R. No. 181845, August 4, 2009)

Double Taxation – cont. • In the case of Super Grocers Inc. vs. Municipality of San Pedro (CTA AC No. 86, Feb. 25, 2013) • Petitioner challenged reclassification from “Retailer of Essential and Non-Essential Commodities” to “Owners or Operators of privatelyowned supermarkets, shopping centers and minimarts” • CTA ruled that petitioner’s business activities fall under “Retailer of Essential and Non-Essential Commodities” under Sec. 143[c] and [d] of the LGC • Re-classification was not allowed as it violates the limitation under Sec. 143[h] of the LGC

CTA Jurisdiction on Local Tax Cases • Authority to issue Writs of Certiorari involves exercise of original jurisdiction which must be expressly conferred by constitution or by law • It cannot be implied from mere existence of appellate jurisdiction

• Based on Sec. 5(1) Art. VIII of 1987 Constitution, CTA’s power includes the right to issue Writ of Certiorari if there is a grave abuse of discretion on part of the RTC in issuing an Interlocutory Order

Remedies After an Assessment or Payment • When correct tax is not paid, Local Treasurer issues Notice of Assessment within the applicable prescriptive period (Sec. 194, LGC) stating the nature of levy, amount of deficiency and incremental penalties • Taxpayer may contest assessment or pay tax before the lapse of 60 days from receipt of assessment to prevent it from becoming final and executory • Local Treasurer shall decide within 60 days from date of filing by sustaining or denying the same wholly or partly • If protest is denied, taxpayer may file within 30 days from receipt of denial, an appeal with the Court of Competent Jurisdiction

Prescriptive Periods • Assessment – Local taxes, fees or charges must be assessed within 5 years from the date they become due - In case of fraud, the same may be assessed within 10 years from discovery of fraud

• Collection – may be collected within 5 years from date of assessment by administrative action or judicial action

Prescriptive Periods – cont. • Suspension of Prescriptive Period happens when:

1. Treasurer is legally prevented from making the assessment or collection 2. Taxpayer requests for reinvestigation and executes a waiver in writing before expiration of the period within which to assess or collect 3. Taxpayer is out of the country or cannot be located

DOF Dept. Circular No. 001-2015 (June 1, 2015) • As part of govt’s effort to strengthen its overall fiscal position, all LGUs allowed by law to retain income for operations and working balances shall deposit in a Government Financial Institution (GFI) with a Universal Bank License and CAMELS rating of at least “3”

• Exceptions: 1. Where no GFIs can provide necessary banking services 2. Where there are no accessible (within the 20 kilometer radius) GFIs. DOF must be furnished a vicinity map showing the location & distance of the GFI

3. Where security and safety are the reasons to maintain an account (with a proposed bank)

TAXING POWERS OF LGUs Part II – Real Property Taxation • INTRODUCTION • Real Property Tax - Ad Valorem Tax assessed, levied and collected in all provinces, cities and municipalities on land, buildings, machineries and other improvements affixed to real property and not specifically exempted by law • It is one of the principal sources of revenue for the LGUs

What is a Real Property? • Art. 415 of the NCC was applied suppletorily to RA 7160 as to Kinds of Real Property subject to Real Property Tax. These are as follows: a. Real Property by Nature Eg. Land b. Real Property by Incorporation Eg. Building c. Real Property by Destination Eg. Underground tanks of Gasoline Stations

Fundamental Principles on Real Property • It shall be appraised at its Current and Fair Market Value

• It shall be classified for assessment on the basis of its actual use • It shall be assessed on the basis of a uniform classification within each LGU

• Appraisal, assessment, levy and collection of Real Property Tax shall not be assigned to any person • Appraisal and assessment of property should be equitable

Definitions on Real Property • Assessment Level – percentage applied to the FMV to determine the taxable value of property • Assessed Value – FMV of Real Property multiplied by its assessment level. It is synonymous to Taxable Value • Commercial Land – land devoted principally for the object of profit and not classified as agricultural, industrial, mineral, timber or residential land • Depreciated Value – value remaining after deducting depreciation from the acquisition cost • Economic Life – estimated period over which it is anticipated that a machinery or equipment may be profitably utilized

Definitions on Real Property – cont. • Fair Market Value – price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer not compelled to buy • Improvement – valuable addition made to a property or an amelioration of its condition - amounting to more than a mere repair or replacement of parts involving capital expenditures and labor - intended to enhance its value, beauty or utility or to adapt it for a new purpose

Definitions on Real Property – cont. • Building – immovable, more or less of a permanent structure, substantially adhered to the land and not mere superimposition, and there is an intent of permanent annexation Note: Law uses the term “adhered” and not “superimposed”

• Industrial Land – land devoted principally to industrial activity as capital investment and not classified as agricultural, commercial, timber, mineral or residential land • Residential Land – land principally devoted to habitation

• Reassessment – assigning of new assessed values to real property as the result of a general, partial or individual reappraisal of property

Definitions on Real Property – cont. • Remaining Economic Life – period of time expressed in years from date of appraisal to date when machinery becomes valueless • Remaining Value – corresponding to remaining useful life of machinery • Special Classes of Property – all lands, buildings and other improvements directly and exclusively used for hospitals, cultural or scientific purpose - those owned and used by local water districts, GOCC rendering public services in the supply and distribution of water and/or generation and transmission of electric power

Other Classifications not defined in RA 7160 but are assessable • Timberland – land identified as forest or reserve area by the government • Memorial Park – land exclusively used as burial ground, disposition of which is for a commercial purpose or profit

• Horticultural Land – land devoted for planting flowers and other ornamental plants • Marsh Land – tract of low-lying land usually under water

• Foreshore Land – strip of land along the seashore

Other Classifications not defined in RA 7160 but are assessable – cont. • Machinery – embraces machines, equipment, mechanical contrivances, instruments, appliances which may or may not be attached permanently or temporarily to real property • Physical Facilities – production, installation and appurtenant service facilities, mobile, self-powered and not permanently attached to real property will be classified as real property provided that: o Directly use to meet the needs of particular industry, business or activity o By

its nature is necessary in manufacturing, mining, logging, commercial, industrial or agricultural purposes

Other Classifications not defined in RA 7160 but are assessable – cont. • Machinery for general use – including but not limited to office equipment, F&F and other machines not directly used to meet the needs of a particular business • This shall not be considered within the definition of machinery under this rule • Computers, air-conditioning units and generators directly used by the bank in operation of its business are subject to assessment and payment of RPT (DOF Opinion)

Other Classifications not defined in RA 7160 but are assessable – cont. • Residential Machinery – machines, equipment, appliances or apparatus permanently attached to residential land and its improvements • Machinery no longer in use – by reason of cessation of production, the same should be transferred from taxable to exempt roll and not subject to the payment of RPT (DOF Opinion)

Provincial Assessor of Agusan Del Sur vs. Filipinas Palm Plantation Inc. • In above case decided by SC on Oct. 05, 2016 (G.R. 183416), an issue raised for resolution was about the definition of machinery under Sec. 199 (o) of LGC and Art. 415 (5) of the NCC • Citing Caltex Phil Inc. vs. CBAA, it was ruled that in determining whether machinery is a real property subject to RPT, the definition and requirements under the LGC are controlling • The phrase pertaining to physical facilities for production under Sec. 199 (o) includes road equipment and min haulers actually, directly and exclusively used to meet its operations in palm oil production

Capitol Wireless Inc. vs. Prov. Treasurer of Batangas • In above case decided on May 30, 2016 (G.R. 183416), main issue is whether submarine or undersea communication cables are akin to electric transmission lines • The Court in the case of Meralco vs. Lucena City Treasurer ruled that they are “not exempted” from Real Property Tax and may qualify as “machinery” subject to this tax • While Electric lines and communication cables do not directly adhere to the soil but pass through posts or landing stations, these are considered as “machinery” being real property by destination

Administration, Appraisal and Assessment of Real Property Tax • Provinces and cities are primarily responsible for administration of Real Property Tax • All Real Property (taxable or exempt) shall be appraised at Current and FMV prevailing in the locality where property is situated

• Declaration of Real Property – all persons owning or administering a real property shall file with Provincial/ City/ Municipal Assessor, a Sworn Statement declaring true value of property once every 3 years during the period January 1 to June 30

Administration, Appraisal and Assessment of Real Property Tax – cont. • When any person required to declare real property but refuses or fails to do so, the Provincial/ City/ Municipal Assessor shall declare the property in the name of the default or unknown owner • Such declaration need not be under oath

• The fact that property was declared in the name of certain parties for taxation purposes does not constitute evidence of ownership (SC Decision) • Transfer or cancellation of a Tax Declaration may be affected only after registration of document conveying the real property (DOF Opinion)

Property Declared for the First Time • Real property which has not been declared when discovered will be considered “property declared for the first time” • Under Sec. 222 of the LGC, said property shall be assessed with Back Taxes for not more than ten (10) years prior to date of initial assessment

• Taxes shall be computed on the basis of applicable Schedule of Values in force during the corresponding period

Property Declared for the First Time – cont. • If such taxes are paid on or before the end of the quarter ff. the date the Notice of Assessment was received by the owner, no interest for delinquency shall be imposed • Otherwise, taxes shall be subject to 2% interest from date of receipt of assessment until taxes are fully paid

Listing in the Assessment Roll • Real Property (taxable or exempt) shall be listed in an assessment roll prepared and maintained by the Provincial/ City/ Municipal Assessor • Real Property shall be listed, valued and assessed in the name of the owner, administrator or anyone who has legal interest on the property • Undivided Real Property of a deceased may be listed, valued and assessed in the name of estate, heirs or devisees without designating them individually

Listing in the Assessment Roll – cont. • Undivided Real Property other than that owned by a deceased may be listed, valued and assessed in the name of one or more of the co-owners provided that they shall be liable jointly or severally for payment of tax • Real Property of a Partnership or Corporation shall be listed in the same manner as an individual • Real Property owned by the Rep. of the Philippines shall be listed, valued and assessed in the name of the possessor, grantee or public entity if property has been acquired for resale or lease

Listing in the Assessment Roll – cont. • Assessment of Real Property should not increase more than once every 3 years except in new improvements • After total/ partial destruction, major change in the use, sudden inflation/ deflation of property values or for any abnormal cause, Assessor may submit his assessment to Sanggunian concerned so that Schedule of Values may be amended (DOF Opinion) • Cancellation/ Reduction of assessment caused by total/ partial destruction of property takes effect on the 1st day of the quarter ff. the quarter in which total/ partial destruction occurred

Listing in the Assessment Roll- cont. • If property is totally destroyed, only taxes due for quarters before destruction on the basis of cancelled assessments are collectible • Notice of Cancellation of Assessment shall be issued • If property is partially destroyed, only taxes due for quarters before destruction on the basis of cancelled assessments are collectible • Reduced assessment shall start on the following quarter • Revised Tax Declaration shall be prepared and issued to cancel the tax declaration of the original assessment

Idle Land Tax • A Province, City or Municipality within MMA may levy an annual tax on idle lands at a rate not exceeding 5% of the assessed value of property in addition to the basic RPT • Idle Land covers: a. Agricultural Lands – more than 1 hectare in area suitable for cultivation and ½ of which remain uncultivated b. Lands (Other than Agricultural) – more than 1,000 sqm in area, ½ remain unutilized; tax shall apply to residential lots

• LGU may exempt idle lands from additional levy by reason of force majeure which prevents owner from utilizing the same

Proof of Exemption from Taxation of Real Property • Every person by or for whom real property is declared claiming exemption shall file with the Assessor within 30 days from date of declaration of real property • He must have sufficient documentary evidence in support of such claim • If property shall be proven as tax-exempt, the same shall be dropped from the assessment roll

Purpose of Tax Declaration • Enables the assessor to identify the property for purposes of determining the assessment levels

• Does not bind the assessor when he makes his assessment. • Does not prove ownership. It is merely an “indicium” of a claim of ownership. (De Vera-Cruz vs. Miguel, G.R. No. 144103, Aug. 31, 2005) • In the case of Consolidated Rural Bank [Cagayan Valley] Inc. vs. CA (G.R. No. 132161, Jan. 17, 2005)… Court ruled that tax declarations are good indicia of possession in the concept of an owner for no one in his right mind would be paying taxes for a property not in his actual or constructive possession

Exemption from Realty Tax In the case of Camp John Hay Dev’t. Corp. vs. CBAA (Oct. 02, 2013), SC ruled that:

• Claim for exemption from payment of realty tax does not actually question the Assessor’s authority to collect tax but pertains to correctness of his assessment • Arguments involve Question of Facts that should have been given at the very first instance to the Local Board of Assessment Appeals • By providing that real property not declared as tax-exempt should be included in the assessment roll

Exemption from Realty Tax – cont. • Any claim for exemption shall only be allowed when there are sufficient proofs • If exemption is being insisted by the owner, his only recourse is to Pay Under Protest

NAPOCOR vs. Treasurer of Benguet • In above case decided on Nov. 14, 2016 (G.R. 209303), it was ruled that if property taxed has not been dropped from assessment roll, taxes must be “Paid under Protest” if exemption is insisted • Tax must be paid first before the Taxpayer can question the assessment • Claim for exemption does not actually question the Assessor’s authority to assess and collect taxes but it pertains to the reasonableness of assessment • Payment under Protest is mandatory under Sec. 252 of LGC

Notification of Transfer of Real Property Ownership • Any person who shall transfer his ownership of property must notify the Assessor concerned within 60 days from date of transfer • It must be noted that Tax Declarations or Realty Tax Payments are not conclusive evidence of property ownership (SC Decision)

Preparing Schedule of Values • Before any general revision on real property is made, one must prepare a Schedule of Market Values for different classes of property • Must be situated in the form and detail prescribed by Local Assessment Regulation No. 1-92

• Must be submitted to the Sanggunian concerned not later than the 21st of October immediately preceding the revision on assessment prescribed in the assessment calendar • Conduct of general revision of Real Property Assessments is mandatory (DOF Opinion) • Schedule of Values prepared by the City Assessor alone is null and void

Actual Use of Real Property • 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 • Appraisal and assessment are based on actual use of real property irrespective of any previous assessments or taxpayer’s valuations according to the taxpayer’s declaration (SC Decision)

Assessment Levels • Assessment levels to be applied to the FMV of Real Property in determining its assessed value shall be fixed by ordinances of the Sanggunians concerned at a rate not exceeding the ff: LANDS: Class

Residential Agricultural Commercial Industrial Mineral Timberland

Assessment Level

20% 40% 50% 50% 50% 20%

Buildings and Other Structures Residential Based on FMV – from 0% for those not over Php175K 60% for those over Php10M Agricultural Based on FMV – from 25% for those not over Php300K 50% for those over Php2M Commercial/ Industrial Based on FMV – from 30% for those not over Php300K 80% for those over Php10M Timberland Based on FMV – from 45% for those not over Php300K 70% for those over Php2M

Assessment of Property Subject to Back Taxes • Real Property declared for the 1st time shall be assessed for taxes for the period during which it would have been liable but in no case for more than 10 years prior to date of initial assessment • Such taxes shall be computed on the basis of applicable Schedule of Values in force during that period o Undeclared Real Property subject to Back Taxes shall be classified

and valued on the basis of Schedule of Base Market Values in force during the period the property was undeclared and unassessed o Undeclared Buildings and Other Improvements are exempted from

the foregoing rule

Assessment Appeals • An appeal/ petition to the Local Board of Assessment Appeals may be made within 60 days from date of receipt of the written assessment • If taxpayer is not satisfied with the decision of the local board, he may appeal to Central Board of Assessment Appeals within 30 days after receipt of the decision

Exemptions from Real Property Tax a. Real Property owned by the Rep. of the Philippines except when beneficial use has been granted for consideration to a taxable person b. Charitable Institutions, Churches, Convents, Appurtenance, Mosques, Non-profit or Religious Cemeteries and all lands/ buildings/ improvements used for religious, charitable or educational purposes c. All machinery and equipment directly used by local water districts and GOCC engaged in the supply of water and/or transmission of electrical power

Exemptions from Real Property Tax – cont. d. All Real Property owned by duly-registered cooperatives provided under RA 6938 e. Machinery and Equipment for pollution control and environmental protection

Beneficial Use by Private Person • In the case of Unimaster Conglomeration Inc., vs. Tacloban City Government et.al. (CTA EB No. 901, August 22, 2014) • It was ruled that when the beneficial use of real property owned by the Republic or any of its political subdivision is vested to a taxable person, the real property is subject to tax

• Since Province of Leyte, Privatization & Management Office and Philippine Tourism Authority are co-owners of the hotel, the property is subject to real property tax • Domestic Private Corporation is the lessee of the hotel and beneficial user of the real property

Beneficial Use by Private Person – cont. • In the case of GSIS vs. City Treasurer & City Assessor of Manila, (G.R. No. 186242, Dec. 23, 2009)

• It was ruled that when tax exemption of property of a government instrumentality ceases on the ground, that beneficial use has been granted for a consideration to a taxable person • Unpaid Tax attaches to the property and is chargeable against the taxable person who has beneficial use and possession of it, regardless if he is the owner or not

Meralco Not Exempt from Real Property Tax • In the case of MERALCO vs. City Assessor & City Treasurer of Lucena City (G.R. No. 166102, August 5, 2015) • SC ruled that MERALCO can no longer claim exemption from RPT for its transformers, electric posts, transmission lines, insulators and electric meters based on its franchise

• MERALCO relies heavily in a 1964 case exempting these properties from RPT • With the passage of LGC of 1991, exemption privileges were withdrawn pursuant to the last paragraph of Sec. 234 which unequivocally withdrawn all exemptions from Realty Tax granted to Natural & Juridical persons including GOCCs

Meralco Not Exempt from Real Property Tax – cont. • Tax Exemptions must be clear and unequivocal

• Taxpayer claiming an exemption must point to a specific provision of law conferring on the taxpayer (in clear and plain terms) the exemption from a common burden • Any doubt on whether a tax exemption exists is resolved against the taxpayer • MERALCO has failed to present any express Grant of Exemption from RPT that is valid and binding even under the LGC

Reclaimed Properties • In the case of Republic of the Philippines, represented by the Philippine Reclamation Authority (PRA) (G.R. No. 191109, July 18, 2012) • SC ruled that all reclaimed properties owned by the PRA are exempted from real estate taxes

• Under the Administrative Code of 1987, reclaimed lands are reserved lands for public use • These are properties of public dominion • Ownership of such lands remains with the State unless they are withdrawn by law or there is a Presidential Proclamation

Realty Tax on 2 Airports 1. MANILA INTERNATIONAL AIRPORT AUTHORITY • Exempted from Realty Tax under Sec. 234 of RA 7160 because it is a gov’t. instrumentality and Trustee of the country • Airport lands and buildings are of public dominion

Realty Tax on 2 Airports – cont. 2. MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY • Exempted from Realty Tax pursuant to the SC’s decision in MCIAA vs. City of Lapu-Lapu and Elena Pacaldo (G.R. No. 181756 June 15, 2015.) • This ruling has overturned the 1996 MCIAA ruling that it is not exempted from realty tax, being a GOCC • With this 2015 decision, MIAA & MCIAA were not declared as gov’t. instrumentalities so they are exempted from Real Estate Tax

Exemption of Charitable Institution • Previously, the rule on tax exemption of properties used for religious, charitable or educational purposes has been abandoned • This is enunciated in the Case of Herrera vs. Quezon City Assessor • Prevailing doctrine now is that for real property to be exempted from Realty Tax, properties must be actually, directly and exclusively used for religious, charitable and educational purposes • This is expressed in the Case of Lung Center of the Phil. Vs. Quezon City Assessor (G.R. 144104, June 29,2004)

Exemption of Charitable Institution – cont. • In doctrine established in “Lung Center of the Phils.’ Case” and in the case of “City Assessor of Cebu vs. Association of Benevola de Cebu”, (G.R. No. 152904, June 8, 2007) • SC ruled that exemption in favor of property used exclusively for charitable or educational purposes is not limited to property actually indispensable but extends to facilities which are incidental and necessary for accomplishment of said purposes • Such as in the case of hospitals, schools for training nurses, home and recreational facilities of student nurses, interns and residents

Exemption of Charitable Institution – cont. • In the case of “Angeles University Foundation vs. Angeles City”, (G.R. No. 189999, June 27, 2012) • SC also applied the doctrine laid down in the Lung Center of the Phils. case that for a real property to be exempted from RPT, it must be used directly and exclusively for religious, charitable and educational purposes

• It is not the use of income from real property that will determine whether that property is tax-exempt

Payment of Realty Taxes • Real Property Tax may be paid in 4 equal installments:

1st Installment – On or before March 31 2nd Installment – On or before June 30 3rd Installment – On or before September 30

Last Installment – On or before December 31 • If Basic Realty Tax and SEF are paid in advance, a discount not exceeding 20% of the Annual Tax due may be availed

Payment Under Protest • In the case of Camp John Hay Dev. Corp. vs. CBAA (G.R. No. 169234, Oct. 2, 2013)

• SC ruled that “No protest shall be entertained as to an RPT assessment unless the taxpayer first pays the tax” • Taxpayer is required to annotate or write on tax receipts the words “Paid under protest”

Payment Under Protest – cont. • Protest contemplated under Sec. 252 of the LGC of 1991 pertains to questions on reasonableness of the amount assessed

• No protest is required when the taxpayer questions the authority of the assessor to impose assessment and collect tax • This challenges not the amount of assessment but the validity of increase

Payment Under Protest – cont. • If what is being challenged is the validity of increase, this is a question of law and taxpayer may bring the matter to Court • It is illustrated in the case Ty vs. Trampe, 321 Phil. 81, 1995, where taxpayer questioned the increased real estate taxes imposed by Pasig City effective from 1994, premised on legal question of whether or not Pres. Dec. No. 921 was repealed by LGC • In some cases, determination of whether the issue involves a question of fact or a question of law may be obscure • Is “Payment under protest” required when the taxpayer claims exemption from payment of RPT under a specific provision of law or statute?

Period within which to Collect Real Property Tax • May be collected within 5 years from the date it becomes due • In case of fraud or evasion of tax, action to collect tax may be instituted within 10 years from date of discovery of fraud or intent to evade • Period of Prescription is suspended if: o Treasurer legally prevented the collection

o Owner of property requests for reinvestigation and signs Waiver of Prescription o Owner of property cannot be located or is out of the country

Remedy of Property Owner for Realty Tax Assessment • A property owner questioning the assessment should first pay the tax due before his protest can be entertained • Within the period prescribed by law, any person not satisfied with assessment of the Assessor may file an appeal with the Local Board of Assessment Appeals (LBAA) in the province or city concerned • Within 30 days from receipt, owner may elevate his appeal to the Central Board of Assessment Appeals Camp John Hay Development Corp. vs. CBAA (G.R. No. 169234, October 2, 2013)

Issuance of Writ of Possession In the case of Republic of the Philippines (DOTC) vs. City of Mandaluyong (Feb. 23, 2011), SC ruled that: • It is premature for RTC to issue a Writ of Possession where issue on ownership of properties derived from auction sale is still being deliberated by CTA

• A Writ of Possession issued at this juncture has no force and effect • It is noteworthy that Writ of Possession is a mere incident in transfer of title

Situs of Real Property Taxation In the case of Sta. Lucia Realty & Dev’t. Inc. vs. Pasig City (June 15, 2011), SC ruled that: • While a local gov’t. is authorized to collect Realty Tax on properties falling under its jurisdiction, it is imperative to first show that these properties are unquestionably within its geographical boundaries

• Local gov’t. must confirm that subject properties are situated within their territorial jurisdiction otherwise it would be acting beyond its powers vested by law

Real Property to Satisfy Delinquent Tax 1. Warrant of Levy is issued by the Local Treasurer (LT) and mailed to delinquent owner. Written Notice of Levy and Warrant are served on the assessor and Register of Deeds 2. 30 days from service of warrant, LT shall advertise sale of property by notice in LGU Bldg. and in a visible place in the barangay where property is located Publication shall be once a week for 2 weeks 3. Before date of sale, owner may stop the proceedings by payment of delinquent tax and incremental penalties 4. Sale of property may held at the main entrance of LGU Bldg. or in any other place specified in the notice

Real Property to Satisfy Delinquent Tax- cont. 5. The highest bidder making sufficient bid shall pay the Realty Tax plus increments. LT reports sale to Sanggunian after 30 days LT will deliver the COS to purchaser. Proceeds from sale in excess of delinquent tax and increments will be remitted back to owner 6. Within 1 year from sale, owner may redeem upon payment an additional 2% per month on purchase price from date of sale up to date of redemption Delinquent owner retains possession and right to the fruits Price paid plus 2% interest per month shall be returned to buyer

7. If there is no bidder or highest bid is insufficient to pay Realty Tax and increments, LT shall purchase the property in behalf of the LGU

Real Property to Satisfy Delinquent Tax – cont. 8.

Register of Deeds shall transfer title of forfeited property to LGU without Court Order

9. Within 1 year from forfeiture, owner may redeem property by paying to LT the full amount of tax, interest and cost of sale otherwise, ownership shall be vested to LGU

10.The Sanggunian concerned may sell by public auction the property acquired through forfeiture. It can be done through ordinance approved

Condonation of Realty Tax • In case of general failure on crops, decrease in agri-based products, calamity in any province, city or municipality the Sanggunian concerned by ordinance may condone or reduce wholly or partially the taxes and interest • Tax removal or reduction may take effect for the succeeding years in the city or municipality affected by calamity

Other Court Rulings and Decisions on Local and Real Property Taxes

Batangas City Treasurer vs. Pilipinas Shell Petroleum (G.R. 187631 - 07/08/15) Facts: • Batangas city assessed Shell for business taxes of around Php400m

for manufacture and distibution of petroleum products from refinery in Tabangao, Batangas city • It is pursuant to Sec. 143(h) of LGC that allows them to collect

Business tax not to exceed 2% of gross sales or receipts • Shell argued that it is not liable pursuant to Sec. 133(h) that prohibits

LGC to impose tax on petroleum products and Art. 232(h) of the implementing rules of LGC which states that: “XXX Sale of oil, gasoline and other petroleum products shall not be subject to any local tax imposed in this article”.

Batangas City Treasurer vs. Pilipinas Shell Petroleum (G.R. 187631 - 07/08/15) Issue: Is Shell liable to pay Business Tax to Batangas city?

Batangas City Treasurer vs. Pilipinas Shell Petroleum (G.R. 187631 - 07/08/15) Rule: • SC ruled that given the clear mandate under Sec. 133(h) and Art. 232 of the IRR of the LGC of 1991, Batangas City does not have the right to assess & collect business taxes against Shell

Mactan- Cebu Int’l Airport Authority vs. Lapu-Lapu City (G.R. 181756 - 06/15/15) Issue: Are real properties of Mactan – Cebu International Airport Authority subject to Real Property Tax?

Mactan- Cebu Int’l Airport Authority vs. Lapu-Lapu City (G.R. 181756 - 06/15/15) Rule: • No. Petitioner is an instrumentality of gov’t. so its properties actually and solely used for public purpose are exempt from Teal Property Tax • Examples of the airport’s property include airport terminal building, runway and lots

Mactan- Cebu Int’l Airport Authority vs. Lapu-Lapu City (G.R. 181756 - 06/15/15) Rule – cont.: • The decision follows the 2006 MIAA case and not 1996 MCIAA case • Court reiterated that MIAA/ MCIAA is not a GOCC but an instrumentality vested with corporate powers • As properties of public dominion being for public use, properties of MCIAA are not subject to levy, encumbrance or disposition • This case cited the previous rulings of PFDA, GSIS and PPA

Davao City Treasurer vs. Intestate Estate of Dalisay (G.R. 207791 - 07/01/15) Facts: • Involves a sale at public auction by Davao City of the estate’s

properties for non-payment of Real Estate Tax • Since there were no bidders during the auction, the city forfeited the

properties and cause annotation of declarations of forfeiture on the corresponding TCTs of properties • The declaration stated “Delinquent taxpayer or his authorized

representative has within 1 year from said date of declaration of forfeiture to redeem the property.”

Davao City Treasurer vs. Intestate Estate of Dalisay (G.R. 207791 - 07/01/15) Facts – cont.: • Petitioner offered to redeem properties forfeited but the city refused

since the 1 year redemption period already expired • The reckoning of said period should be from date of forfeiture in

which the properties were taken by the city to sell to bidders • The estate countered that the reckoning date should be the one

stated in the declaration of forfeiture which incidentally was belatedly issued by Davao City due to its inefficiency

Davao City Treasurer vs. Intestate Estate of Dalisay (G.R. 207791 - 07/01/15) Facts – cont.: • Davao City contended that the operative act of forfeiture is an act of

the Treasurer in getting the property for lack of bidders and not the registration of any declaration of forfeiture because said document only facilitates transfer of ownership of property • The city also stated the odd timing in the issuance of declaration and

its contents observably benefit the estate

Davao City Treasurer vs. Intestate Estate of Dalisay (G.R. 207791 - 07/01/15) - cont. Issue: What is the reckoning point in counting the one (1) year redemption period?

Davao City Treasurer vs. Intestate Estate of Dalisay (G.R. 207791 - 07/01/15) Rule: • Period to redeem must be counted from Date of Forfeiture and not

Declaration of Forfeiture • City would suffer injustice if it will be bound by Officer’s suspicious

action • Contrary rule would effect an extension of statutory period due to

indiscretion of scrupulous officers

Davao City Treasurer vs. Intestate Estate of Dalisay (G.R. 207791 - 07/01/15) Rule: • Period would become flexible because its extension would depend

not on Treasurer’s discretion but on his attitude and work ethics • Hence, the estate cannot redeem the property anymore since the

period of redemption had already expired

Demaala vs. Commission on Audit (G.R. 199752 - 02/17/15) Issue: Can an LGU impose and collect a Special Education Fund (SEF) at less than 1%?

Demaala vs. Commission on Audit (G.R. 199752 - 02/17/15) Rule: • Yes. Imposition of SEF is within the taxing power of LGU and is

consistent with the constitutional principle of local autonomy and fiscal flexibility • Permissive language (use of the term “may”) of the LGC provision

imposing SEF supports the authority of LGU’s to prescribe their own rates • The 1% is a maximum rate rather than an immutable edict

Manila Treasurer vs. China Banking Corp. (G.R. 204117 - 07/01/15) Facts: • CBC filed for a refund claim in the amount of Php155K with the

Manila Treasurer for taxes and fees paid under Ordinances nos. 7988 & 8011 after these were declared unconstitutional like in the case of Coca Cola Bottlers vs. City of Manila • Treasurer denied the claim prompting CBC to file a Petition for

Review with RTC Manila • Treasurer filed a Motion for Reconsideration which was denied

• Case was elevated to CTA Division by the Treasurer and contended

that petition should be filed with MeTC and not RTC

Manila Treasurer vs. China Banking Corp. (G.R. 204117 - 07/01/15) Facts- cont.: • CTA did not focus on the issue of where it must be filed but noted that

Petition for Review was filed a day after the reglementary period under Sec. 195 of LGC • CTA ruled that assessment is final • CBC appealed the case to CTA En Banc who affirmed the ruling of

CTA so petition was forwarded to SC • CBC insisted on the invalidity of Treasurer’s assessment claiming that

Petition for Review with RTC was timely filed

Manila Treasurer vs. China Banking Corp. (G.R. 204117 - 07/01/15) Facts- cont.: • CBC stated that the 30-day period to appeal inaction should be

reckoned on or before Mar. 27, 2007 (the day the letter reiterating its objection to Treasurer’s imposition was made) and not Jan. 15, 2007 when it filed its letter questioning the imposition • CBC also said that assuming they were guilty of delay since it was

only a day, they should be excused • CBC appealed the case to CTA En Banc who affirmed the ruling of

CTA so petition was forwarded to SC • CBC insisted on the invalidity of Treasurer’s assessment claiming

that Petition for Review with RTC was timely filed

Manila Treasurer vs. China Banking Corp. (G.R. 204117 - 07/01/15) Rule: • SC ruled that refund claim should be dismissed since it was not filed

on time and before a Court of Competent Jurisdiction • Court is not reversing its pronouncements in the case of Coca-Cola

Bottlers Phil. Inc. vs. City of Manila • Refund claims are exception and that each claim for refund must be

proceeded in accordance with law • In each claim, burden is on the Taxpayer to show that he has strictly

complied with the conditions for the grant of tax refund

City of Makati vs. Trans-Asia Power Generation Corp. (CTA En Banc 1086 - 01/21/15) Facts: • Trans-Asia is engaged in the business of building, owning, operating,

selling and leasing power generation plants for purchasing, importing and leasing telecommunication and other kinds of equipment • For the years 1996 to 2005, Makati City classified the corp. as

“Manufacturer/ Producer” for Local Business Tax purpose • In 2006, Makati City changed its classification to “Services-Other

Contractor” that resulted to increase of LBT payments which they paid under protest and filed for refund claim

City of Makati vs. Trans-Asia Power Generation Corp. (CTA En Banc 1086 - 01/21/15) Facts - cont.: • RTC Makati ruled that the corp. is a “Manufacturer/ Producer” since it

is engaged in business of transforming fuel into electricity and selling it to end-users • This ruling was affirmed by the CTA Division prompting Makati City to

appeal to CTA En Banc

City of Makati vs. Trans-Asia Power Generation Corp. (CTA En Banc 1086 - 01/21/15) Rule: • Trans-Asia is a “Manufacturer/ Producer” and not a “Contractor” • It buys Bunker fuel as its chief raw material and converts it

through chemical process producing electricity • It sells electricity to Hi-Cement

City of Makati vs. Trans-Asia Power Generation Corp. (CTA En Banc 1086 - 01/21/15) Rule: • While Hi-Cement initially owned the power plant, the same was

later sold to Trans-Asia as the owner of the plant, the latter need to operate it for a fee • The receipt for the fee does not classify Trans-Asia as a

“Contractor” • Additional undertaking is merely an aid to its primary function as

a Producer of electricity and not considered as rendered service

National Grid Corp. of the Phils. vs. CBAA, LBAA of Cabanatuan (CTA En Banc 1086 - 01/21/15) Facts: • Taxpayer is not a GOCC but a privately-owned corp. engaged in

transmission of electricity only and not in power generation so it should be exempted from RPT • It alleges that use of the conjunctive word “and” under Sec. 234 of

RPT Code shows the intent of law in granting exemptions from RPT • Taxpayer alleges that if properties are not exempted from RPT then

these must be classified as “Special Class”

National Grid Corp. of the Phils. vs. CBAA, LBAA of Cabanatuan (CTA En Banc 1086 - 01/21/15) Rule: • CTA EB disagrees. To avail of special tax rate, it must be a GOCC

engaged in the generation and transmission of electric power • This is in accordance with use of the conjunctive word “and” under

Sec. 234 of RPT Code showing that to avail of exemptions and Special Tax Rate of 10%, it must be a GOCC engaged both in power generation and transmission