TAXATION REVIEW | ATTY. BOBBY M.

LOCK, CPA

TAXATION LAW REVIEW

Focus on Common limitations and Specific taxes.

I. LOCAL AND REAL PROPERTY TAXATION

A. General Principles in Local Taxation

Doctrine of Preemption - in the matter of taxation simply refers to an instance where the
national government elects to tax a particular area, impliedly withholding from the local
government the delegated power to tax the same field. This doctrine primarily rests upon the
intention of Congress.  Conversely, should Congress allow municipal corporations to
cover fields of taxation it already occupies, then the doctrine of preemption will not
apply. (it must be manifestly by express provision of a law or SC decision as in PBA v. CA)

1. Local Government Units’ Power to Tax

a. Sec. 5 Art. X of the 1987 Constitution

Section 5. Each local government unit shall have the power to create its own sources of
revenues and to levy taxes, fees and charges subject to such guidelines and limitations as
the Congress may provide, consistent with the basic policy of local autonomy. Such
taxes, fees, and charges shall accrue exclusively to the local governments.

b. Sec. 129 of the Local Government Code (“LGC”)

Section 129. Power to Create Sources of Revenue. - Each local government unit shall
exercise its power to create its own sources of revenue and to levy taxes, fees, and
charges subject to the provisions herein, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government
units.

Section 186. Power To Levy Other Taxes, Fees or Charges. - Local government units
may exercise the power to levy taxes, fees or charges on any base or subject not
otherwise specifically enumerated herein or taxed under the provisions of the National
Internal Revenue Code, as amended, or other applicable laws: Provided, That the taxes,
fees, or charges shall not be unjust, excessive, oppressive, confiscatory or contrary to
declared national policy: Provided, further, That the ordinance levying such taxes, fees or
charges shall not be enacted without any prior public hearing conducted for the purpose.

Note in Sec 186: The tax must not yet be imposed in the LGC and in the NIRC or
other applicable laws.

c. Film Development Council of the Philippines vs. Colon Heritage Realty, GR No.
203754 dated June 16, 2015 (not yet asked in the BAR an en banc case)

Doctrine: taxes levied by LGUs shall accrue exclusively to said LGU.

Material to the case at bar is the concept and scope of local fiscal autonomy. In
Pimentel v. Aguirre, fiscal autonomy was defined as “the power [of LGUs] to create
their own sources of revenue in addition to their equitable share in the national... taxes
released by the national government, as well as the power to allocate their resources in
accordance with their own priorities. It extends to the preparation of their budgets, and
local officials in turn have to work within the constraints thereof.”
In other words, per RA 9167, covered LGUs still have the power to levy amusement
taxes, albeit at the end of the day, they will derive no revenue therefrom. The same,
however, cannot be said for FDCP and the producers of graded films since the amounts
thus levied by the LGUs––which should rightfully accrue to them, they being the
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taxing authority––will be going to their coffers. As a matter of fact, it is only through

the exercise by the LGU of said power that the funds to be used for the amusement tax
reward can be raised. Without said imposition, the producers of graded films will
receive nothing from the owners, proprietors and lessees of cinemas operating within
the territory of the covered LGU.
Taking the resulting scheme into consideration, it is apparent that what Congress did in
this instance was not to exclude the authority to levy amusement taxes from the taxing
power of the covered LGUs, but to earmark, if not altogether confiscate, the income to
be received by the LGU from the taxpayers in favor of and for transmittal to FDCP,
instead of the taxing authority. This, to Our mind, is in clear contravention of the
constitutional command that taxes levied by LGUs shall accrue exclusively to said
LGU and is repugnant to the power of LGUs to apportion their resources in line with
their priorities.

Applicable provision:

Constitution, Section 5. Each local government unit shall have the power to
create its own sources of revenues and to levy taxes, fees and charges subject to
such guidelines and limitations as the Congress may provide, consistent with
the basic policy of local autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local governments.

LGC of 1991, Section 130. Fundamental Principles. - The following

fundamental principles shall govern the exercise of the taxing and other
revenue-raising powers of local government units:... x xx x
(d) The revenue collected pursuant to the provisions of this Code shall inure
solely to the benefit of, and be subject to the disposition by, the local
government unit levying the tax, fee, charge or other imposition unless
otherwise specifically provided herein.
In Pimentel, the Court elucidated that local fiscal autonomy includes the power of
LGUs to allocate their resources in accordance with their own priorities. By
earmarking the income on amusement taxes imposed by the LGUs in favor of FDCP
and the producers of graded films, the legislature appropriated and distributed the
LGUs’ funds––as though it were legally within its control––under the guise of setting a
limitation on the LGUs’ exercise of their delegated taxing power. This, undoubtedly,
is a usurpation of the latter’s exclusive prerogative to apportion their funds, an
impermissible intrusion into the LGUs’ constitutionally-protected domain which
puts to naught the guarantee of fiscal autonomy to municipal corporations
enshrined in our basic law.

Q: It is a tax exemption in favor of FDCP?

A: No. because in the first place the film producer is not liable to tax it is the
producer and proprietor which is the one liable.

2. Repeal of Tax Exemptions

a. Sec. 193 of the LGC

Section 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise provided in

this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government-owned or controlled corporations,
except [1] local water districts, [2] cooperatives duly registered under R.A. No. 6938,
[3] non-stock and non-profit hospitals and [4] educational institutions, are hereby
withdrawn upon the effectivity of this Code. (include in the answer the exception)
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b. PLDT vs. City of Davao GR No. 143867, August 22, 2001

The City of Davao withheld PLDT’s application for a Mayors Permit pending
PLDT’s payment of the local franchise tax.

PLDT refused to pay and sought a refund of the franchise tax it had paid before,
insisting it was exempt from the payment of franchise tax based on an opinion of
the Bureau of Local Government Finance. Davao City denied PLDT’s protest and
claim for tax refund.

RULING

The SC ruled in favor of the City of Davao.

The Local Government Code withdrew all tax exemptions previously enjoyed by
all persons. It also authorized local government units to impose a tax on businesses
enjoying a franchise notwithstanding the grant of tax exemption to them.
Exemptions from taxation are highly disfavored, so much so that they may almost
be said to be odious to the law.

He who claims an exemption must be able to point to some positive provision of

law creating the right.

3. Procedure for approval and effectivity of tax ordinance

a. Secs. 132, 187 and 188 of the LGC

Section 132. Local Taxing Authority. - The power to impose a tax, fee, or charge or to
generate revenue under this Code shall be exercised by the sanggunian of the local
government unit concerned through an appropriate ordinance.

Section 187. Procedure for Approval and Effectivity of Tax, Ordinances and

Revenue Measures; Mandatory Public Hearings. - The procedure for approval of local
tax ordinances and revenue measures shall be in accordance with the provisions of this
Code: Provided, That public hearings shall be conducted for the purpose prior to the
enactment thereof: Provided, further, That any question on the constitutionality or
legality of tax ordinances or revenue measures may be raised on appeal within thirty (30)
days from the effectivity thereof to the Secretary of Justice who shall render a decision
within sixty (60) days from the date of receipt of the appeal: Provided, however, That
such appeal shall not have the effect of suspending the effectivity of the ordinance and
the accrual and payment of the tax, fee, or charge levied therein: Provided, finally, That
within thirty (30) days after receipt of the decision or the lapse of the sixty-day period
without the Secretary of Justice acting upon the appeal, the aggrieved party may file
appropriate proceedings with a court of competent jurisdiction.

Section 188. Publication of Tax Ordinances and Revenue Measures. - Within ten

(10) days after their approval, certified true copies of all provincial, city, and municipal
tax ordinances or revenue measures shall be published in full for three (3) consecutive
days in a newspaper of local circulation: Provided, however, That in provinces, cities and
municipalities where there are no newspapers of local circulation, the same may be
posted in at least two (2) conspicuous and publicly accessible places.

B. Common Limitations on Local Government Units’ Power to Tax

1. Sec. 133 of the LGC (We need to be familiar with this Article in answering
questions)
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Section 133. Common Limitations on the Taxing Powers of Local Government

Units. - Unless otherwise provided herein, ([Refers to Sec. 133 (o); See: 234(a)]
MIAA case.) the exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:

a. Income tax, except when levied on banks and other financial institutions;
[the exception is not actually IT but business tax computed based on income.
Sec. 143(f) Income from Financial Leasing]
b. Documentary stamp tax;
c. Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis
causa, except as otherwise provided herein; [Transfer Tax Sec. 135]
d. Customs duties, registration fees of vessel and wharfage on wharves,
tonnage dues, and all other kinds of customs fees, charges and dues except
wharfage on wharves constructed and maintained by the local government
unit concerned;
e. Taxes, fees, and charges and other impositions upon goods carried into or
out of, or passing through, the territorial jurisdictions of local government
units in the guise of charges for wharfage, tolls for bridges or otherwise, or
other taxes, fees, or charges in any form whatsoever upon such goods or
merchandise;
f. Taxes, fees or charges on agricultural and aquatic products when sold by
marginal farmers or fishermen;
g. Taxes on business enterprises certified to by the Board of Investments as
pioneer or non-pioneer for a period of six (6) and four (4) years, respectively
from the date of registration;
h. Excise taxes on articles enumerated under the National Internal Revenue
Code, as amended, and taxes, fees or charges on petroleum products;
i. Percentage or value-added tax (VAT) on sales, barters or exchanges or
similar transactions on goods or services except as otherwise provided
herein; [Amusement Tax under the case of Pelizluy Realty]
j. Taxes on the gross receipts of transportation contractors and persons
engaged in the transportation of passengers or freight by hire and common
carriers by air, land or water, except as provided in this Code; [Franchise
Tax on common carrier enjoying a franchise, First Phil. Industrial Corp. v.
C.A.]
k. Taxes on premiums paid by way or reinsurance or retrocession;
l. Taxes, fees or charges for the registration of motor vehicles and for the
issuance of all kinds of licenses or permits for the driving thereof, except
tricycles; [Franchise on tricycle only]
m. Taxes, fees, or other charges on Philippine products actually exported,
except as otherwise provided herein; [Business Tax Sec. 143(c)]
n. Taxes, fees, or charges, on Countryside and Barangay Business Enterprises
and cooperatives duly registered under R.A. No. 6810 and Republic Act
Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) otherwise known
as the "Cooperative Code of the Philippines" respectively; and
o. Taxes, fees or charges of any kind on the National Government, its agencies
and instrumentalities, and local government units. [Sec. 234(a)]

2. Petron Corp. vs. Tiangco, GR No. 158881 dated April 16, 2008

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Pertinent Provision: Sec. 133(h), LGC: Excise taxes [Refer to excise tax on specific
article] on articles enumerated under the national Internal Revenue Code, as amended,
and taxes, fees or charges on petroleum products;

With all the relevant provisions of law laid out, we address the core issues submitted
by Petron, namely: first, is the challenged tax on sale of the diesel fuels an excise tax
on an article enumerated under the NIRC, thusly prohibited under Section 133(h) of
the Code?; second, is the challenged tax prohibited by Section 133(h) under the
proviso, "taxes, fees or charges on petroleum products"? and; third, does Art. 232(h)
of the IRR similarly prohibit the imposition of the challenged tax?

Two Concept of Excise tax?

We first consider Petron’s argument that the "business taxes" on its sale of diesel fuels
partakes of an excise tax, which if true, could invalidate the challenged tax solely on
the basis of the phrase "excise taxes on articles enumerated under the [NIRC]." To
support this argument, it cites Cordero v. Conda, Allied Thread Co. Inc. v. City
Mayor of Manila, and Iloilo Bottlers, Inc. v. City of Iloilo, as having explained that
"an excise tax is a tax upon the performance, carrying on, or the exercise of an
activity."

Respondents, on the other hand, argue that what the provision prohibits is the
imposition of excise taxes on petroleum products, but not the imposition of business
taxes on the same. They cite Philippine Petroleum Corporation v. Municipality of
Pililia, where the Court had noted, "[a] tax on business is distinct from a tax on the
article itself."

Petron’s argument is fraught with far-reaching implications, for if it were sustained, it

would mean that local government units are barred from imposing business taxes on
any of the articles subject to excise taxes under the NIRC. These would include
alcohol products, tobacco products, mineral products automobiles, and such non-
essential goods as jewelry, goods made of precious metals, perfumes, and yachts and
other vessels intended for pleasure or sports.

Ruling:

Further, these two latest codes categorize two different kinds of excise taxes: "(1)
specific tax" which is imposed and based on weight or volume capacity or any other
physical unit of measurement; and "(2) ad valorem tax" which is imposed and based
on the selling price or other specified value of the goods. In other words, the meaning
of "excise tax" has undergone a transformation, morphing from the Am Jur definition
to its current signification which is a tax on certain specified goods or articles.

It is evident that Am Jur aside, the current definition of an excise tax is that of a tax
levied on a specific article, rather than one "upon the performance, carrying on,
or the exercise of an activity." This current definition was already in place when the
Code was enacted in 1991, and we can only presume that it was what the Congress
had intended as it specified that local government units could not impose "excise
taxes on articles enumerated under the [NIRC]." This prohibition must pertain to the
same kind of excise taxes as imposed by the NIRC, and not those previously defined
"excise taxes" which were not integrated or denominated as such in our present tax
law.

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Note: The excise tax that is prohibited under the NIRC is an excise tax that are
levied on a specific article, rather than one "upon the performance, carrying
on, or the exercise of an activity."

Q: Whether a local government unit is empowered under the Local Government

Code to impose business taxes on persons or entities engaged in the sale of
petroleum products?

A: No. Evidently, Section 133 prescribes the limitations on the capacity of local
government units to exercise their taxing powers otherwise granted to them under the
LGC. Apparently, paragraph (h) of the Section mentions two kinds of taxes which
cannot be imposed by local government units, namely: (1) excise taxes on articles
enumerated under the NIRC [refers to specific article] ; and (2) taxes, fees or charges
on petroleum products [refers to business tax].

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

What is the Rationale behind?

Why the special concern over petroleum products? The answer is quite evident to
all sentient persons. In this age where unfortunately dependence on petroleum as fuel
has yet no equally feasible alternative, the cost of petroleum products, though fully
controlled by private enterprise, remains an area of public concern. To be blunt about
it, there is an inevitable link between the fluctuation of oil prices and the prices of
every other commodity. The reality, indeed, is oil is a political commodity. Such fact
has received recognition from this Court. "[O]il [is] a commodity whose supply and
price affect the ebb and flow of the lifeblood of the nation. Its shortage of supply or a
slight, upward spiral in its price shakes our economic foundation. Studies show that
the areas most impacted by the movement of oil are food manufacture, land transport,
trade, electricity and water." "[T]he upswing and downswing of our economy
materially depend on the oscillation of oil." "Fluctuations in the supply and price of
oil products have a dramatic effect on economic development and public welfare."

3. Batangas City vs. Pilipinas Shell Petroleum Corporation, GR No. 187631 dated
July 8, 2015

Q: The argument of the Batangas City that Sec 133 (h) is specific imposition but Sec.
143 (h) has an exception where the first paragraph of the Sec. 133 unless otherwise
provided.

A: Unless otherwise provided herein, [Refers to Sec. 133 (o); See: 234(a)] MIAA
case. It is not an exception to Sec. 133(h) but to Section 133(o).

Indisputably, the power of LGUs to impose business taxes derives from Section 143 of the
LGC. However, the same is subject to the explicit statutory impediment provided for under
Section 133(h) of the same Code which prohibits LGUs from imposing "taxes, fees or
charges on petroleum products." It can, therefore, be deduced that although petroleum

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products are subject to excise tax, the same is specifically excluded from the broad
power granted to LGUs under Section 143(h) of the LGC to impose business taxes.

Additionally, Section 133(h) of the LGC makes plain that the prohibition with respect to
petroleum products extends not only to excise taxes thereon, but all "taxes, fees or charges."
The earlier reference in paragraph 143(h) to excise taxes comprehends a wider range of
subject of taxation: all articles already covered by excise taxation under the NIRC, such as
alcohol products, tobacco products, mineral products, automobiles, and such non-essential
goods as jewelry, goods made of precious metals, perfumes, and yachts and other vessels
intended for pleasure or sports. In contrast, the later reference to "taxes, fees and charges"
pertains only to one class of articles of the many subjects of excise taxes, specifically,
"petroleum products." While LGUs are authorized to burden all such other class of goods
with "taxes, fees and charges," excepting excise taxes, a specific prohibition is imposed
barring the levying of any other type of taxes with respect to petroleum products.

It is likewise irrefutable that the specific exemption provided under Section 133 of the
LGC prevails over Section 143 of the same Code.

First, Section 133 of the LGC is a specific provision that explicitly withhold from
LGUs the power to impose taxes, fees and charges on petroleum products.

On the contrary, Section 143 of the LGC defines the general power of LGUs to tax
businesses within its jurisdiction. Thus, the omnibus grant of power to LGUs under
Section 143(h) of the LGC cannot overcome the specific exception or exemption in
Section 133(h) of the same Code. This is in accord with the rule on statutory
construction that specific provisions must prevail over general ones.

Strictly speaking, as long as the subject matter of the taxing powers of the LGUs is the
petroleum products per se or even the activity or privilege related to the petroleum
products, such as manufacturing and distribution of said products, it is covered by the
said limitation and thus, no levy can be imposed.

Second, Article 232(h) of the Implementing Rules and Regulations (IRR) of the LGC
of 1991 states:

Article 232 defines with more particularity the capacity of a municipality to impose
taxes on businesses. However, it admits of certain exceptions, specifically, that
businesses engaged in the production, manufacture, refining, distribution or sale of
oil, gasoline, and other petroleum products, shall not be subject to any local tax
imposed by Article 232.

4. City of Manila vs. Colet, GR No. 120051 dated December 10, 2014

Pertinent Provision: Sec. 133(j) LGC: Taxes on the gross receipts of transportation
contractors and persons engaged in the transportation of passengers or freight by hire
and common carriers by air, land or water, except as provided in this Code.

LGUs cannot impose any tax on the gross receipts of transportation contractors,
persons engaged in the transportation of passengers or freight by hire, and common
carriers by air, land or water. Although the power to tax is inherent in the State, the
same is not true for LGUs to whom the power must be delegated by Congress and
must be exercised within the guidelines and limitations that Congress may provide.

Among the common limitations on the taxing power of LGUs is Section 133(j) of the
LGC which clearly and unambiguously proscribes LGUs from imposing any tax on

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the gross receipts of transportation contractors, persons engaged in the transportation

of passengers or freight by hire, and common carriers by air, land or water.

Section 133(j) of the LGC prevails over Section 143 (h) of the same Code. Section
143 of the LGC defines the general power of the municipality (as well as the city, if
read in relation to Section 151 of the LGC) to tax businesses within its jurisdiction.
While paragraphs (a) to (g) thereof identify the particular businesses and fix the
imposable tax rates for each, paragraph (h) is apparently the “catch-all provision”
allowing the municipality to impose tax “on any business, not otherwise specified in
the preceding paragraphs, which the sanggunian concerned may deem proper to tax.”

The grant of power to municipalities and cities under Section 143(h) of the LGC
cannot overcome the specific exemption in Section 133(j) of the same Code. This is in
accord with the rule on statutory construction that specific provision prevails over
general ones.

In case of any doubt, any tax ordinance or revenue measure shall be construed strictly
against the LGU enacting it, and liberally in favor of the taxpayer.

The tax code also provides that The gross receipts of common carriers derived
from their incoming and outgoing freight shall not be subjected to the local taxes
imposed under Republic Act No. 7160, otherwise known as the Local
Government Code of 1991.

5. Provincial Assessor of Agusan del Sur vs. Filipinas Palm Oil, GR No. 183416
dated October 5, 2016 (see RPT)

n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and

cooperatives duly registered under R.A. No. 6810 and Republic Act Numbered Sixty-
nine hundred thirty-eight (R.A. No. 6938) otherwise known as the "Cooperative Code
of the Philippines" respectively; and

6. MIAA vs. CA, GR No. 155650 dated July 20, 2006

Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units. [Sec. 234(a)]

Difference between GOCC and Instrumentality?

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as
a government-owned or controlled corporation. What then is the legal status of MIAA
within the National Government?

MIAA is a government instrumentality vested with corporate powers to perform

efficiently its governmental functions. MIAA is like any other government
instrumentality, the only difference is that MIAA is vested with corporate powers.

Section 2(10) of the Introductory Provisions of the Administrative Code defines a

government "instrumentality" as follows:

Instrumentality refers to any agency of the National Government, not

integrated within the department framework, vested with special
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functions or jurisdiction by law, endowed with some if not all corporate

powers, administering special funds, and enjoying operational autonomy,
usually through a charter.

When the law vests in a government instrumentality corporate powers, the

instrumentality does not become a corporation. Unless the government instrumentality
is organized as a stock or non-stock corporation, it remains a government
instrumentality exercising not only governmental but also corporate powers. Thus,
MIAA exercises the governmental powers of eminent domain, police authority and the
levying of fees and charges. At the same time, MIAA exercises "all the powers of a
corporation under the Corporation Law, insofar as these powers are not inconsistent
with the provisions of this Executive Order."

Note: Interpretation of exemption of GOCCs.

When local governments invoke the power to tax on national government

instrumentalities, such power is construed strictly against local governments. The rule
is that a tax is never presumed and there must be clear language in the law imposing
the tax. Any doubt whether a person, article or activity is taxable is resolved against
taxation. This rule applies with greater force when local governments seek to tax
national government instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer claiming
the exemption. However, when Congress grants an exemption to a national government
instrumentality from local taxation, such exemption is construed liberally in favor of
the national government instrumentality.

C. Specific Taxes

LGUs DO NOT HAVE THE INHERENT POWER TO TAX

Local Government Units (LGU) do not have the inherent power to tax. This power is
delegated by Congress under Art. X, Sec. 3 of the 1987 Constitution, by virtue of which the
Local Government Code (LGC) was enacted. Accordingly, the LGUs power to tax must
always yield to the LGC which is a legislative act superior to the taxing power of the LGUs.
Thus, such power must be exercised within the limitations imposed by the LGC, such as:

1. It can only be exercised through a valid ordinance;

2. Common limitations enumerated under Sec. 133;
3. It must not exceed the rates provided under the LGC, except in reference to their authority
to adjust the same under Sec. 191, once every five years.

Note that under Sec. 5 of Art. X of the 1987 Constitution, it is provided that “Each local
government unit shall have the power to create its own source of revenue and to levy taxes,
fees, and other charges subject to such guidelines and limitation as the congress may provide,
consistent with the basic policy on local autonomy. xxx”

ROLE OF BUREAU OF LOCAL GOVERNMENT FINANCE

The BLGF assists the Department of Finance in the performance of its functions in overseeing local
treasury office in the implementation of the provisions of the LGC and issues rulings and opinions to
interpret such. However, such rulings and interpretations relative to the levy and administration of
local taxes, fees and charges are merely directory and not mandatory.
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It may extend technical assistance to LGUs in the preparation of tax ordinance and in the clarification
of issues and controversies arising from the impositions and/or collections of taxes and fees under the
provisions of the LGC.

Fundamental Principles

Section 130. Fundamental Principles. - The following fundamental principles shall govern

the exercise of the taxing and other revenue-raising powers of local government units:

(a) Taxation shall be uniform in each local government unit;

(b) Taxes, fees, charges and other impositions shall:
(1) be equitable and based as far as practicable on the taxpayer's ability to pay;
(2) be levied and collected only for public purposes;
(3) not be unjust, excessive, oppressive, or confiscatory;
(4) not be contrary to law, public policy, national economic policy, or in the
restraint of trade;
(c) The collection of local taxes, fees, charges and other impositions shall in no case
be let to any private person;
(d) The revenue collected pursuant to the provisions of this Code shall inure solely to
the benefit of, and be subject to the disposition by, the local government unit levying
the tax, fee, charge or other imposition unless otherwise specifically provided herein;
and,
(e) Each local government unit shall, as far as practicable, evolve a progressive system
of taxation.

SCOPE OF THE TAXING POWER

Type Of Tax Province Cities Municipalities

(Secs. 134 to (Secs. 134 (Secs. 142 to
141) to 151) 150)
Printing and Publication   x
Franchise Tax   x
Sand and other Quarry Resources   x
Amusement Tax   x
Delivery Van and Trucks   x
Business Tax x  

1. Local Transfer Tax

a. Sec. 135 of the LGC

Section 135. Tax on Transfer of Real Property Ownership.

(a) The province may impose a tax on the sale, donation, barter, or on any other
mode of transferring ownership or title of real property at the rate of not more than
fifty percent (50%) of the one percent (1%) of the total consideration involved in the
acquisition of the property or of the fair market value in case the monetary
consideration involved in the transfer is not substantial, whichever is higher. The sale,
transfer or other disposition of real property pursuant to R.A. No. 6657 shall be exempt
from this tax.

(b) For this purpose, the Register of Deeds of the province concerned shall, before
registering any deed, require the presentation of the evidence of payment of this tax.

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The provincial assessor shall likewise make the same requirement before cancelling an
old tax declaration and issuing a new one in place thereof, Notaries public shall furnish
the provincial treasurer with a copy of any deed transferring ownership or title to any
real property within thirty (30) days from the date of notarization.

It shall be the duty of the seller, donor, transferor, executor or administrator to

pay the tax herein imposed within sixty (60) days from the date of the execution of
the deed or from the date of the decedent's death.

2. Franchise Tax

a. Sec. 137 of the LGC

Section 137. Franchise Tax. - Notwithstanding any exemption granted by any law or
other special law, the province may impose a tax on businesses enjoying a franchise, at
the rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual
receipts for the preceding calendar year based on the incoming receipt, or realized,
within its territorial jurisdiction.

In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of
one percent (1%) of the capital investment. In the succeeding calendar year, regardless
of when the business started to operate, the tax shall be based on the gross receipts for
the preceding calendar year, or any fraction thereon, as provided herein.

b. Smart Communications vs. City of Davao, GR No. 155491 dated September 16,
2008

Two reasons why Smart was denied:

1. There is doubt on the exemption of Smart
2. The in lieu of all tax clause become functus officio when the VAT law was
enacted.

Smart contends that its telecenter in Davao City is exempt from payment of
franchise tax to the City, on the following grounds: (a) the issuance of its franchise
under Republic Act (R.A.) No. 7294 subsequent to R.A. No. 7160 shows the clear
legislative intent to exempt it from the provisions of R.A. 7160; (b) Section 137 of
R.A. No. 7160 can only apply to exemptions already existing at the time of its
effectivity and not to future exemptions; (c) the power of the City of Davao to
impose a franchise tax is subject to statutory limitations such as the “in lieu of all
taxes” clause found in Section 9 of R.A. No. 7294; and (d) the imposition of
franchise tax by the City of Davao would amount to a violation of the constitutional
provision against impairment of contracts.

Q: Whether the in lieu of all taxes in the franchise of smart give Smart an
exception?

A: No. We pay heed that R.A. No. 7294 is not definite in granting exemption to
Smart from local taxation. Section 9 of R.A. No. 7294 imposes on Smart a
franchise tax equivalent to three percent (3%) of all gross receipts of the business
transacted under the franchise and the said percentage shall be in lieu of all taxes on
the franchise or earnings thereof. R.A. No 7294 does not expressly provide what
kind of taxes Smart is exempted from. It is not clear whether the “in lieu of all

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taxes” provision in the franchise of Smart would include exemption from local
or national taxation.

What is clear is that Smart shall pay franchise tax equivalent to three percent (3%)
of all gross receipts of the business transacted under its franchise. But whether the
franchise tax exemption would include exemption from exactions by both the local
and the national government is not unequivocal.

The uncertainty in the “in lieu of all taxes” clause in R.A. No. 7294 on whether
Smart is exempted from both local and national franchise tax is construed
strictly against Smart who is claiming the exemption. Smart has the burden of
proving that, aside from the imposed 3% franchise tax, Congress intended it to
be exempt from all kinds of franchise taxes — whether local or national.
However, Smart failed in this regard.

However, Congress did not expressly exempt Smart from local taxes. Congress
used the “in lieu of all taxes” clause only in reference to national internal revenue
taxes. The only interpretation, under the rule on strict construction of tax
exemptions, is that the “in lieu of all taxes” clause in Smart’s franchise refers only
to national and not to local taxes.

It should be noted that the “in lieu of all taxes” clause in R.A. No. 7294 has
become functus officio with the abolition of the franchise tax on
telecommunications companies. As admitted by Smart in its pleadings, it is no
longer paying the 3% franchise tax mandated in its franchise. Currently,
Smart along with other telecommunications companies pays the uniform 10%
[now 12%] value-added tax.

c. City of Iriga vs. Camarines Sur III Electric Cooperative, Inc., GR No. 192945
dated September 5, 2012

Issues Before the Court

Petitioner raises two issues for resolution, which the Court restates as follows:

1) whether or not an electric cooperative registered under PD 269 but not under
RA 6938 is liable for the payment of local franchise taxes; and
2) whether or not the situs of taxation is the place where the franchise holder
exercises its franchise regardless of the place where its services or products
are delivered.

CASURECO III, on the other hand, raises the procedural issue that since the
motion for reconsideration of the CA Decision was filed out of time, the same
had attained finality.

Ruling:

CASURECO III is not exempt from payment of franchise tax

PD 269, which took effect on August 6, 1973, granted electric cooperatives

registered with the NEA, like CASURECO III, several tax privileges, one of
which is exemption from the payment of "all national government, local

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government and municipal taxes and fees, including franchise, filing,

recordation, license or permit fees or taxes."

On March 10, 1990, Congress enacted into law RA 6938, otherwise known as
the "Cooperative Code of the Philippines," and RA 6939 creating the CDA. The
latter law vested the power to register cooperatives solely on the CDA, while the
former provides that electric cooperatives registered with the NEA under PD
269 which opt not to register with the CDA shall not be entitled to the benefits
and privileges under the said law.

On January 1, 1992, the LGC took effect, and Section 193 thereof withdrew tax
exemptions or incentives previously enjoyed by "all persons, whether natural or
juridical, including government-owned or controlled corporations, except local
water districts, cooperatives duly registered under R.A. No. 6938, non-stock and
non-profit hospitals and educational institutions."

Therefore, CASURECO III can no longer invoke PD 269 to evade payment of

local taxes. Moreover, its provisional registration with the CDA which granted it
exemption for the payment of local taxes was extended only until May 4, 1992.
Thereafter, it can no longer claim any exemption from the payment of local
taxes, including the subject franchise tax.

Taking a different tack, CASURECO III maintains that it is exempt from

payment of franchise tax because of its nature as a non-profit cooperative, as
contemplated in PD 269, and insists that only entities engaged in business, and
not non-profit entities like itself, are subject to the said franchise tax. The Court
is not persuaded.

Thus, to be liable for local franchise tax, the following requisites should
concur: (1) that one has a "franchise" in the sense of a secondary or special
franchise; and (2) that it is exercising its rights or privileges under this franchise
within the territory of the pertinent local government unit.

There is a confluence of these requirements in the case at bar. By virtue of PD

269, NEA granted CASURECO III a franchise to operate an electric light and
power service for a period of fifty (50) years from June 6, 1979, and it is
undisputed that CASURECO III operates within Iriga City and the Rinconada
area. It is, therefore, liable to pay franchise tax notwithstanding its non-profit
nature.

CASURECO III is liable for franchise tax on gross receipts within Iriga
City and Rinconada area

CASURECO III further argued that its liability to pay franchise tax, if any,
should be limited to gross receipts received from the supply of the electricity
within the City of Iriga and not those from the Rinconada area. Again, the Court
is not convinced.

It should be stressed that what the petitioner seeks to collect from CASURECO
III is a franchise tax, which as defined, is a tax on the exercise of a privilege. As
Section 137 of the LGC provides, franchise tax shall be based on gross receipts
precisely because it is a tax on business, rather than on persons or property.
Since it partakes of the nature of an excise tax/the situs of taxation is the
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place where the privilege is exercised, in this case in the City of Iriga, where
CASURECO III has its principal office and from where it operates,
regardless of the place where its services or products are delivered. Hence,
franchise tax covers all gross receipts from Iriga City and the Rinconada area.

3. Professional Tax

Who may Impose: Provinces, cities and the lone municipality within the MMA.

Amount of Tax: Not to exceed Php300.00, or the rate provided under a duly
enacted local ordinance, subject to adjustment not exceeding ten percent (10%)
every five (5) years.

a. Sec. 139 of the LGC

Section 139. Professional Tax. -

(a) The province may levy an annual professional tax on each person engaged in
the exercise or practice of his profession requiring government examination at
such amount and reasonable classification as the sangguniang panlalawigan may
determine but shall in no case exceed Three hundred pesos (P300.00).

(b) Every person legally authorized to practice his profession shall pay the
professional tax to the province where he practices his profession or where he
maintains his principal office in case he practices his profession in several
places: Provided, however, That such person who has paid the
corresponding professional tax shall be entitled to practice his profession in
any part of the Philippines without being subjected to any other national or
local tax, license, or fee for the practice of such profession.

(c) Any individual or corporation employing a person subject to professional tax

shall require payment by that person of the tax on his profession before
employment and annually thereafter.

(d) The professional tax shall be payable annually, on or before the thirty-first
(31st) day of January. Any person first beginning to practice a profession after
the month of January must, however, pay the full tax before engaging therein. A
line of profession does not become exempt even if conducted with some other
profession for which the tax has been paid. (Thus, a lawyer who is also a
Certified Public Accountant must pay the professional tax imposed on for each
profession, if he is to practice both professions) Professionals exclusively
employed in the government shall be exempt from the payment of this tax.

(e) Any person subject to the professional tax shall write in deeds, receipts,
prescriptions, reports, books of account, plans and designs, surveys and maps, as
the case may be, the number of the official receipt issued to him

c. Local Finance Circular No. 1-2019 dated June 12, 2019

The objectives of this Circular are:

(1) To ensure fair, uniform and proper implementation of the provisions
of the LGC governing the taxability of professionals relative to the
practice of their profession; and
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(2) To complement efforts in streamlining and facilitating government

transactions, pursuant to the provisions of R.A. No. 11032 or the
“Ease of Doing Business and Efficient Government Service Delivery
Act of 2018”. (Sec. 2)

Business Permit Fee on Professionals – Required to secure a business

permit but at no cost.

A business permit is issued primarily to regulate the conduct of business

or trade. However, an LGU cannot, through the issuance of such permit
regulate the practice of a profession, which is within the exclusive
domain of the agency or office specifically empowered by law to
supervise and regulate the profession.

Unless, covered under Section 7 of this Circular, a professional who has

paid his/her professional tax shall be exempt from the payment of
business permit fee in the operation of his/her clinic or office. However, a
professional shall still be required to secure a business permit, at no cost,
from the concerned LGU during the registration of office/clinic and
renewal thereof, subject to a duly enacted local ordinance. (Sec. 6)

Business Tax – it depends, pure exercise not liable; engaged in other

business not related to the exercise of profession liable.

Professional Engaged in Business not in Relation to the Practice of

Profession – If, upon verification, a professional is actually engaged in
selling, trading or distributing of any articles of commerce of whatever
kind, or involved in the function of trade, or undertake any business
activity that does not constitute that practice of prefession, pursuant to
applicable law/s governing the practice of such profession, he/she shall
be liable to pay the annual local business tax (LBT) to the city or
municipality concerned. xxx (Sec. 7)

Service Fee – liable, provided that no service charge shall be based on

capital investment or gross sales or receipt. Dipa natatanong sa bar.

Government Professional – exempt from payment of professional Tax.

Employer – required that before acceptance required to see the PTR.

Sec. 2. Rationale

4. Amusement Tax (Cinema ticket is not subject to VAT, because the intention
of the congress that it must be subject only to amusement tax)

In CIR v. SM Prime Holdings, the Court ruled that amusement tax on

cinema/theater operators or proprietors remain with the LGU, amusement tax,
being, by nature, a local tax. (G.R. No. 183505, February 26, 2010)

a. Sec. 140 of the LGC (as amended by RA 9640)

Section 140. Amusement Tax. -

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(a) The province may levy an amusement tax to be collected from the
proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses,
boxing stadia, and other places of amusement at a rate of not more than thirty
percent (10%) of the gross receipts from admission fees.

(b) In the case of theaters or cinemas, the tax shall first be deducted and
withheld by their proprietors, lessees, or operators and paid to the provincial
treasurer before the gross receipts are divided between said proprietors, lessees,
or operators and the distributors of the cinematographic films.

(c) The holding of operas, concerts, dramas, recitals, painting and art
exhibitions, flower shows, musical programs, literary and oratorical
presentations, except pop, rock, or similar concerts shall be exempt from the
payment of the tax hereon imposed.

(d) The sangguniang panlalawigan may prescribe the time, manner, terms and
conditions for the payment of tax. In case of fraud or failure to pay the tax, the
sangguniang panlalawigan may impose such surcharges, interest and penalties
as it may deem appropriate.

(e) The proceeds from the amusement tax shall be shared equally by the
province and the municipality where such amusement places are located.

b. Sec. 131(c) of the LGC

"Amusement Places" include theaters, cinemas, concert halls, circuses and

other places of amusement where one seeks admission to entertain oneself by
seeing or viewing the show or performances;

Pelizloy Realty Corp., vs. Province of Benguet, GR No. 183137 dated April
10, 2013. (compare with old case of PBA vs. CA, August 8, 2000)

Considering these, it is clear that resorts, swimming pools, bath houses, hot
springs and tourist spots cannot be considered venues primarily “where
one seeks admission to entertain oneself by seeing or viewing the show or
performances”. While it is true that they may be venues where people are
visually engaged, they are not primarily venues for their proprietors or operators
to actively display, stage or present shows and/or performances. Thus, resorts,
swimming pools, bath houses, hot springs and tourist spots do not belong to
the same category or class as theaters, cinemas, concert halls, circuses, and
boxing stadia. It follows that they cannot be considered as among the ‘other
places of amusement’ contemplated by Section 140 of the LGC and which
may properly be subject to amusement taxes.

PBA vs. CA GR No. PBA vs. CA, August 8, 2000 (the criteria before is artistic
expression that’s why PBA does not liable)

Now the PBA is also exempt, because under the doctrine of preemption in the
matter of taxation simply refers to an instance where the national government
elects to tax a particular area, impliedly withholding from the local government
the delegated power to tax the same field. This doctrine primarily rests upon the
intention of Congress. Conversely, should Congress allow municipal

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corporations to cover fields of taxation it already occupies, then the doctrine of

preemption will not apply.

Even up to the present, the category of amusement taxes on professional

basketball games as a national tax remains the same. This is so provided under
Section 125 of the 1997 National Internal Revenue Code. Section 140 of the
Local Government Code of 1992 (Republic Act 7160), meanwhile, retained the
areas (theaters, cinematographs, concert halls, circuses and other places of
amusement) where the province may levy an amusement tax without including
therein professional basketball games.

Alta Vista Golf and Country Club vs. The City of Cebu, GR No. 180235
dated January 20, 2016

In applying the principle of ejusdem generis, where a general word or phrase

follows an enumeration of particular and specific words of the same class or
where the latter follows the former, the general word or phrase is to be
construed to include, or to be restricted to persons, things or cases akin to,
resembling, or of the same kind or class as those specifically mentioned. A golf
course is not similar to that of the expressly provided amusement places as
it cannot be considered as an amusement place in itself. An amusement
place is defined as a place where people enter to witness a show or a
performance.

5. Business Tax
a. Sec. 143 of the LGC

(a) On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers,

and compounders of liquors, distilled spirits, and wines or manufacturers of any
article of commerce of whatever kind or nature, in accordance with the following
schedule: xxx
(b) On wholesalers, distributors, or dealers in any article of commerce of whatever kind
or nature in accordance with the following schedule: xxx
(c) On exporters, and on manufacturers , millers, producers, wholesalers, distributors,
dealers or retailers of essential commodities enumerated hereunder at a rate not
exceeding one-half (½) of the rates prescribed under subsection (a), (b) and (d) of
this Section: xxx
(d) On retailers.

With gross sales or receipts for the preceding calendar year in the amount of: Rate
of Tax Per Annum
P400,000.00 or less 2%
more than P400,000.00 1%

Provided, however, That barangays shall have the exclusive power to levy taxes, as
provided under Section 152 hereof, on gross sales or receipts of the preceding
calendar year of Fifty thousand pesos (P50,000.00) or less, in the case of cities, and
Thirty thousand pesos (P30,000.00) or less, in the case of municipalities.

(e) On contractors and other independent contractors, in accordance with the following
schedule: xxx
(f) On banks and other financial institutions, at a rate not exceeding fifty percent (50%)
of one percent (1%) on the gross receipts of the preceding calendar year derived
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from interest, commissions and discounts from lending activities, income from
financial leasing, dividends, rentals on property and profit from exchange or sale of
property, insurance premium.
(g) On peddlers engaged in the sale of any merchandise or article of commerce, at a
rate not exceeding Fifty pesos (P50.00) per peddler annually.

LGC IRR Art. 232 (g) - Delivery trucks, vans, or motor vehicles used by
manufacturers, producers, wholesalers, dealers or retailers enumerated in Article
231 of this Rule shall be exempt from the peddler's tax imposed in this Rule.

(h) On any business, not otherwise specified in the preceding paragraphs, which the
sanggunian concerned may deem proper to tax: Provided, That on any business
subject to the excise, value-added or percentage tax under the National Internal
Revenue Code, as amended, the rate of tax shall not exceed two percent (2%) of
gross sales or receipts of the preceding calendar year.

The sanggunian concerned may prescribe a schedule of graduated tax rates but in
no case to exceed the rates prescribed herein.

LGC IRR Art. 232 (h) - On any business, not otherwise specified in the preceding
paragraphs which the sanggunian concerned may deem proper to tax provided that
on any business subject to the exercise tax, VAT, or percentage tax under the
NIRC, as amended, the rate of tax shall not exceed two percent (2%) of gross sales
or receipts of the preceding calendar year and provided further, that in line with
existing national policy, any business engaged in the production, manufacture,
refining, distribution or sale of oil, gasoline, and other petroleum products shall not
be subject to any local tax imposed in this Article.

b. Nursery Care Corporation vs. Acevedo, GR No. 180651 dated July 30, 2014
(see double Taxation)

Double taxation means taxing the same property twice when it should be taxed only
once; that is, "taxing the same person twice by the same jurisdiction for the same
thing." It is obnoxious when the taxpayer is taxed twice, when it should be but once.
Otherwise described as "direct duplicate taxation," the two taxes must be imposed on
the same subject matter, for the same purpose, by the same taxing authority, within the
same jurisdiction, during the same taxing period; and the taxes must be of the same
kind or character.

Using the aforementioned test, the Court finds that there is indeed double taxation if
respondent is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance
No. 7794, since these are being imposed: (1) on the same subject matter – the privilege
of doing business in the City of Manila; (2) for the same purpose – to make persons
conducting business within the City of Manila contribute tocity revenues; (3) by the
same taxing authority – petitioner Cityof Manila; (4) within the same taxing
jurisdiction – within the territorial jurisdiction of the City of Manila; (5) for the same
taxing periods – per calendar year; and (6) of the same kind or character – a local
business tax imposed on gross sales or receipts of the business.

The distinction petitioners attempt to make between the taxes under Sections 14 and 21
of Tax Ordinance No. 7794 is specious. The Court revisits Section 143 of the LGC, the
very source of the power of municipalities and cities to impose a local business tax,
and to which any local business tax imposed by petitioner City of Manila must
conform. It is apparent from a perusal thereof that when a municipality or city has
already imposed a business tax on manufacturers, etc. of liquors, distilled spirits,
wines, and any other article of commerce, pursuant to Section 143(a) of the LGC, said
municipality or city may no longer subject the same manufacturers, etc.to a business
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tax under Section 143(h) of the same Code. Section 143(h) may be imposed only on
businesses that are subject to excise tax, VAT, or percentage tax under the NIRC, and
that are "not otherwise specified in preceding paragraphs." In the same way, businesses
such as respondent’s, already subject to a local business tax under Section 14 of Tax
Ordinance No. 7794 [which is based on Section 143(a) of the LGC], can no longer be
made liable for local business tax under Section 21 of the same Tax Ordinance [which
is based on Section 143(h) of the LGC].

Based on the foregoing reasons, petitioner should not have been subjected to taxes
under Section 21 of the Manila Revenue Code for the fourth quarter of 2001,
considering thatit had already been paying local business tax under Section 14 of the
same ordinance.

Accordingly, respondent’s assessment under both Sections 14 and 21 had no basis.

Petitioner is indeed liable to pay business taxes to the City of Manila; nevertheless,
considering that the former has already paid these taxes under Section 14 of the Manila
Revenue Code, it is exempt from the same payments under Section 21 of the same
code. Hence, payments made under Section 21 must be refunded in favor of petitioner.

c. City of Davao vs. Randy Allied Ventures, Inc., GR No. 241697 dated July
29, 2019

SECTION 143. Tax on Business. — The municipality may impose taxes on the
following businesses:

(f) On banks and other financial institutions, at a rate not exceeding fifty percent
(50%) of one percent (1%) on the gross receipts of the preceding calendar year
derived from interest, commissions and discounts from lending activities,
income from financial leasing, dividends, rentals on property and profit from
exchange or sale of property, insurance premium.

"Banks and other financial institutions" are defined under the same Code as to
"include non-bank financial intermediaries, lending investors, finance and
investment companies, pawnshops, money shops, insurance companies, stock
markets, stock brokers and dealers in securities and foreign exchange, as defined
under applicable laws, or rules and regulations thereunder."

Essentially, LBT are taxes imposed by local government units on the privilege
of doing business within their jurisdictions. To be sure, the phrase "doing
business" means some "trade or commercial activity regularly engaged in as a
means of livelihood or with a view to profit." Particularly, the LBT imposed
pursuant to Section 143 (f) is premised on the fact that the persons made liable
for such tax are banks or other financial institutions by virtue of their being
engaged in the business as such. This is why the LBT are imposed on their gross
receipts from "interest, commissions and discounts from lending activities,
income from financial leasing, dividends, rentals on property and profit from
exchange or sale of property, insurance premium."

In this case, it is clear that RAVI is neither a bank nor other financial
institution, i.e., an NBFI. In order to be considered as an NBFI under the
National Internal Revenue Code, banking laws, and pertinent regulations, the
following must concur:

a. The person or entity is authorized by the BSP to perform quasi-banking

functions;

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b. The principal functions of said person or entity include the lending,

investing or placement of funds or evidences of indebtedness or equity
deposited to them, acquired by them, or otherwise coursed through them,
either for their own account or for the account of others; and
c. The person or entity must perform any of the following functions on a
regular and recurring, not on an isolated basis, to wit:
1. Receive funds from one (1) group of persons, irrespective of number,
through traditional deposits, or issuance of debt or equity securities;
and make available/lend these funds to another person or entity, and
in the process acquire debt or equity securities;
2. Use principally the funds received for acquiring various types of debt
or equity securities;
3. Borrow against, or lend on, or buy or sell debt or equity securities.

As observed in the COCOFED case, RAVI is a CIIF holding company. The

SMC preferred shares held by it are considered government assets owned by the
National Government for the coconut industry. As held in the same case, these
SMC shares as well as any resulting dividends or increments from said shares
are owned by the National Government and shall be used only for the benefit of
the coconut farmers and for the development of the coconut industry. Thus,
RAVI's management of the dividends from the SMC preferred shares, including
placing the same in a trust account yielding interest, is not tantamount to doing
business whether as a bank or other financial institution, i.e., an NBFI, but
rather an activity that is essential to its nature as a CIIF holding company.

Indeed, there is a stark distinction between a holding company and a

financial intermediary as contemplated under the LGC, in relation to other
laws. A "'holding company' is 'organized' and is basically conducting its
business by investing substantially in the equity securities of another company
for the purpose of controlling their policies (as opposed to directly engaging in
operating activities) and 'holding' them in a conglomerate or umbrella structure
along with other subsidiaries." While holding companies may partake in
investment activities, this does not per se qualify them as financial
intermediaries that are actively dealing in the same. Financial intermediaries are
regulated by the BSP because they deal with public funds when they offer quasi-
banking functions. On the other hand, a holding company is not similarly
regulated because any investment activities it conducts are mere incidental
operations, since its main purpose is to hold shares for policy-controlling
purposes.

Moreover, while RAVI's stated primary purpose in its AOI is couched in broad
terms as to allow some functions similar to an NBFI, this does not necessarily
mean it is engaged in the same business. Verily, the "power to purchase and sell
real and personal property, including shares," and "to receive dividends
thereon," are common provisions to all corporations, including holding
companies like RAVI which undertake investments. The mere fact that a
holding company makes investments does not ipso facto convert it to an NBFI.
Otherwise, there would be absolutely no distinction between a mere holding
company and financial intermediaries.

In sum, since RAVI is not a bank or other financial institution, i.e., an NBFI, it
cannot be held liable for LBT under Section 143 (f) of the LGC. However, this
pronouncement is without prejudice to RAVI's potential liability for other taxes,
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whether national or local, should it so engage in other profit-making activities

aside from its management of the SMC preferred shares, and the dividends
resulting therefrom.

Barangays

Section 152. Scope of Taxing Powers. - The barangays may levy taxes, fees, and charges, as
provided in this Article, which shall exclusively accrue to them:

(a) Taxes - On stores or retailers with fixed business establishments with gross sales of
receipts of the preceding calendar year of Fifty thousand pesos (P50,000.00) or less, in
the case of cities and Thirty thousand pesos (P30,000.00) or less, in the case of
municipalities, at a rate not exceeding one percent (1%) on such gross sales or receipts.

(b) Service Fees or Charges. - Barangays may collect reasonable fees or charges for
services rendered in connection with the regulations or the use of barangay-owned
properties or service facilities such as palay, copra, or tobacco dryers.

(c) Barangay Clearance. - No city or municipality may issue any license or permit for
any business or activity unless a clearance is first obtained from the barangay where
such business or activity is located or conducted. For such clearance, the sangguniang
barangay may impose a reasonable fee. The application for clearance shall be acted
upon within seven (7) working days from the filing thereof. In the event that the
clearance is not issued within the said period, the city or municipality may issue the
said license or permit.

(d) Other fees and Charges. - The barangay may levy reasonable fees and charges:

(1) On commercial breeding of fighting cocks, cockfights and cockpits;

(2) On places of recreation which charge admission fees; and

(3) On billboards, signboards, neon signs, and outdoor advertisements.

Common Revenue-Raising Powers

Section 153. Service Fees and Charges. - Local government units may impose and collect
such reasonable fees and charges for services rendered.

Section 154. Public Utility Charges. - Local government units may fix the rates for the
operation of public utilities owned, operated and maintained by them within their jurisdiction.

Section 155. Toll Fees or Charges. - The sanggunian concerned may prescribe the terms and
conditions and fix the rates for the imposition of toll fees or charges for the use of any public
road, pier, or wharf, waterway, bridge, ferry or telecommunication system funded and
constructed by the local government unit concerned: Provided, That no such toll fees or
charges shall be collected from officers and enlisted men of the Armed Forces of the
Philippines and members of the Philippine National Police on mission, post office personnel
delivering mail, physically-handicapped, and disabled citizens who are sixty-five (65) years or
older.

When public safety and welfare so requires, the sanggunian concerned may discontinue the
collection of the tolls, and thereafter the said facility shall be free and open for public use.

D. Remedies on Local Taxation

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For what is being questioned is:

a. Tax ordinance

1. Constitutionality of Tax Ordinance

a. Sec. 187 of the LGC

Section 187. Procedure for Approval and Effectivity of Tax, Ordinances and

Revenue Measures; Mandatory Public Hearings. - The procedure for approval of local
tax ordinances and revenue measures shall be in accordance with the provisions of this
Code: Provided, That public hearings shall be conducted for the purpose prior to the
enactment thereof: Provided, further, That any question on the constitutionality or
legality of tax ordinances or revenue measures may be raised on appeal within thirty
(30) days from the effectivity thereof to the Secretary of Justice who shall render a
decision within sixty (60) days from the date of receipt of the appeal: Provided, however,
That such appeal shall not have the effect of suspending the effectivity of the ordinance
and the accrual and payment of the tax, fee, or charge levied therein: Provided, finally,
That within thirty (30) days after receipt of the decision or the lapse of the sixty-day
period without the Secretary of Justice acting upon the appeal, the aggrieved party may
file appropriate proceedings with a court of competent jurisdiction.

Notes:
a. The words “or” in Sec. 187 should be used in a non-disjunctive sense. It
should be construed in a way that the phrase “revenue measures” is read as
another way of expressing “tax ordinance.” Both refer to one and the same
thing. After all, the Court has consistently held that a tax ordinance is
primarily designed to raise revenue (not to regulate). (City of Cagayan De
Oro v. CEPALCO, GR No. 224825 dated October 17, 2018)

b. The requirement of Sec. 187 is in accordance with the exhaustion of

administrative remedies.

c. What is the meaning of the word “Secretary of Justice acting upon the
appeal”? Preliminarily, the Court notes that contrary to the respondent's
submission in its petition for review ad cautelam, the appeal before the RTC
could not be anchored on inaction as in fact, the petitioner, acted on the appeal.
While ideally, "action upon the appeal" would mean issuance of a final
disposition upon the dispute, the urgency presented by questions regarding
revenue measures must be balanced with the dictates of due process and that of
achieving a full ventilation of the issues presented for review. With this, the
Court finds that the petitioner has acted upon the appeal when it issued an
Order on February 3, 2014, requiring the respondent to file its Comment.
(De Lima vs. City of Manila, GR No. 222886 dated October 17, 2018) (In this
case the applicable period is the 30-day period upon the receipt of the decision
to file an appeal in appropriate jurisdiction; because the Court considered the
act of DOJ requiring to file its comment as action upon the appeal)

d. The Court explained the importance of observing the timeframe provided

for under Section 187 of the LGC and emphasized that the same is not a
mere technicality that can easily be brushed aside by the parties. The Court
enunciated the purpose of the said periods within the context of the nature and
relevance of revenue measures and tax ordinances. Simply, as the revenue
measures are the source of funds that give life and support the operations of
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the local government, it is imperative that any question as to its validity must
be resolved with utmost dispatch. Towards this end therefore, the LGC has set
limits which the parties must strictly comply with.

e. In the BAR follow De Lima Case in tax cases De Lima

Process in questioning the Constitutionality or legality of a tax ordinance

are the following:– SOJ----CA (Rule 43/65) ---SC (Rule 45) (it is the very
issue in this case)

f. Even if the ordinance is already takes effect, a taxpayer can also question the
constitutionality of an ordinance although not in Sec. 187 but through
INJUNCTION.

b. Aala vs. Uy, GR No. 202781 dated January 10, 2017 LEONEN

In this case the issue is not purely question of law, but it is involving a question of
fact.

The Supreme Court denies the Petition for serious procedural errors. The doctrine on
hierarchy of courts is a practical judicial policy designed to restrain parties from
directly resorting to this Court when relief may be obtained before the lower courts.
The logic behind this policy is grounded on the need to prevent "inordinate
demands upon the Court's time and attention which are better devoted to those
matters within its exclusive jurisdiction," as well as to prevent the congestion of
the Court's dockets. Hence, for this Court to be able to "satisfactorily perform the
functions assigned to it by the fundamental charter," it must remain as a "court of last
resort." This can be achieved by relieving the Court of the "task of dealing with
causes in the first instance."

c. Smart Communications, Inc. vs. Municipality of Malvar, GR No. 204429, GR

No. 204429 dated February 18, 2014. Compare with De Lima vs. City of Manila, GR
No. 222886 dated October 17, 2018

Notes if what is involved is a tax ordinance:

Smart Case– SOJ----RTC----CTA---SC (it is just an obiter)

Super NOTES: De Lima – SOJ----CA (Rule 43/65) ---SC (Rule 45) (it is the
very issue) follow the De Lima in the BAR

The LGC defines the term "charges" as referring to pecuniary liability, as rents or
fees against persons or property, while the term "fee" means "a charge fixed by law
or ordinance for the regulation or inspection of a business or activity."

As clearly stated in its whereas clauses, the primary purpose of Ordinance No. 18 is
to regulate the "placing, stringing, attaching, installing, repair and construction of all
gas mains, electric, telegraph and telephone wires, conduits, meters and other
apparatus" listed... therein, which included Smart's telecommunications tower.
Clearly, the purpose of the assailed Ordinance is to regulate the enumerated activities
particularly related to the construction and maintenance of various structures. The
fees in Ordinance No. 18 are not impositions on the building or structure itself;
rather, they are impositions on the activity subject of government regulation, such as
the installation and construction of the structures.

Since the main purpose of Ordinance No. 18 is to regulate certain construction

activities of the identified special projects, which included "cell sites" or
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telecommunications towers, the fees imposed in Ordinance No. 18 are primarily

regulatory in nature, and not primarily revenue-raising. While the fees may
contribute to the revenues of the Municipality, this effect is merely incidental. Thus,
the fees imposed in Ordinance No. 18 are not taxes.

Considering that the fees in Ordinance No. 18 are not in the nature of local taxes,
and Smart is questioning the constitutionality of the ordinance, the CTA correctly
dismissed the petition for lack of jurisdiction. Likewise, Section 187 of the LGC,
which outlines the procedure for questioning the constitutionality of a tax
ordinance, is inapplicable, rendering unnecessary the resolution of the issue on
non-exhaustion of administrative remedies.

De Lima vs. City of Manila, GR No. 222886 dated October 17, 2018

The taxpayers in this case question the constitutionality of the Ordinance of Manila
in the Secretary of Justice, thereafter they file a Petition for Certiorari in the RTC
and appealed to the CA. The SC declared that the CA has jurisdiction because the
remedy is Petition for review under Rule 65 and not an appeal that should be filed in
the CTA to question the constitutionality of the tax ordinance under Sec. 187 of the
LGC.

Clearly therefore, the petitioner cannot claim that certiorari is not the proper remedy
simply on the basis of the nature of the power exercised by the Secretary of Justice.
When properly called upon by the interested or affected parties to exercise its duty
under the remedy of a special civil action of certiorari, the Court cannot refrain as it
is in fact, both its duty and obligation to determine the validity of any legislative or
executive action, consistent with the republican system of checks and balances.

Nevertheless, as will be elaborated further, while respondent's resort to the

remedy of certiorari is proper the same has been erroneously lodged before the
RTC instead of the CA.

It must be pointed out that in the foregoing, the subject matter of appeal is the
decision of the Secretary of Justice evaluating a prosecutor's determination of
probable cause, a function that does not involve the exercise of quasi-judicial powers
by the DOJ, that is covered by appeals under Rule 43. In contrast, in the case at bar,
the subject matter of review is the decision of the Secretary of Justice evaluating the
legality or constitutionality of a local revenue ordinance, an act which is quasi-
judicial in nature, and therefore may be the subject of an appeal through a petition for
review under Rule 43.

Considering that the subject matter of review is an exercise of quasi-judicial

power by the Secretary of Justice, the latter's decision on the legality or
constitutionality of tax ordinances and revenue measures under Section 187 of
the LGC is a proper subject of appeal through a petition for review under Rule
43.

The proper venue for the foregoing actions however is the CA and not the RTC
in accordance with Section 4, Rule 65 of the Rules of Court. In the consolidated
cases of Association of Medical Clinics for Overseas Workers, Inc. (AMCOW) v.
GCC Approved Medical Centers Association, Inc., et al., the Court emphasized that
the "acts or omissions by quasi-judicial agencies, regardless of whether the remedy
involves a Rule 43 appeal or a Rule 65 petition for certiorari, is cognizable by the
CA.

Simply, the CA is the court vested with exclusive original jurisdiction to entertain a
petition for certiorari under Rule 65 of the Rules of Court questioning the acts of
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quasi-judicial agencies. The RTC was then correct in dismissing the petition for
review ad cautelam, which by its nature is a petition for certiorari, for having
been filed before the wrong court. The CA, on the other hand, erred in ordering
the case to be remanded to the RTC as it has the power to take cognizance of the
same.

d. City of Cagayan De Oro v. CEPALCO, GR No. 224825 dated October 17, 2018

On January 24, 2005, the petitioner, through its local legislative council, enacted
Ordinance No. 9527-2005, which imposed an annual Mayor's Permit Fee of Five
Hundred Pesos (P500.00) on every electric or telecommunications post belonging to
public utility companies operating in the city.
CEPALCO thus filed a Petition for Declaratory Relief with Damages & Prayer for
Temporary Restraining Order & Preliminary Injunction dated September 30, 2005
before the Cagayan RTC assailing the ordinance's validity. CEPALCO contended that
the imposition, in the guise of police power, was unlawful for violating the
fundamental principle that fees, charges, and other impositions shall not be unjust,
excessive, oppressive, or confiscatory. Additionally, CEPALCO argued that,
assuming the imposition was a valid regulatory fee, it violated the legislative
franchise that specifically exempted the electricity distributor from taxes or fees
assessed by Cagayan de Oro City.
In its petition, the petitioner raises issues that may be summed up as:
1) whether or not CEPALCO should have exhausted administrative remedies by
challenging Ordinance No. 9527-2005 before the Secretary of Justice prior to
instituting the present action; and
2) whether or not the amount of the Mayor's Permit Fee is excessive,
unreasonable, and exorbitant.

Proceeding to the question of non-exhaustion, the Court rules that ordinances that
impose regulatory fees do not need to be challenged before the Secretary of
Justice.

To be sure, this is not a novel issue. Section 187 of the Local Government Code,
which outlines the administrative procedure for questioning the constitutionality
or legality of a tax ordinance or revenue measure, does not find application in
cases where the imposition is in the nature of a regulatory fee. The provision
requires that an appeal of a tax ordinance or revenue measure should be made
to the Secretary of Justice within thirty (30) days from the effectivity of the
ordinance.

It can be gleaned from the provision that review by the Secretary of Justice is
mandatory only when what is being questioned is a tax ordinance or revenue measure.
Section 187 does not require the same from parties who assail ordinances imposing
regulatory fees. Stated otherwise, the procedure found in Section 187 must be
followed when an ordinance imposes a tax; the institution of an action in court
without complying with the requirements of the provision will lead to the dismissal of
the case on the ground of non-exhaustion of administrative remedies. However, when
an ordinance imposes a fee, direct recourse to the courts may be had without
prior protest before the Secretary of Justice. Simply put, fees are not subject to
the procedure outlined under Section 187.

Without evidence indicating that the amount of the Mayor's Permit Fee is
disproportionate to the cost of regulation, inspection, and licensing of utility
poles located in Cagayan de Oro City, the Court cannot agree with the CA's
invalidation of the ordinance.
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Local governments are allowed wide discretion in determining the rates of imposable
fees. In the absence of proof of unreasonableness, courts are bound to respect the
judgment of the local authorities. Any undue interference with their sound discretion
will imperatively warrant review and correction.

In this case, as the party assailing the ordinance, it was CEPALCO's responsibility to
prove the amount's excessiveness; it had the burden to show that the fee was not
commensurate with the cost of regulation, inspection, and licensing. Nevertheless, for
the reasons discussed above, it failed to dismantle the presumption of validity because
it never established that the city council abused its discretion in setting the amount of
the fee at P500.00.

2. Protest

a. Sec. 195 of the LGC

Note: In Sec. 195 there is an assessment issued by the local treasurer but No
Payment

Section 195. Protest of Assessment. - When the local treasurer or his duly
authorized representative finds that correct taxes, fees, or charges have not been paid,
he shall issue a notice of assessment stating the nature of the tax, fee, or charge, the
amount of deficiency, the surcharges, interests and penalties. Within sixty (60) days
from the receipt of the notice of assessment, the taxpayer may file a written protest
with the local treasurer contesting the assessment; otherwise, the assessment shall
become final and executory. The local treasurer shall decide the protest within sixty
(60) days from the time of its filing. If the local treasurer finds the protest to be
wholly or partly meritorious, he shall issue a notice cancelling wholly or partially the
assessment. However, if the local treasurer finds the assessment to be wholly or
partly correct, he shall deny the protest wholly or partly with notice to the taxpayer.
The taxpayer shall have thirty (30) days from the receipt of the denial of the protest
or from the lapse of the sixty (60) day period prescribed herein within which to
appeal with the court of competent jurisdiction otherwise the assessment becomes
conclusive and unappealable.

Notes:
a. Within 60 days from receipt of the notice, the taxpayer file a written protest;
b. The local treasurer shall decide within 60 days from the time of its filing;
c. If the local treasurer finds the protest to be wholly or partly meritorious, he
shall issue a notice cancelling wholly or partially the assessment;
d. However, if the local treasurer finds the assessment to be wholly or partly
correct, he shall deny the protest wholly or partly with notice to the taxpayer;
e. The taxpayer shall have thirty (30) days from the receipt of the denial of the
protest or from the lapse of the sixty (60) day period prescribed herein within
which to appeal with the court of competent jurisdiction;
f. Failure to file an appeal the assessment becomes conclusive and unappealable.

Procedure: Business tax po ang Sec. 195 not RPT.

1) within 60 days filing of written protest

2) within 30 days appeal to the MTC or RTC depending on the
juridictional amount. (from the receipt of the denial of the protest or
from the lapse of the sixty (60) day period)

Notes: Payment under protest is required only in real property tax in

erroneous tax cases.
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b. San Juan vs. Castro, GR No. 174617 dated December 27, 2007

Doctrine: Mandamus is not a substitute to file a written protest with the local
treasurer.

Petitioner filed before the RTC of Marikina a petition for mandamus and damages
against respondent in his capacity as City Treasurer, among others, praying that
respondent be compelled to “perform a ministerial duty to accept payment of transfer
tax based on the actual consideration” of the transfer and assignment”, citing Section
135 of the LGC.

Under Section 195 of the Local Government Code, a taxpayer who disagrees with a
tax assessment made by a local treasurer may file a written protest thereof: xxx

That petitioner protested in writing against the assessment of tax due and the basis
thereof is on record as in fact it was on that account that respondent sent him the
above-quoted July 15, 2005 letter which operated as a denial of petitioner’s written
protest.

Petitioner should thus have, following the earlier above-quoted Section 195 of the
Local Government Code, either appealed the assessment before the court of
competent jurisdiction or paid the tax and then sought a refund.

Petitioner did not observe any of these remedies available to him, however. He instead
opted to file a petition for mandamus to compel respondent to accept payment of
transfer tax as computed by him.

Mandamus lies only to compel an officer to perform a ministerial duty (one which is
so clear and specific as to leave no room for the exercise of discretion in its
performance) but not a discretionary function (one which by its nature requires the
exercise of judgment). Respondent’s argument that "[m]andamus cannot lie to compel
the City Treasurer to accept as full compliance a tax payment which in his reasoning
and assessment is deficient and incorrect" is thus persuasive.

3. Refund

a. Sec. 196 of the LGC

Note: In Sec. 196 NO assessment issued by the local treasurer but there is Payment

Section 196. Claim for Refund of Tax Credit. - No case or proceeding shall be
maintained in any court for the recovery of any tax, fee, or charge erroneously or
illegally collected until a written claim for refund or credit has been filed with the
local treasurer. No case or proceeding shall be entertained in any court after the
expiration of two (2) years from the date of the payment of such tax, fee, or charge,
or from the date the taxpayer is entitled to a refund or credit. (it is applicable in Sec
187, after the case has been decided)

Notes: 196 is applicable if there is no assessment.

To claim for refund there must be:

a. Written claim for refund or credit has been filed with the local treasurer;
and
b. The case for refund should be filed within 2 years from the date of
payment. (Here, the administrative claim for refund and the judicial
claim MUST be filed within 2 years)
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The taxpayer cannot file a case for refund and to question the validity of an
assessment. The will be dismiss for litis pendentia.

b. City of Manila vs. Cosmos Bottling Corporation, GR No. 196681 dated June 27,
2018 MARTIRES, J.:

The scenarios in case are there is an assessment and the Cosmos paid the tax.

Principles:

In local taxation, an assessment for deficiency taxes made by the local government
unit may be protested before the local treasurer without necessity of payment
under protest. But if payment is made simultaneous with or following a protest
against an assessment, the taxpayer may subsequently maintain an action in court,
whether as an appeal from assessment or a claim for refund, so long as it is initiated
within thirty (30) days from either decision or inaction of the local treasurer on the
protest.

The filing of a motion for reconsideration or new trial before the CTA Division
is an indispensable requirement for filing an appeal before the CTA En Banc.

Corollarily, Section 1, Rule 8 of the CTA Rules provides: Section 1. Review of

cases in the Court en banc. — In cases falling under the exclusive appellate
jurisdiction of the Court en banc, the petition for review of a decision or
resolution of the Court in Division must be preceded by the filing of a timely
motion for reconsideration or new trial with the Division.

Clear it is from the cited rule that the filing of a motion for reconsideration
or new trial is mandatory – not merely directory – as indicated by the
word "must."

The rules are clear. Before the CTA En Banc could take cognizance of the
petition for review concerning a case falling under its exclusive appellate
jurisdiction, the litigant must sufficiently show that it sought prior
reconsideration or moved for a new trial with the concerned CTA division.
Procedural rules are not to be trifled with or be excused simply because their
noncompliance may have resulted in prejudicing a party's substantive rights.
Rules are meant to be followed. They may be relaxed only for very exigent and
persuasive reasons to relieve a litigant of an injustice not commensurate to his
careless non-observance of the prescribed rules.

A taxpayer who had protested and paid an assessment may later on institute an
action for refund.

First, even a cursory glance at the complaint filed by Cosmos would readily reveal
that the action is not just for the refund of its paid taxes but also one assailing the
assessment in question.

Second, a taxpayer who had protested and paid an assessment is not precluded from
later on instituting an action for refund or credit.

The taxpayers' remedies of protesting an assessment and refund of taxes are

stated in Sections 195 and 196 of the LGC, Clearly, when a taxpayer is
assessed a deficiency local tax, fee or charge, he may protest it under
Section 195 even without making payment of such assessed tax, fee or
charge. This is because the law on local government taxation, save in the
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case of real property tax, does not expressly require "payment under
protest" as a procedure prior to instituting the appropriate proceeding in
court. This implies that the success of a judicial action questioning the validity
or correctness of the assessment is not necessarily hinged on the previous
payment of the tax under protest. Needless to say, there is nothing to prevent
the taxpayer from paying the tax under protest or simultaneous to a protest.
There are compelling reasons why a taxpayer would prefer to pay while
maintaining a protest against the assessment. For instance, a taxpayer who
is engaged in business would be hard-pressed to secure a business permit
unless he pays an assessment for business tax and/or regulatory fees. Also,
a taxpayer may pay the assessment in order to avoid further penalties, or
save his properties from levy and distraint proceedings.

Simply put, there are two conditions that must be satisfied in order to
successfully prosecute an action for refund in case the taxpayer had
received an assessment. One, pay the tax and administratively assail within 60
days the assessment before the local treasurer, whether in a letter-protest or in a
claim for refund. Two, bring an action in court within thirty (30) days from
decision or inaction by the local treasurer, whether such action is denominated
as an appeal from assessment and/or claim for refund of erroneously or
illegally collected tax.

NOTES: Footnotes No. 33 in a case: Where protest against assessment was

first made, then later payment of the assessed tax, substantial justice or
procedural economy, at the very least, demands that the prior letter-protest be
treated as having the same effect and import as a written claim for refund for
purposes of satisfying the requirement of exhaustion of administrative
remedies.

IF the word used is assessment the taxpayer cannot wait if the period lapse the
taxpayer shall file an appeal. However, if the words used is decision, the
taxpayer may wait for the decision.

c. International Container Terminal Services, Inc. vs. City of Manila, GR No.

185622 dated October 17, 2018

Without an assessment. ICTSI paid local business tax for the period 4 th
Quarter of the 1999 up to 4th Quarter of 2006. Subsequently, ITCSI filed a
written claim for refund with the Treasurer. (That is why the correct provision
is Sec. 196.)

The nature of an action is determined by the allegations in the complaint and the
character of the relief sought. Here, petitioner seeks a refund of taxes that
respondents had collected. Following City of Manila, refund is available under
both Sections 195 and 196 of the Local Government Code: for Section 196,
because it is the express remedy sought, and for Section 195, as a consequence
of the declaration that the assessment was erroneous or invalid. Whether the
remedy availed of was under Section 195 or Section 196 is not determined by
the taxpayer paying the tax and then claiming a refund.

What determines the appropriate remedy is the local government's basis for the
collection of the tax. It is explicitly stated in Section 195 that it is a remedy
against a notice of assessment issued by the local treasurer, upon a finding that
the correct taxes, fees, or charges have not been paid. The notice of assessment
must state "the nature of the tax, fee, or charge, the amount of deficiency, the
surcharges, interests and penalties."

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No such precondition is necessary for a claim for refund pursuant to Section

196.

Here, no notice of assessment for deficiency taxes was issued by respondent

City Treasurer to petitioner for the taxes collected after the first three (3)
quarters of 1999.

The "assessments" from the fourth quarter of 1999 onwards were Municipal
License Receipts; Mayor's Permit, Business Taxes, Fees & Charges Receipts;
and Official Receipts issued by the Office of the City Treasurer for local
business taxes, which must be paid as prerequisites for the renewal of
petitioner's business permit in respondent City of Manila. While these receipts
state the amount and nature of the tax assessed, they do not contain any amount
of deficiency, surcharges, interests, and penalties due from petitioner. They
cannot be considered the "notice of assessment" required under Section 195 of
the Local Government Code.

When petitioner paid these taxes and filed written claims for refund before
respondent City Treasurer, the subsequent denial of these claims should have
prompted resort to the remedy laid down in Section 196, specifically the filing
of a judicial case for the recovery of the allegedly erroneous or illegally
collected tax within the two (2)-year period.

As correctly pointed out by petitioner, the filing of written claims with

respondent City Treasurer for every collection of tax under Section 21 (A) of
Manila Ordinance No. 7764, as amended by Section 1(G) of Ordinance No.
7807, would have yielded the same result every time. This is bolstered by
respondent City Treasurer's September 1, 2005 Letter, in which it stated that it
could not act favorably on petitioner's claim for refund until there would have
been a final judicial determination of the invalidity of Section 21 (A).

Further, the issue at the core of petitioner's claims for refund, the validity of
Section 21 (A) of Manila Ordinance No. 7794, as amended by Section 1(G) of
Manila Ordinance No. 7807, is a question of law. When the issue raised by the
taxpayer is purely legal and there is no question concerning the reasonableness
of the amount assessed, then there is no need to exhaust administrative
remedies.

Thus, petitioner's failure to file written claims of refund for all of the taxes under
Section 21 (A) with respondent City Treasurer is warranted under the
circumstances.

Similarly, petitioner complied with the second requirement under Section 196 of
the Local Government Code that it must file its judicial action for refund within
two (2) years from the date of payment, or the date that the taxpayer is entitled
to the refund or credit. Among the reliefs it sought in its Amended and
Supplemental Petition before the Regional Trial Court is the refund of any and
all subsequent payments of taxes under Section 21 (A) from the time of the
filing of its Petition until the finality of the case:

Difference between Sec 195 and 196 of the LGC three scenarios

a. If the taxpayer receives an assessment and does not pay the tax, its remedy
is strictly confined to Section 195 of the Local Government Code. Thus, it
must file a written protest with the local treasurer within 60 days from the
receipt of the assessment. If the protest is denied, or if the local treasurer fails
to act on it, then the taxpayer must appeal the assessment before a court of
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competent jurisdiction within 30 days from receipt of the denial, or the lapse
of the 60-day period within which the local treasurer must act on the protest.
In this case, as no tax was paid, there is no claim for refund in the appeal.

b. [There is an assessment and the taxpayer pays the tax] If the taxpayer opts
to pay the assessed tax, fee, or charge, it must still file the written protest
within the 60-day period, and then bring the case to court within 30 days from
either the decision or inaction of the local treasurer. In its court action, the
taxpayer may, at the same time, question the validity and correctness of the
assessment and seek a refund of the taxes it paid. "Once the assessment is set
aside by the court, it follows as a matter of course that all taxes paid under the
erroneous or invalid assessment are refunded to the taxpayer." (ang nabago
lang kapag nagbayad tapos may assessment, ay additional requirement under
Sec. 196 is the written claim for refund yung iba Sec. 195 parin specially the
periods)

c. [No assessment but there is payment] On the other hand, if no assessment

notice is issued by the local treasurer, and the taxpayer claims that it
erroneously paid a tax, fee, or charge, or that the tax, fee, or charge has been
illegally collected from him, then Section 196 applies.

4. Is Injunction Available?

a. Angeles City vs. Angeles Electric Corporation, GR No. 166134 dated June 29,
2010

Q: Can an injunction be issued to enjoin the collection of local taxes?

A: YES. The Local Government Code does not specifically prohibit an injunction
enjoining the collection of taxes. This is different in the case of national taxes where
the Tax Code expressly provides that no court shall have the authority to grant an
injunction to restrain the collection on national internal revenue tax, fee or charge with
the sole exception of when the CTA finds that the collection thereof may jeopardize the
interest of the government and/or the taxpayer. Nevertheless, there must still be proof
of the existence of the requirements for injunction to be issued under the Rules of
Court (i.e., clear right to be protected and urgent necessity to prevent serious damage).

E. General Principles on Real Property Taxation

Section 198. Fundamental Principles. - The appraisal, assessment, levy and collection of

real property tax shall be guided by the following fundamental principles:

(a) Real property shall be appraised at its current and fair market value;
(b) Real property shall be classified for assessment purposes on the basis of its
actual use;
(c) Real property shall be assessed on the basis of a uniform classification within
each local government unit;
(d) The appraisal, assessment, levy and collection of real property tax shall not be
let to any private person; and
(e) The appraisal and assessment of real property shall be equitable.
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1. Machineries and Improvements

(Land, Building, Improvement and Machineries)

a. Secs. 199 (m) and (o) of the LGC

Definitions. - When used in this Title:

(m) "Improvement" is a valuable addition made to a property or an amelioration in its

condition, amounting to more than a mere repair or replacement of parts involving
capital expenditures and labor, which is intended to enhance its value, beauty or utility
or to adapt it for new or further purposes;

(o) "Machinery" embraces machines, equipment, mechanical contrivances,

instruments, appliances or apparatus which may or may not be attached, permanently
or temporarily, to the real property. It includes the physical facilities for production,
the installations and appurtenant service facilities, those which are mobile, self-
powered or self-propelled, and those not permanently attached to the real property
which are actually, directly, and exclusively used to meet the needs of the
particular industry, business or activity (use these words when not permanently
attached) and which by their very nature and purpose are designed for, or necessary to
its manufacturing, mining, logging, commercial, industrial or agricultural purposes;
(emphasized supplied)

b. Manila Electric Company vs. The City of Assessor and City Treasurer of
Lucena
City, GR No. 166102 dated August 5, 2015 (Not been ask in the BAR)

The transformers, electric posts, transmission lines, insulators, and electric meters
of MERALCO may qualify as "machinery" under the Local Government Code
subject to real property tax.

Through the years, the relevant laws have consistently considered "machinery" as real
property subject to real property tax. It is the definition of "machinery" that has been
changing and expanding

MERALCO is a public utility engaged in electric distribution, and its transformers,

electric posts, transmission lines, insulators, and electric meters constitute the
physical facilities through which MERALCO delivers electricity to its consumers.

The Court highlights that under Section 199(o) of the Local Government Code,
machinery, to be deemed real property subject to real property tax, need no longer be
annexed to the land or building as these "may or may not be attached, permanently
or temporarily to the real property," and in fact, such machinery may even be
"mobile." The same provision though requires that to be machinery subject to real
property tax, the physical facilities for production, installations, and appurtenant
service facilities, those which are mobile, self-powered or self-propelled, or not
permanently attached to the real property (a) must be actually, directly, and
exclusively used to meet the needs of the particular industry, business, or activity; and
(2) by their very nature and purpose, are designed for, or necessary for manufacturing,
mining, logging, commercial, industrial, or agricultural purposes.

Thus, Article 290(o) of the Rules and Regulations Implementing the Local
Government Code of 1991 recognizes the following exemption:

Machinery which are of general purpose use including but not limited to

office equipment, typewriters, telephone equipment, breakable or easily
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damaged containers (glass or cartons), microcomputers, facsimile machines,

telex machines, cash dispensers, furnitures and fixtures, freezers, refrigerators,
display cases or racks, fruit juice or beverage automatic dispensing machines
which are not directly and exclusively used to meet the needs of a particular
industry, business or activity shall not be considered within the definition of
machinery under this Rule. (Emphasis supplied.)

The 1964 MERALCO case was decided when The Assessment Law was still in effect
and Section 3(f) of said law still required that the machinery be attached to the real
property. Moreover, as the Court pointed out earlier, the ruling in the 1964
MERALCO case - that the electric poles (including the steel towers) of MERALCO
are not subject to real property tax - was primarily based on the express exemption
granted to MERALCO under its previous franchise.

The aforequoted conclusions of the Court in the 1964 MERALCO case do not hold

true anymore under the Local Government Code.

While the Local Government Code still does not provide for a specific definition of
"real property," Sections 199(o) and 232 of the said Code, respectively, gives an
extensive definition of what constitutes "machinery" and unequivocally subjects such
machinery to real property tax. The Court reiterates that the machinery subject to real
property tax under the Local Government Code "may or may not be attached,
permanently or temporarily to the real property;" and the physical facilities for
production, installations, and appurtenant service facilities, those which are mobile,
self-powered or self-propelled, or are not permanently attached must (a) be
actually, directly, and exclusively used to meet the needs of the particular
industry, business, or activity; and (2) by their very nature and purpose, be
designed for, or necessary for manufacturing, mining, logging, commercial,
industrial, or agricultural purposes.

The properties under Article 415, paragraph (5) of the Civil Code are immovables by
destination, or "those which are essentially movables, but by the purpose for which
they have been placed in an immovable, partake of the nature of the latter because of
the added utility derived therefrom." These properties, including machinery, become
immobilized if the following requisites concur: (a) they are placed in the tenement by
the owner of such tenement; (b) they are destined for use in the industry or work in
the tenement; and (c) they tend to directly meet the needs of said industry or
works. The first two requisites are not found anywhere in the Local Government
Code.

MERALCO insists on harmonizing the aforementioned provisions of the Civil Code

and the Local Government Code. The Court disagrees, however, for this would
necessarily mean imposing additional requirements for classifying machinery as
real property for real property tax purposes not provided for, or even in direct
conflict with, the provisions of the Local Government Code.

As between the Civil Code, a general law governing property and property
relations, and the Local Government Code, a special law granting local
government units the power to impose real property tax, then the latter shall
prevail.

Therefore, for determining whether machinery is real property subject to real

property tax, the definition and requirements under the Local Government Code
are controlling.

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c. Provincial Assessor of Agusan del Sur vs. Filipinas Palm Oil, GR No. 183416
dated October 5, 2016 (Not been ask in the BAR)

Petitioner claims that Section 199(o) of the Local Government Code specifically
covers respondent's road equipment and mini haulers since these are directly and
exclusively used to meet the needs of respondent's industry, business, or
activity. Article 415(5) of the Civil Code, which defines real property, should not be
made to control the Local Government Code, a subsequent legislation that specifically
defines "machinery" for taxation purposes.

On the other hand, respondent claims that the road equipment and mini haulers are
movables by nature. It asserts that although there may be a difference between the
meaning of "machinery" under the Local Government Code arid that of immovable
property under Article 415(5) of the Civil Code, "the controlling interpretation of
Section 199(o) of [the Local Government Code] is the interpretation of Article 415(5)
of the Civil Code."

Issue:

Whether respondent's road equipment and mini haulers are movable properties
and have not been immobilized by destination for real property taxation.

Ruling:

Yes. The road equipment and mini haulers shall be considered as real property,
subject to real property tax.

Respondent is engaged in palm oil plantation. Thus, it harvests fruits from palm trees
for oil conversion through its milling plant. By the nature of respondent's business,
transportation is indispensable for its operations.

Under the definition provided in Section 199(o) of the Local Government Code,
the road equipment and the mini haulers are classified as machinery, thus:

SECTION 199. Definition of Terms. — When used in this Title, the terra:

(o) "Machinery" . . . includes the physical facilities for production, the

installations and appurtenant service facilities, those which are mobile, self-
powered or self-propelled, and those not permanently attached to the real
property which are actually, directly, and exclusively used to meet the needs
of the particular industry, business or activity and which by their very nature
and purpose are designed for, or necessary to its manufacturing, mining,
logging, commercial, industrial or agricultural purposes [.] (Emphasis
supplied)

Petitioner is correct in claiming that the phrase pertaining to physical facilities for
production is comprehensive enough to include the road equipment and mini haulers
as actually, directly, and exclusively used by respondent to meet the needs of its
operations in palm oil production. Moreover, "mini-haulers are farm tractors pulling
attached trailers used in the hauling of seedlings during planting season and in
transferring fresh palm fruits from the farm [or] field to the processing plant within
the plantation area." The indispensability of the road equipment and mini haulers in
transportation makes it actually, directly, and exclusively used in the operation of
respondent's business.

d. Capitol Wireless, Inc. vs. Provincial Treasurer of Batangas, GR No. 180110

dated May 30, 2016
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Whether submarine wires or cables used for communications may be taxed like
other real estate.

Yes. Submarine or undersea communications cables are akin to electric

transmission lines which this Court has recently declared in Manila Electric
Company v. City Assessor and City Treasurer of Lucena City, as "no longer
exempted from real property tax" and may qualify as "machinery" subject to real
property tax under the Local Government Code. To the extent that the equipment's
location is determinable to be within the taxing authority's jurisdiction, the Court
sees no reason to distinguish between submarine cables used for
communications and aerial or underground wires or lines used for electric
transmission, so that both pieces of property do not merit a different treatment
in the aspect of real property taxation. Both electric lines and communications
cables, in the strictest sense, are not directly adhered to the soil but pass
through posts, relays or landing stations, but both may be classified under the
term "machinery" as real property under Article 415(5) of the Civil Code for the
simple reason that such pieces of equipment serve the owner's business or tend
to meet the needs of his industry or works that are on real estate. Even objects in
or on a body of water may be classified as such, as "waters" is classified as an
immovable under Article 415(8) of the Code. A classic example is a boathouse
which, by its nature, is a vessel and, therefore, a personal property but, if it is tied to
the shore and used as a residence, and since it floats on waters which is immovable,
is considered real property. Besides, the Court has already held that "it is a
familiar phenomenon to see things classed as real property for purposes of
taxation which on general principle might be considered personal property."

Thus, absent any showing from Capwire of any express grant of an exemption for its
lines and cables from real property taxation, then this interpretation applies and
Capwire's submarine cable may be held subject to real property tax.

2. Notification of New or Revised Assessment

3.
a. Sec. 223 of the LGC

Section 223. Notification of New or Revised Assessment. - When real property is

assessed for the first time or when an existing assessment is increased or decreased,
the provincial, city or municipal assessor shall within thirty (30) days give written
notice of such new or revised assessment to the person in whose name the property
is declared. The notice may be delivered personally or by registered mail or through
the assistance of the punong barangay to the last known address of the person to be
served. (This is different from Notice of Deficiency or Sec. 194)

b. Manila Electric Company vs. The City of Assessor and City Treasurer of
Lucena City, GR No. 166102 dated August 5, 2015

MERALCO asserts:

The collection letter dated October 16, 1997 of the City Treasurer of Lucena, Notice
of Assessment dated October 20, 1997 of the City Assessor of Lucena, the Property
Record Form dated October 20, 1997, and Tax Declaration No. 019-6500 simply state
a lump sum market value for all the transformers, electric posts, transmission lines,
insulators, and electric meters covered and did not provide an inventory/list showing
the actual number of said properties, or a schedule of values presenting the fair market
value of each property or type of property, which would have enabled MERALCO to
verify the correctness and reasonableness of the valuation of its properties.
MERALCO was not furnished at all with a copy of Tax Declaration No. 019-7394,
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and while it received a copy of Tax Declaration No. 019-6500, said tax declaration
did not contain the requisite information regarding the date of operation of
MERALCO and the original cost, depreciation, and market value for each property
covered. For the foregoing reasons, the assessment of the properties of MERALCO in
1997 was arbitrary, whimsical, and without factual basis - in patent violation of the
right to due process of MERALCO. 

Ruling:

Nevertheless, the appraisal and assessment of the transformers, electric posts,

transmission lines, insulators, and electric meters of MERALCO as machinery
under Tax Declaration Nos. 019-6500 and 019-7394 were not in accordance with
the
Local Government Code and in violation of the right to due process of MERALCO
and, therefore, null and void.

The Local Government Code defines "appraisal" as the "act or process of

determining the value of property as of a specific date for a specific purpose."
"Assessment" is "the act or process of determining the value of a property, or
proportion thereof subject to tax, including the discovery, listing, classification, and
appraisal of the properties[.]" When it comes to machinery, its appraisal and
assessment are particularly governed by Sections 224 and 225 of the Local
Government Code, which read:

Section 224. Appraisal and Assessment of Machinery. - (a) The fair market

value of a brand-new machinery shall be the acquisition cost. In all other cases,
the fair market value shall be determined by dividing the remaining economic
life of the machinery by its estimated economic life and multiplied by the
replacement or reproduction cost.

(b) If the machinery is imported, the acquisition cost includes freight,

insurance, bank and other charges, brokerage, arrastre and handling, duties and
taxes, plus cost of inland transportation, handling, and installation charges at
the present site. The cost in foreign currency of imported machinery shall be
converted to peso cost on the basis of foreign currency exchange rates as fixed
by the Central Bank.

Section 225. Depreciation Allowance for Machinery. - For purposes of

assessment, a depreciation allowance shall be made for machinery at a rate not
exceeding five percent (5%) of its original cost or its replacement or
reproduction cost, as the case may be, for each year of use: Provided,
however, That the remaining value for all kinds of machinery shall be fixed at
not less than twenty percent (20%) of such original, replacement, or
reproduction cost for so long as the machinery is useful and in operation.

It is apparent from these two provisions that every machinery must be individually
appraised and assessed depending on its acquisition cost, remaining economic life,
estimated economic life, replacement or reproduction cost, and depreciation.

Article 304 of the Rules and Regulations Implementing the Local Government Code
of 1991 expressly authorizes the local assessor or his deputy to receive evidence for
the proper appraisal and assessment of the real property:

Article 304. Authority of Local Assessors to Take Evidence. - For the purpose of

obtaining information on which to base the market value of any real property,
the assessor of the province, city, or municipality or his deputy may summon the

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owners of the properties to be affected or persons having legal interest therein

and witnesses, administer oaths, and take deposition concerning the property, its
ownership, amount, nature, and value.

The Local Government Code further mandates that the taxpayer be given a notice of
the assessment of real property in the following manner:

Section 223. Notification of New or Revised Assessment. - When real property

is assessed for the first time or when an existing assessment is increased or
decreased, the provincial, city or municipal assessor shall within thirty (30) days
give written notice of such new or revised assessment to the person in whose
name the property is declared. The notice may be delivered personally or by
registered mail or through the assistance of the punong barangay to the last
known address of the person to served.

A notice of assessment, which stands as the first instance the taxpayer is officially
made aware of the pending tax liability, should be sufficiently informative to
apprise the taxpayer the legal basis of the tax. 

A perusal of the documents received by MERALCO on October 29, 1997 reveals

that none of them constitutes a valid notice of assessment of the transformers,
electric posts, transmission lines, insulators, and electric meters of MERALCO.

The letter dated October 16, 1997 of the City Treasurer of Lucena (which
interestingly precedes the purported Notice of Assessment dated October 20, 1997 of
the City Assessor of Lucena) is a notice of collection, ending with the request for
MERALCO to settle the payable amount soon in order to avoid accumulation of
penalties. It only presented in table form the tax declarations covering the machinery,
assessed values in the tax declarations in lump sums for all the machinery, the periods
covered, and the taxes and penalties due again in lump sums for all the machinery.

The Court cannot help but attribute the lack of a valid notice of assessment to the
apparent lack of a valid appraisal and assessment conducted by the City Assessor of
Lucena in the first place. It appears that the City Assessor of Lucena simply lumped
together all the transformers, electric posts, transmission lines, insulators, and electric
meters of MERALCO located in Lucena City under Tax Declaration Nos. 019-6500
and 019-7394, contrary to the specificity demanded under Sections 224 and 225 of the
Local Government Code for appraisal and assessment of machinery. The City
Assessor and the City Treasurer of Lucena did not even provide the most basic
information such as the number of transformers, electric posts, insulators, and electric
meters or the length of the transmission lines appraised and assessed under Tax
Declaration Nos. 019-6500 and 019-7394. There is utter lack of factual basis for the
assessment of the transformers, electric posts, transmission lines, insulators, and
electric meters of MERALCO.

It is true that tax assessments by tax examiners are presumed correct and made in
good faith, with the taxpayer having the burden of proving otherwise. In this case,
MERALCO was able to overcome the presumption because it has clearly shown that
the assessment of its properties by the City Assessor was baselessly and arbitrarily
done, without regard for the requirements of the Local Government Code.

The exercise of the power of taxation constitutes a deprivation of property under the
due process clause, and the taxpayer's right to due process is violated when arbitrary
or oppressive methods are used in assessing and collecting taxes. 

The appraisal and assessment of the transformers, electric posts, transmission lines,
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insulators, and electric meters of MERALCO under Tax Declaration Nos. 019-6500
and 019-7394, not being in compliance with the Local Government Code, are
attempts at deprivation of property without due process of law and, therefore, null and
void.

F. Exemption from Real Property Taxation

Section 232. Power to Levy Real Property Tax. - A province or city or a

municipality within the Metropolitan Manila Area may levy an annual ad valorem tax
on real property such as land, building, machinery, and other improvement not
hereinafter specifically exempted.
1) Land – Under Art. 415 of the NCC; no specific provision in the LGC
2) Building – Only true building that is considered as building under Art. 415
NCC; no specific provision in the LGC
3) Machinery – 199(o); there is specific provision exist
4) Improvement - 199(m); there is specific provision exist

1. Sec. 234 of the LGC

Tip in Sec. 234: determine the following:

(1) What kind of property is covered by the exemption?
(2) What is the basis of exemption?

Section 234. Exemptions from Real Property Tax. - The following are exempted
from payment of the real property tax:
(a) Real property (All property) owned by the Republic of the Philippines or any of
its political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person; (Basis Ownership)
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto,
mosques, non-profit or religious cemeteries (Basis: Character kaya always
exempt) and all lands, buildings, and improvements (walang machineries)
actually, directly, and exclusively used for religious, charitable or educational
purposes; (Basis: Usage)
(c) All machineries and equipment (machineries lang, See. Sec 218 and Sec. 216,
taxable) that are actually, directly and exclusively used by local water districts
and government owned or controlled corporations engaged in the supply and
distribution of water and/or generation and transmission of electric power;
(Basis: Usage)
(d) All real property owned (Lahat) by duly registered cooperatives as provided for
under R.A. No. 6938; and (Basis: Ownership)
(e) Machinery and equipment used for pollution control and environmental
protection. (Basis: Usage)

Except as provided herein, any exemption from payment of real property tax
previously granted to, or presently enjoyed by, all persons, whether natural or juridical,
including all government-owned or controlled corporations are hereby withdrawn upon
the effectivity of this Code.

2. Sec. 206 of the LGC

Section 206. Proof of Exemption of Real Property from Taxation. - Every person

by or for whom real property is declared, who shall claim tax exemption for such
property under this Title shall file with the provincial, city or municipal assessor within
thirty (30) days from the date of the declaration of real property sufficient documentary
evidence in support of such claim including corporate charters, title of ownership,

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articles of incorporation, by-laws, contracts, affidavits, certifications and mortgage

deeds, and similar documents.

If the required evidence is not submitted within the period herein prescribed, the
property shall be listed as taxable in the assessment roll. However, if the property shall
be proven to be tax exempt, the same shall be dropped from the assessment roll.

3. Sec. 28, Art. VI of the 1987 Constitution

3. Charitable institutions, churches and personages or convents appurtenant thereto,

mosques, non-profit cemeteries, and all lands, buildings, and improvements,(walang
machineries) actually, directly, and exclusively used for religious, charitable, or
educational purposes shall be exempt from taxation. (applies only to RPT)

4. Sec. 4(3), Art. XIV of the 1987 Constitution

3. All revenues and assets (Lahat na) of non-stock, non-profit educational institutions
used actually, directly, and exclusively for educational purposes shall be exempt from
taxes and duties. xxx

Proprietary educational institutions, including those cooperatively owned, may

likewise be entitled to such exemptions, subject to the limitations provided by law,
including restrictions on dividends and provisions for reinvestment.

a. MIAA vs. CA, GR No. 155650 dated July 20, 2006

Provision involve is Sec. 234(a)

This petition raises the threshold issue of whether the Airport Lands and Buildings of
MIAA are exempt from real estate tax under existing laws. If so exempt, then the real
estate tax assessments issued by the City of Parañaque, and all proceedings taken
pursuant to such assessments, are void. In such event, the other issues raised in this
petition become moot.

RULING

We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax
imposed by local governments.

First, MIAA is not a government-owned or controlled corporation but

an instrumentality of the National Government and thus exempt from local
taxation. Second, the real properties of MIAA are owned by the Republic of the
Philippines and thus exempt from real estate tax.

2. Airport Lands and Buildings of MIAA are Owned by the Republic

Airport Lands and Buildings are of Public Dominion

The Airport Lands and Buildings of MIAA are property of public dominion and
therefore owned by the State or the Republic of the Philippines. The Civil Code
provides:

ARTICLE 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers,

torrents, ports and bridges constructed by the State, banks, shores,
roadsteads, and others of similar character;

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No one can dispute that properties of public dominion mentioned in Article 420 of the
Civil Code, like "roads, canals, rivers, torrents, ports and bridges constructed by
the State," are owned by the State. The term "ports" includes seaports and
airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by
the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and
Buildings are properties of public dominion and thus owned by the State or the
Republic of the Philippines.

The charging of fees to the public does not determine the character of the property
whether it is of public dominion or not. Article 420 of the Civil Code defines property
of public dominion as one "intended for public use." Even if the government collects
toll fees, the road is still "intended for public use" if anyone can use the road under the
same terms and conditions as the rest of the public. The charging of fees, the
limitation on the kind of vehicles that can use the road, the speed restrictions and
other conditions for the use of the road do not affect the public character of the road.

Real Property Owned by the Republic is Not Taxable

Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal
property owned by the Republic of the Philippines." Section 234(a) provides:

SEC. 234. Exemptions from Real Property Tax. — The following are

exempted from payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its

political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person;

This exemption should be read in relation with Section 133(o) of the same Code,
which prohibits local governments from imposing "[t]axes, fees or charges of any
kind on the National Government, its agencies and instrumentalities x x x." The real
properties owned by the Republic are titled either in the name of the Republic itself or
in the name of agencies or instrumentalities of the National Government. The
Administrative Code allows real property owned by the Republic to be titled in the
name of agencies or instrumentalities of the national government. Such real properties
remain owned by the Republic and continue to be exempt from real estate tax.

However, portions of the Airport Lands and Buildings that MIAA leases to
private entities are not exempt from real estate tax. For example, the land area
occupied by hangars that MIAA leases to private corporations is subject to real estate
tax. In such a case, MIAA has granted the beneficial use of such land area for a
consideration to a taxable person and therefore such land area is subject to real estate
tax. In Lung Center of the Philippines v. Quezon City, the Court ruled:

Accordingly, we hold that the portions of the land leased to private entities as
well as those parts of the hospital leased to private individuals are not exempt
from such taxes. On the other hand, the portions of the land occupied by the
hospital and portions of the hospital used for its patients, whether paying or
non-paying, are exempt from real property taxes

By express mandate of the Local Government Code, local governments cannot

impose any kind of tax on national government instrumentalities like the MIAA.
Local governments are devoid of power to tax the national government, its agencies
and instrumentalities. The taxing powers of local governments do not extend to the
national government, its agencies and instrumentalities, "[u]nless otherwise provided
in this Code" as stated in the saving clause of Section 133. The saving clause refers to
Section 234(a) on the exception to the exemption from real estate tax of real property
owned by the Republic.
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Section 133 of the Local Government Code starts with the saving clause "[u]nless
otherwise provided in this Code." This means that unless the Local Government Code
grants an express authorization, local governments have no power to tax the national
government, its agencies and instrumentalities. Clearly, the rule is local governments
have no power to tax the national government, its agencies and instrumentalities. As
an exception to this rule, local governments may tax the national government, its
agencies and instrumentalities only if the Local Government Code expressly so
provides.

The saving clause in Section 133 refers to the exception to the exemption in Section
234(a) of the Code, which makes the national government subject to real estate tax
when it gives the beneficial use of its real properties to a taxable entity. 

b. Lung Center of the Philippines vs. Quezon City, GR No. 144104 dated June 29,
2004 (Provision is Sec. 234(b))

Notes: Sa 199(b) pwede ang predominant use but, for the purposes of
exemption, di pwede and dominant use, the term is the principal use.

The test whether an enterprise is charitable or not is whether it exists to carry out a
purpose recognized in law as charitable or whether it is maintained for gain, profit, or
private advantage.

As a general principle, a charitable institution does not lose its character as such and its
exemption from taxes simply because it derives income from paying patients, whether
out-patient, or confined in the hospital, or receives subsidies from the government, so
long as the money received is devoted or used altogether to the charitable object which
it is intended to achieve, and no money inures to the private benefit of the persons
managing or operating the institution.

The Lung Center of the Philippines does not lose its character as a charitable institution
simply because the gift or donation is in the form of subsidies granted by the
government.

Even as we find that the petitioner is a charitable institution, we hold, anent the second
issue, that those portions of its real property that are leased to private entities are not
exempt from real property taxes as these are not actually, directly and exclusively used
for charitable purposes.

The tax exemption under Section 28 (3), Article VI of the 1987 Constitution covers
property taxes only.

Under the 1973 and the present Constitutions, for “lands, buildings, and
improvements” of the charitable institution to be considered exempt, the same should
not only be “exclusively” used for charitable purposes—it is required that such
property be used “actually” and “directly” for such purposes.

If real property is used for one or more commercial purposes, it is not exclusively used
for the exempted purposes but is subject to taxation—the words “dominant use” or
“principal use” cannot be substituted for the words “used exclusively” without doing
violence to the Constitutions and the law.

Portions of the land leased to private entities as well as those parts of Lung Center
leased to private individuals are not exempt from taxes but portions of the land
occupied by the hospital and portions of the hospital used for its patients, whether
paying or non-paying, are exempt from real property taxes.

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c. NPC vs. Province of Quezon, GR No. 171586 dated July 15, 2009 (Provision Sec.
234(c))
d. NPC vs. Province of Quezon, GR No. 171586 dated January 25, 2010
(Resolution)

Two Elements to Successfully Claim Exemption under Section 234(c) of the Local
Government Code (LGC).—The NPC’s claim of tax exemptions is completely without
merit. To successfully claim exemption under Section 234(c) of the LGC, the claimant
must prove two elements:

a. the machineries and equipment are actually, directly, and exclusively used

by local water districts and government-owned or controlled corporations; and

b. the local water districts and government-owned and controlled corporations

claiming exemption must be engaged in the supply and distribution of water
and/or the generation and transmission of electric power.

Neither of Mirant and NPC is entitled to the exemption.

Moreover, if Napocor truly believed that it was the owner of the subject machineries, it
should have complied with Sections 202 and 206 of the LGC which obligates owners
of real property to:

a. file a sworn statement declaring the true value of the real property, whether
taxable or exempt; and

b. file sufficient documentary evidence supporting its claim for tax exemption.

While a real property owner’s failure to comply with Sections 202 and 206 does not
necessarily negate its tax obligation nor invalidate its legitimate claim for tax
exemption, Napocor’s omission to do so in this case can be construed as contradictory
to its claim of ownership of the subject machineries. That it assumed liability for the
taxes that may be imposed on the subject machineries similarly does not clothe it with
legal title over the same. We do not believe that the phrase "person having legal
interest in the property" in Section 226 of the LGC can include an entity that assumes
another person’s tax liability by contract.

e. Provincial Assessor of Agusan del Sur vs. Filipinas Palm Oil, GR No. 183416
dated
October 5, 2016 LEONEN

How about the Land it is exempt?

Under Section 133(n) of the Local Government Code, the taxing power of local
government units shall not extend to the levy of taxes, fees, or charges on duly
registered cooperatives under the Cooperative Code. Section 234(d) of the Local
Government Code specifically provides for real property tax exemption to cooperatives:
xxx (d) All real property owned by duly registered cooperatives as provided for under
[Republic Act] No. 6938[.] (Emphasis supplied) NGPI-NGEI, as the owner of the land
being leased by respondent, falls within the purview of the law. Section 234 of the Local
Government Code exempts all real property owned by cooperatives without distinction
[based on ownership]. Nothing in the law suggests that the real property tax exemption
only applies when the property is used by the cooperative itself. Similarly, the instance
that the real property is leased to either an individual or corporation is not a ground for
withdrawal of tax exemption. (Also add sa answer Sec 133(n))

How about the Roads it is exempt?

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Despite the land being leased by respondent when the roads were constructed, the
ownership of the improvement still belongs to NGPI-NGEI. As provided under Articles
440 and 445 of the Civil Code, the land is owned by the cooperatives at the time
respondent built the roads. Hence, whatever is incorporated in the land, either naturally
or artificially, belongs to the NGPI-NGEI as the landowner. Although the roads were
primarily built for respondent’s benefit, the roads were also being used by the
members of NGPI and the public. Furthermore, the roads inured to the benefit of
NGPI-NGEI as owners of the land not only by right of accession but through the
express provision in the lease agreement.

f. LRTA vs. Quezon City, GR No. 221626 dated October 9, 2019

234(a), - Indeed, real properties owned by the Republic, whether titled in the
name of the Republic itself or in the name of agencies or instrumentalities of
the national government, are exempt from real property tax..

Invoking MIAA v. Court of Appeals, the LRTA asserted anew that it is a government

instrumentality, hence, exempt from real property tax.

For its part, Quezon City countered that the LRTA is not a government instrumentality
but a government-owned and controlled corporation (GOCC). Its activities are
proprietary in nature and not purely governmental. It is clothed with corporate status
and powers, earns profit, and operates as an ordinary private corporation. EO 603 does
not exempt the LRTA from real property taxes. The Local Government Code of 1991
has removed or withdrawn the tax exemptions of GOCCs. Consistent with the decision
in LRTA v. CBOA, the LRTA is thus a taxable entity.

The LRTA now urges the Court to nullify the trial court's dispositions regarding its
liability for real property tax. It reiterates that it is not a GOCC but a government
instrumentality, hence, its properties are not taxable. The decision in Mactan Cebu
International Airport (MCIAA) v. City of LapuLapu citing the 2006 MIAA case,
superseded LRTA v. CBOA. Its properties belong to the Republic of the Philippines
and are intended for public use, hence, exempt from real property taxes.

In its Comment, Quezon City ripostes, in the main: a) the LRTA is not a government
instrumentality but a GOCC; b) its activities are proprietary and not purely
governmental; and c) it is profit earning and operating like a private corporation.

Issues

1) Is the LRTA a GOCC or a government instrumentality; and

2) Are the LRTA's properties subject to real property tax?

Ruling
The LRTA is not a government owned and controlled corporation (GOCC).

Indeed, an agency is a government-owned or controlled corporation when it is

organized as a stock or non-stock corporation. A stock corporation is one that sources
its capital through shares of stock and therefore has a share capital or capital stock, not
just capital, whose capital stock is divided into shares, and who is authorized to
distribute dividend to the holders of such share. A non-stock corporation, on the other
hand, is one where no part of its income is distributable as dividends to its members,
trustees, or officers. A non-stock corporation must have members.

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Consequently, to be considered as a GOCC, an entity must either be organized as a

stock or non-stock corporation. Three (3) requisites must concur for one to be
classified as a stock corporation, viz: (1) it has capital stock, (2) the capital stock is
divided into shares, and (3) it is authorized to distribute dividends and allotments of
surplus and profits to its stockholders. As for non-stock corporations, they must have
members and must not distribute any part of their income to said members.

The LRTA has statutory capital - but not capital stock or share capital. The wording of
its capital structure is similar to that of the Manila International Airport Authority
(MIAA).

In any case, having a GOCC status does not at once disqualify one from real property
tax exemption. Having a GOCC status simply means that the GOCC must find a legal
basis for claiming real property tax exemption other than what was previously granted
to it under the old real property tax laws which Local Government Code has already
repealed. It is in this light that the LRTA's status as a government
instrumentality assumes importance for the purpose of claiming real property tax
exemption.

The LRTA is a government instrumentality exercising corporate powers

Is the LRTA a government instrumentality exempt from real property tax?

Subsection 10 (10) of the Administrative Code of 1987 defines an "Instrumentality as

any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if
not all corporate powers, administering special funds, and enjoying operational
autonomy, usually through a charter." The Court had on several occasions clarified that
the legal vesture of corporate powers in a government instrumentality does not negate
its status as such.

An agency will be classified as a government instrumentality vested with corporate

powers when the following elements concur: a) it performs governmental functions,
and b) it enjoys operational autonomy. It does not matter that the government
instrumentality is endowed with corporate powers.

The characterization of government instrumentality is not lost where the government

entity possesses corporate status. These are not polar opposites. This is so especially
when, despite the corporate status, it is really the resources and reputation of the
Republic for a paramount public purpose that are at stake in the capitalization and
operations of the government entity.

Here, the LRTA bears the elemental characteristics of a government instrumentality

vested with corporate powers.

One. The vesture of its corporate powers is found in Article 2 of Executive Order 603

otherwise known as "Creating a Light Rail Transit Authority, Vesting the same with
Authority to Construct and Operate the Light Rail Transit (LRT) project and providing
funds therefor

Two. The LRTA performs governmental functions. It is primarily responsible for the

construction, operation, maintenance, and/or lease of light rail transit systems in the
country, giving due regard to the reasonable requirements of the public transportation
system of the country.

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Three. The LRTA also enjoys operational autonomy, as it exists by virtue of a

Charter, and its powers and functions are vested in and exercised by its Board of
Directors.

The Court has already clarified the tax-exempt status of government instrumentalities
vested with corporate powers in the following cases:

In MIAA v. Court of Appeals,29 the Court pronounced that MIAA is a government

instrumentality vested with corporate powers to perform efficiently its governmental
functions. A government instrumentality like MIAA falls under Section 133(o) of the
Local Government Code which recognizes the basic principle that local governments
cannot tax the national government.

In Philippine Fisheries Development Authority (PFDA) v. Court of Appeal, the Court

held that PFDA is an instrumentality of the national government, hence, exempt from
real property tax, albeit the exemption does not extend to such portions of the property,
the beneficial use of which are vested in private entities. In any event, when local
governments invoke the power to tax on national government instrumentalities, such
power is construed strictly against local governments.

In MIAA v. City of Pasay,31 the Court reiterated that MIAA is a government

instrumentality exempt from any kind of tax from the local governments.

In Government Service Insurance System v. City Treasurer of the City of

Manila32 the Court ruled that GSIS as an instrumentality of the national government is
itself not liable to pay real estate taxes assessed by the City of Manila against its
Katigbak and Concepcion-Arroceros properties. The liability devolves on the taxable
beneficial user of these properties, but not upon GSIS and any of its properties though
the subject of transactions. Consequently, the Katigbak property cannot be subject to a
public auction sale, notwithstanding the realty tax delinquency assessed on this
property. This means that the City of Manila may satisfy its tax claim by assessing the
taxable beneficial user of the Katigbak property and, in case of nonpayment, by
execution, but through means other than the sale at public auction of the leased
property of GSIS.33

In City of Lapu-Lapu v. Phil. Economic Zone Authority, (PEZA), 34 the Court held
that PEZA is an instrumentality of the national government. Further, the lands owned
by the PEZA are real properties owned by the Republic of the Philippines itself. The
City of Lapu-Lapu and the Province of Bataan therefore, cannot collect real property
taxes from the PEZA.

In Mactan-Cebu International Airport Authority (MCIAA) v. City of Lapu-Lapu and

Pacaldo,35 the Court reiterated that MCIAA like MIAA is an instrumentality of the
government; thus, its properties which are actually, solely, and exclusively used for
public purposes, consisting of the airport terminal building, airfield, runway, taxiway
and the lots on which they are situated, are not subject to real property tax and
respondent City was not justified in collecting taxes from the MCIAA on these
properties.

In the fairly recent case of Metropolitan Waterworks and Sewerage System v. Local
Government of Quezon,36 the Court stressed anew that a government instrumentality
exercising corporate powers is not liable for real property taxes on its properties unless
it is alleged and proven that the beneficial use of its properties has been extended to a
taxable person.

In sum, a government instrumentality though vested with corporate powers are

exempt from real property tax, but the exemption shall not extend to taxable private
entities to whom the beneficial use of the government instrumentality's properties has
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been vested. The taxable private entities are subject to real property tax, but not the
government instrumentality they have dealt with, much less, the properties of the
government instrumentality subject of such beneficial use.

There is, moreover, no point in national and local governments taxing each other,
unless a sound and compelling policy requires such transfer of public funds from one
government pocket to another.

There is also no reason for local governments to tax national government

instrumentalities for rendering essential public services to inhabitants of local
governments. The only exception is when the legislature clearly intended to tax
government instrumentalities for the delivery of essential public services for sound and
compelling policy considerations. There must be express language in the law
empowering local governments to tax national government instrumentalities. Any
doubt whether such power exists is resolved against local governments.

Thus, Section 133 of the Local Government Code states that "unless otherwise
provided" in the Code, local governments cannot tax national government
instrumentalities.

This doctrine emanates from the "supremacy" of the National Government over local
governments.

The  LRTA  operations  and   properties of   public   dominion  are   devoted  to
public use  and  public  welfare,  hence, are   owned   by   the   Republic of  the
Philippines, and for  legal  and  socially significant reasons,  are  exempt  from real
property taxes and  the  means  to collect such taxes.

The analysis provided by the En Banc decision in MIAA v. CA fully demonstrates that

LRTA is not engaged in a profit-earning business like a private corporation.

To be sure, the LRTA and its properties are tasked to establish the light rail transit in
the country. To pursue this mandate and purpose, the LRTA pioneered the construction
of light rail transit infrastructure, which was financed through foreign loans. The
revenues from the LRTA operations were designed to pay for the loans incurred for its
construction. The LRTA operations were intended as a public utility rather than as a
profit-making mechanism. The income which the LRTA generates is being used for its
operations, especially the maintenance of rail tracks and trains. Section 2 of EO 603
provides for the re-capitalization of excess revenues and for such other purposes that
will enhance the LRTA's mandate and purpose

Given the mandate and purpose of the LRTA, it stands to reason that the LRTA's
railroads, carriageways, terminal stations, and the lots on which they are found
and/or constructed are properties of public dominion intended for public use. As
such, they are exempt from real property tax under Section 234 (a) of the Local
Government Code.

5. Who should pay the tax under Sec. 234(a)?

NOTE:

1) G.R.: Owner pay.

Exception: The beneficial user – if the owner of the property is the Republic.

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2) Property Leased – the owner shall pay, it doesn’t matter what the contract say,
reason: the LGU cannot go after the lessee or the lessee go after the LGU the
contract is exclusive to the parties.

Exception: The beneficial user – if the owner of the property is the Republic.

3) Art. 420 – even if not property of public dominion – pwede parin maging owned
by the Republic.

Rules of auction sale of real property of the State:

a. Property of Public Dominion – not subject to execution sale; the remedy is
on the taxable person.
b. Not property of Public Dominion – subject to execution sale

a. Sec. 205(d) of the LGC

SECTION 205. Listing of Real Property in the Assessment Rolls.

(d) Real property owned by the Republic of the Philippines, instrumentalities and
political subdivisions, the beneficial use of which has been granted, for consideration
or otherwise, to a taxable person, shall be listed, valued and assessed in the name of
the possessor, grantee or of the public entity if such property has been acquired or
held for resale or lease.

Note: Beneficial use is applicable only in Sec. 234(a)

b. Herarc Realty Corp. vs. Provincial Treasurer of Batangas, GR No. 210736

dated September 5, 2018.

As the RTC correctly opined, in real estate taxation, the unpaid tax attaches to the
property. The personal liability for the tax delinquency is generally on whoever is the
owner of the real property at the time the tax accrues. This is a necessary
consequence that proceeds from the fact of ownership. RTC correctly opined, in real
estate taxation, the unpaid tax attaches to the property. The personal liability for the
tax delinquency is generally on whoever is the owner of the real property at the time
the tax accrues. This is a necessary consequence that proceeds from the fact of
ownership.

Nonetheless, where the tax liability is imposed on the beneficial use of the real
property, such as those owned but leased to private persons or entities by the
government, or when the assessment is made on the basis of the actual use thereof,
the personal liability is on any person who has such beneficial or actual use at the
time of the accrual of the tax.

NOTE: Herarc is not a tax exempt under the law and Herarc is the owner is the
owner in this case.

c. Philippine Fisheries Development Authority vs. CA, GR No. 169836 dated July
31, 2007.

The issues are as follows: Is the Authority liable to pay real property tax to the City
of Iloilo? If the answer is in the affirmative, may the IFPC be sold at public auction
to satisfy the tax delinquency?

Indeed, the Authority is not a GOCC but an instrumentality of the government. The
Authority has a capital stock but it is not divided into shares of stocks. Also, it has no

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stockholders or voting shares. Hence, it is not a stock corporation. Neither it is a non-

stock corporation because it has no members.

In light of the foregoing, the Authority should be classified as an instrumentality of

the national government which is liable to pay taxes only with respect to the
portions of the property, the beneficial use of which were vested in private entities.

Thus, the real property tax assessments issued by the City of Iloilo should be upheld
only with respect to the portions leased to private persons. In case the Authority fails
to pay the real property taxes due thereon, said portions cannot be sold at public
auction to satisfy the tax delinquency.

In the same vein, the port built by the State in the Iloilo fishing complex is a property
of the public dominion and cannot therefore be sold at public auction.

The Iloilo fishing port which was constructed by the State for public use and/or
public service falls within the term "port" in the aforecited provision. Being a
property of public dominion the same cannot be subject to execution or foreclosure
sale. In like manner, the reclaimed land on which the IFPC is built cannot be the
object of a private or public sale without Congressional authorization. Whether there
are improvements in the fishing port complex that should not be construed to be
embraced within the term "port," involves evidentiary matters that cannot be
addressed in the present case. As for now, considering that the Authority is a national
government instrumentality, any doubt on whether the entire IFPC may be levied
upon to satisfy the tax delinquency should be resolved against the City of Iloilo.

d. GSIS vs. City Treasurer and Assessor of Manila, GR No. 186242December 23,
2009.

e. City of Pasig vs. Republic, GR No. 185023 dated August 24, 2011. Read full

Pasig City raises as issues that the lower courts erred in granting PCGG's petition for
certiorari, prohibition and mandamus and in ordering Pasig City to assess and collect
real property tax from the lessees of the properties.

The petition is partly meritorious.

Even as the Republic of the Philippines is now the owner of the properties in view of
the voluntary surrender of MPLDC by its former registered owner, Campos, to the
State, such transfer does not prevent a third party with a better right from claiming
such properties in the proper forum. In the meantime, the Republic of the Philippines
is the presumptive owner of the properties for taxation purposes.

In the present case, the parcels of land are not properties of public dominion because
they are not "intended for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads." Neither are they
"intended for some public service or for the development of the national wealth."
MPLDC leases portions of the properties to different business establishments. Thus,
the portions of the properties leased to taxable entities are not only subject to real
estate tax, they can also be sold at public auction to satisfy the tax delinquency.

In sum, only those portions of the properties leased to taxable entities are subject to
real estate tax for the period of such leases. Pasig City must, therefore, issue to
respondent new real property tax assessments covering the portions of the properties
leased to taxable entities. If the Republic of the Philippines fails to pay the real

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property tax on the portions of the properties leased to taxable entities, then such
portions may be sold at public auction to satisfy the tax delinquency.

f. Philippine Heart Center vs. Local Government of Quezon City, GR No. 225409
dated March 11, 2020. read

G. Remedies on Real Property Taxation

1. Secs. 226, 229, 252, 254, 258, 260 and 267 of the LGC

Assessment Appeals

Section 226. Local Board of Assessment Appeals. - Any owner or person having legal
interest in the property who is not satisfied with the action of the provincial, city or
municipal assessor in the assessment of his property may, within sixty (60) days from
the date of receipt of the written notice of assessment, appeal to the Board of Assessment
Appeals of the provincial or city by filing a petition under oath in the form prescribed for
the purpose, together with copies of the tax declarations and such affidavits or
documents submitted in support of the appeal.

Section 229. Action by the Local Board of Assessment Appeals. -

(a) The Board shall decide the appeal within one hundred twenty (120) days from the
date of receipt of such appeal. The Board, after hearing, shall render its decision based
on substantial evidence or such relevant evidence on record as a reasonable mind might
accept as adequate to support the conclusion.

(b) In the exercise of its appellate jurisdiction, the Board shall have the power to
summon witnesses, administer oaths, conduct ocular inspection, take depositions, and
issue subpoena and subpoena duces tecum. The proceedings of the Board shall be
conducted solely for the purpose of ascertaining the facts without necessarily adhering to
technical rules applicable in judicial proceedings.

(c) The secretary of the Board shall furnish the owner of the property or the person
having legal interest therein and the provincial or city assessor with a copy of the
decision of the Board. In case the provincial or city assessor concurs in the revision or
the assessment, it shall be his duty to notify the owner of the property or the person
having legal interest therein of such fact using the form prescribed for the purpose. The
owner of the property or the person having legal interest therein or the assessor who is
not satisfied with the decision of the Board, may, within thirty (30) days after receipt of
the decision of said Board, appeal to the Central Board of Assessment Appeals, as herein
provided. The decision of the Central Board shall be final and executory.

Section 252. Payment Under Protest. -

(a) No protest shall be entertained unless the taxpayer first pays the tax. There shall be
annotated on the tax receipts the words "paid under protest". The protest in writing must
be filed within thirty (30) days from payment of the tax to the provincial, city treasurer
or municipal treasurer, in the case of a municipality within Metropolitan Manila Area,
who shall decide the protest within sixty (60) days from receipt.

(b) The tax or a portion thereof paid under protest, shall be held in trust by the treasurer
concerned.

(c) In the event that the protest is finally decided in favor of the taxpayer, the amount or
portion of the tax protested shall be refunded to the protestant, or applied as tax credit
against his existing or future tax liability.
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(d) In the event that the protest is denied or upon the lapse of the sixty day period
prescribed in subparagraph (a), the taxpayer may avail of the remedies as provided for in
Chapter 3, Title II, Book II of this Code.

Section 254. Notice of Delinquency in the Payment of the Real Property Tax. -

(a) When the real property tax or any other tax imposed under this Title becomes
delinquent, the provincial, city or municipal treasurer shall immediately cause a notice
of the delinquency to be posted at the main hall and in a publicly accessible and
conspicuous place in each barangay of the local government unit concerned. The notice
of delinquency shall also be published once a week for two (2) consecutive weeks, in a
newspaper of general circulation in the province, city, or municipality.

(b) Such notice shall specify the date upon which the tax became delinquent and shall
state that personal property may be distrained to effect payment. It shall likewise state
that any time before the distraint of personal property, payment of the tax with
surcharges, interests and penalties may be made in accordance with the next following
Section, and unless the tax, surcharges and penalties are paid before the expiration of the
year for which the tax is due except when the notice of assessment or special levy is
contested administratively or judicially pursuant to the provisions of Chapter 3, Title II,
Book II of this Code, the delinquent real property will be sold at public auction, and the
title to the property will be vested in the purchaser, subject, however, to the right of the
delinquent owner of the property or any person having legal interest therein to redeem
the property within one (1) year from the date of sale.

Section 258. Levy on Real Property. - After the expiration of the time required to pay
the basic real property tax or any other tax levied under this Title, real property subject
to such tax may be levied upon through the issuance of a warrant on or before, or
simultaneously with, the institution of the civil action for the collection of the delinquent
tax. The provincial or city treasurer, or a treasurer of a municipality within the
Metropolitan Manila Area, as the case may be, when issuing a warrant of levy shall
prepare a duly authenticated certificate showing the name of the delinquent owner of the
property or person having legal interest therein, the description of the property, the
amount of the tax due and the interest thereon. The warrant shall operate with the force
of a legal execution throughout the province, city or a municipality, within the
Metropolitan Manila Area. The warrant shall be mailed to or served upon the delinquent
owner of the real property or person having legal interest therein, or in case he is out of
the country or cannot be located, the administrator or occupant of the property. At the
same time, written notice of the levy with the attached warrant shall be mailed to or
served upon the assessor and the Registrar of Deeds of the province, city or municipality
within the Metropolitan Manila Area where the property is located, who shall annotate
the levy on the tax declaration and certificate of title of the property, respectively.

The levying officer shall submit a report on the levy to the sanggunian concerned within
ten (10) days after receipt of the warrant by the owner of the property or person having
legal interest therein.

Section 260. Advertisement and Sale. - Within thirty (30) days after service of the
warrant of levy, the local treasurer shall proceed to publicly advertise for sale or auction
the property or a usable portion thereof as may be necessary to satisfy the tax
delinquency and expenses of sale. The advertisement shall be effected by posting a
notice at the main entrance of the provincial, city or municipal building, and in a
publicly accessible and conspicuous place in the barangay where the real property is
located, and by publication once a week for two (2) weeks in a newspaper of general
circulation in the province, city or municipality where the property is located. The
advertisement shall specify the amount of the delinquent tax, the interest due thereon
and expenses of sale, the date and place of sale, the name of the owner of the real

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property or person having legal interest therein, and a description of the property to be
sold. At any time before the date fixed for the sale, the owner of the real property or
person having legal interest therein may stay the proceedings by paying the delinquent
tax, the interest due thereon and the expenses of sale. The sale shall be held either at the
main entrance of the provincial, city or municipal building, or on the property to be sold,
or at any other place as specified in the notice of the sale.

Within thirty (30) days after the sale, the local treasurer or his deputy shall make a report
of the sale to the sanggunian concerned, and which shall form part of his records. The
local treasurer shall likewise prepare and deliver to the purchaser a certificate of sale
which shall contain the name of the purchaser, a description of the property sold, the
amount of the delinquent tax, the interest due thereon, the expenses of sale and a brief
description of the proceedings: Provided, however, That proceeds of the sale in excess of
the delinquent tax, the interest due thereon, and the expenses of sale shall be remitted to
the owner of the real property or person having legal interest therein.

The local treasurer may, by ordinance duly approved, advance an amount sufficient to
defray the costs of collection thru the remedies provided for in this Title, including the
expenses of advertisement and sale.

Section 267. Action Assailing Validity of Tax Sale. - No court shall entertain any action
assailing the validity or any sale at public auction of real property or rights therein under
this Title until the taxpayer shall have deposited with the court the amount for which the
real property was sold, together with interest of two percent (2%) per month from the
date of sale to the time of the institution of the action. The amount so deposited shall be
paid to the purchaser at the auction sale if the deed is declared invalid but it shall be
returned to the depositor if the action fails.

Neither shall any court declare a sale at public auction invalid by reason or irregularities
or informalities in the proceedings unless the substantive rights of the delinquent owner
of the real property or the person having legal interest therein have been impaired.

2. Requirement of payment under protest

a. Manila Electric Company vs. The City of Assessor and City Treasurer of
Lucena
City, GR No. 166102 dated August 5, 2015

By posting a surety bond before filing its appeal of the assessment with
the LBAA, MERALCO substantially complied with the requirement of payment
under protest in Section 252 of the Local Government Code.

Section 252 of the Local Government Code mandates that "[n]o protest shall be
entertained unless the taxpayer first pays the tax." It is settled that the requirement of
"payment under protest" is a condition sine qua non before an appeal may be
entertained. Section 231 of the same Code also dictates that "[a]ppeal on assessments
of real property x x x shall, in no case, suspend the collection of the corresponding
realty taxes on the property involved as assessed by the provincial or city assessor,
without prejudice to subsequent adjustment depending upon the final outcome of the
appeal." Clearly, under the Local Government Code, even when the assessment of the
real property is appealed, the real property tax due on the basis thereof should be paid
to and/or collected by the local government unit concerned.

By posting the surety bond, MERALCO may be considered to have substantially

complied with Section 252 of the Local Government Code for the said bond already
guarantees the payment to the Office of the City Treasurer of Lucena of the total
amount of real property taxes and penalties due. This is not the first time that the
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Court allowed a surety bond as an alternative to cash payment of the real property tax
before protest/appeal as required by Section 252 of the Local Government Code.
In Camp John Hay Development Corporation v. Central Board of Assessment
Appeals the Court affirmed the ruling of the CBAA and the Court of Tax Appeals en
bane applying the "payment under protest" requirement in Section 252 of the Local
Government Code and remanding the case to the LBAA for "further proceedings
subject to a full and up-to-date payment, either in cash or surety, of realty tax on the
subject properties x x x."

Accordingly, the LBAA herein correctly took cognizance of and gave due course to
the appeal filed by MERALCO.

b. NPC vs. Province of Quezon, GR No. 171586 dated July 15, 2009

FACTS:

NPC is a GOCC that entered into an Energy Conversion Agreement (ECA) under a
build-operate-transfer (BOT) arrangement with Mirant Pagbilao Corp. Under the
agreement, Mirant will build and finance a thermal power plant in Quezon, and
operate and maintain the same for 25 years, after which, Mirant will transfer the
power plant to the Respondent without compensation. NPC also undertook to pay all
taxes that the government may impose on Mirant. Quezon then assessed Mirant real
property taxes on the power plant and its machineries.

ISSUES:

1) Can Petitioner file the protest against the real property tax assessment?
2) Can Petitioner claim exemption from the RPT given the BOT arrangement with
Mirant?
3) Is payment under protest required before an appeal to the LBAA is made?

NPC ARGUMENT
The NPC’s assertion of beneficial ownership of the power plant also supports its claim
for tax exemptions under Section 234(c) of the LGC. The NPC alleges that it has the
right to control and supervise the entire output and operation of the power plant. This
arrangement, to the NPC, proves that it is the entity actually, directly, and exclusively
using the subject machineries. Mirant’s possession of the power plant is irrelevant
since all of Mirant activities relating to power generation are undertaken for and in
behalf of the NPC. Additionally, all the electricity Mirant generates is utilized by the
NPC in supplying the power needs of the country; Mirant therefore operates the power
plant for the exclusive and direct benefit of the NPC. Lastly, the NPC posits that the
machineries taxed by the local government include anti-pollution devices which
should have been excluded from the assessment under Section 234(e) of the LGC.

RULING

Section 226 of the LGC lists down the two entities vested with the personality to
contest an assessment: the owner and the person with legal interest in the property.

Who can file a protest?

A person legally burdened with the obligation to pay for the tax imposed on a property
has legal interest in the property and the personality to protest a tax assessment on the
property. This is the logical and legal conclusion when Section 226, on the rules
governing an assessment protest, is placed side by side with Section 250 on the

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payment of real property tax; both provisions refer to the same parties who may protest
and pay the tax:

The liability for taxes generally rests on the owner of the real property at the time the
tax accrues. This is a necessary consequence that proceeds from the fact of
ownership. However, personal liability for realty taxes may also expressly rest on the
entity with the beneficial use of the real property, such as the tax on property owned by
the government but leased to private persons or entities, or when the tax assessment is
made on the basis of the actual use of the property. In either case, the unpaid realty
tax attaches to the property but is directly chargeable against the taxable person
who has actual and beneficial use and possession of the property regardless of
whether or not that person is the owner.

In the present case, the NPC, contrary to its claims, is neither the owner nor the
possessor/user of the subject machineries. The ECA’s terms regarding the power
plant’s machineries clearly vest their ownership with Mirant.

The NPC contends that it should nevertheless be regarded as the beneficial owner of
the plant, since it will acquire ownership thereof at the end of 25 years. The NPC also
asserts, by quoting portions of the ECA, that it has the right to control and supervise
the construction and operation of the plant, and that Mirant has retained only naked
title to it. These contentions, unfortunately, are not sufficient to vest the NPC the
personality to protest the assessment.

In Cariño v. Ofilado, we declared that legal interest should be an interest that is actual
and material, direct and immediate, not simply contingent or expectant. In the present
case, the NPC’s ownership of the plant will happen only after the lapse of the 25-year
period; until such time arrives, the NPC's claim of ownership is merely contingent, i.e.,
dependent on whether the plant and its machineries exist at that time. Prior to this
event, the NPC’s real interest is only in the continued operation of the plant for the
generation of electricity. This interest has not been shown to be adversely affected by
the realty taxes imposed and is an interest that NPC can protect, not by claiming an
exemption that is not due to Mirant, but by paying the taxes it (NPC) has assumed for
Mirant under the ECA.

On liability for taxes, the NPC indeed assumed responsibility for the taxes due on the
power plant and its machineries, specifically, "all real estate taxes and assessments,
rates and other charges in respect of the site, the buildings and improvements thereon
and the [power plant]." At first blush, this contractual provision would appear to
make the NPC liable and give it standing to protest the assessment. The tax
liability we refer to above, however, is the liability arising from law that the local
government unit can rightfully and successfully enforce, not the contractual
liability that is enforceable between the parties to a contract as discussed below.
By law, the tax liability rests on Mirant based on its ownership, use, and
possession of the plant and its machineries.

In Testate of Concordia Lim v. City of Manila, we had occasion to rule that:

In [Baguio v. Busuego], the assumption by the vendee of the liability for real estate
taxes prospectively due was in harmony with the tax policy that the user of the
property bears the tax. In [the present case], the interpretation that the [vendee]
assumed a liability for overdue real estate taxes for the periods prior to the contract of
sale is incongruent with the said policy because there was no immediate transfer of
possession of the properties previous to full payment of the repurchase price.

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To impose the real property tax on the estate which was neither the owner nor
the beneficial user of the property during the designated periods would not only
be contrary to law but also unjust.

The test of exemption is the nature of the use, not ownership, of the subject
machineries

At any rate, the NPC’s claim of tax exemptions is completely without merit. To
successfully claim exemption under Section 234(c) of the LGC, the claimant must
prove two elements:

a. the machineries and equipment are actually, directly, and exclusively used by local
water districts and government-owned or controlled corporations; and

b. the local water districts and government-owned and controlled corporations claiming
exemption must be engaged in the supply and distribution of water and/or the
generation and transmission of electric power.

As applied to the present case, the government-owned or controlled corporation

claiming exemption must be the entity actually, directly, and exclusively using the real
properties, and the use must be devoted to the generation and transmission of electric
power. Neither the NPC nor Mirant satisfies both requirements.

Nor will NPC find solace in its claim that it utilizes all the power plant’s
generated electricity in supplying the power needs of its customers. Based on the
clear wording of the law, it is the machineries that are exempted from the payment of
real property tax, not the water or electricity that these machineries generate and
distribute.

Even the NPC’s claim of beneficial ownership is unavailing. The test of exemption
is the use, not the ownership of the machineries devoted to generation and
transmission of electric power.

c. NPC vs. Province of Quezon, GR No. 171586 dated January 25, 2010
(Resolution)

Although Napocor insists that it is entitled to the tax exemptions and privileges
claimed, the primary issue for the Court to resolve, however, is to determine whether
Napocor has sufficient legal interest to protest the tax assessment because without the
requisite interest, the tax assessment stands, and no claim of exemption or privilege can
prevail.

Who may appeal a real property tax assessment?

Legal interest is defined as interest in property or a claim cognizable at law, equivalent

to that of a legal owner who has legal title to the property. Given this definition,
Napocor is clearly not vested with the requisite interest to protest the tax assessment, as
it is not an entity having the legal title over the machineries. It has absolutely no solid
claim of ownership or even of use and possession of the machineries, as our July 15,
2009 Decision explained.

For the Court to consider an entity assuming another person’s tax liability by contract
as a person having legal interest in the real property would extend to it the privileges
and responsibilities enumerated above. The framers of the LGC certainly did not
contemplate that the listing, valuation, and assessment of real property can be made in
the name of such entity; nor did they intend to make the warrant of levy enforceable
against it. Insofar as the provisions of the LGC are concerned, this entity is a party
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foreign to the operation of real property tax laws and could not be clothed with any
legal interest over the property apart from its assumed liability for tax. The rights and
obligations arising from the BOT Agreement between Napocor and Mirant were of no
legal interest to the tax collector – the Province of Quezon – which is charged with the
performance of independent duties under the LGC.

Payment under protest is required before an appeal to the LBAA can be made

Apart from Napocor’s failure to prove that it has sufficient legal interest, a further
review of the records revealed another basis for disregarding Napocor’s protest against
the assessment.

It was an ill-advised move for Napocor to directly file an appeal with the LBAA under
Section 226 without first paying the tax as required under Section 252. Sections 252
and 226 provide successive administrative remedies to a taxpayer who questions the
correctness of an assessment. Section 226, in declaring that "any owner or person
having legal interest in the property who is not satisfied with the action of the
provincial, city, or municipal assessor in the assessment of his property may x x x
appeal to the Board of Assessment Appeals x x x," should be read in conjunction with
Section 252 (d), which states that "in the event that the protest is denied x x x, the
taxpayer may avail of the remedies as provided for in Chapter 3, Title II, Book II of the
LGC [Chapter 3 refers to Assessment Appeals, which includes Sections 226 to 231].
The "action" referred to in Section 226 (in relation to a protest of real property tax
assessment) thus refers to the local assessor’s act of denying the protest filed pursuant
to Section 252. Without the action of the local assessor, the appellate authority of the
LBAA cannot be invoked. Napocor’s action before the LBAA was thus prematurely
filed.

d. Camp John Hay Development Corp. vs. CBAA, GR No. 169234 dated October
2,
2013 (include concurring opinion of Justice Carpio)

The Issue before the Court is whether or not respondent CTA En Banc erred in
dismissing for lack of merit the petition in C.T.A. EB No. 48, and accordingly affirmed
the order of the CBAA to remand the case to the LBAA of Baguio City for further
proceedings subject to a full and up-to-date payment of realty taxes, either in cash or in
bond, on the subject properties assessed by the City Assessor of Baguio City.

In support of the present petition, petitioner posits the following grounds: (a) Section
252 of RA No. 7160 or the LGC of 1991 does not apply when the person assessed is a
tax-exempt entity; and (b) Under the doctrine of operative fact, petitioner is not liable
for the payment of the real property taxes subject of this petition.

The Court finds the petition unmeritorious and therefore rules against petitioner.

To begin with, Section 252 emphatically directs that the taxpayer/real property owner
questioning the assessment should first pay the tax due before his protest can be
entertained. As a matter of fact, the words "paid under protest" shall be annotated on
the tax receipts. Consequently, only after such payment has been made by the taxpayer
may he file a protest in writing (within thirty (30) days from said payment of tax) to
the provincial, city, or municipal treasurer, who shall decide the protest within sixty
(60)days from its receipt. In no case is the local treasurer obliged to entertain the
protest unless the tax due has been paid.

With the above-enumerated reasons, it is obvious that in order for a complete

determination of petitioner’s alleged exemption from payment of real property tax
under RA No. 7160 or the LGC of 1991, there are factual issues needed to be
confirmed. Hence, being a question of fact, petitioner cannot do without first resorting
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to the proper administrative remedies, or as previously discussed, by paying under

protest the tax assessed in compliance with Section 252 thereof.

Accordingly, the CBAA and the CTA En Banc correctly ruled that real property taxes
should first be paid before any protest thereon may be considered. It is without a
doubt that such requirement of "payment under protest" is a condition sine qua
non before an appeal may be entertained. Thus, remanding the case to the LBAA for
further proceedings subject to a full and up-to-date payment, either in cash or surety, of
realty tax on the subject properties was proper.

All told, We go back to what was at the outset stated, that is, that a claim for tax
exemption, whether full or partial, does not question the authority of local
assessor to assess real property tax, but merely raises a question of the
reasonableness or correctness of such assessment, which requires compliance with
Section 252 of the LGC of 1991. Such argument which may involve a question of
fact should be resolved at the first instance by the LBAA.

3. Payment under protest not required

NPC vs. Municipal Government of Navotas, GR No. 192300 dated November

24,
2014

Case Flow = RTC (Declaratory Relief) –to-- CTA Division –to-- CTA en Banc –to--
SC

NPC entered into a Build-Operate-and-Transfer Project Agreements (BOTs) with

Mirant Navotas I Corporation (MNC-I), , and Mirant Navotas II Corporation (MNC-
II),. The BOTs are for the construction, operation and eventual transfer to petitioner
of MNC-I’s 200-MW and MNC-II’s 100-MW gas turbine power stations. During the
period of the agreement, the operation of the power stations shall be under the actual
and direct control and supervision of petitioner. Consequently, NPC has the obligation
to pay for all taxes, except business taxes, relative to the implementation of the
agreements.

NPC filed before the Regional Trial Court (RTC) of Malabon City, a Petition for
Declaratory Relief, Annulment of Notice of Delinquency, Warrant of Levy, and Notice
of Sale with prayer for the issuance of a Writ of Preliminary Injunction and
Temporary Restraining Order (TRO).

In essence, the issue is whether or not the CTA Second Division has jurisdiction to
review the decision of the RTC which concerns a petition for declaratory relief
involving real property taxes.

We rule in the affirmative.

First, Section 7 of Republic Act (R.A.) No. 9282 explicitly enumerates the scope of
the CTA’s jurisdiction over decisions, orders or resolutions of the RTC in local tax
cases.

Indeed, the CTA, sitting as Division, has jurisdiction to review by appeal the
decisions, rulings and resolutions of the RTC over local tax cases, which includes
real property taxes. This is evident from a perusal of the Local Government Code
(LGC) which includes the matter of Real Property Taxation under one of its main
chapters.

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We, therefore, disagree with the conclusion of the CTA En Banc that real property
taxes have always been treated by our laws separately from local taxes. The fact that a
separate chapter is devoted to the treatment of real property taxes, and a distinct
appeal procedure is provided therefor does not justify an inference that Section 7(a)
(3) of R.A. 9282 pertains only to local taxes other than real property taxes. Rather, the
term “local taxes” in the aforementioned provision should be considered in its general
and comprehensive sense, which embraces real property tax assessments, in line with
the precept Generalia verba sunt generaliter inteligencia—what is generally spoken
shall be generally understood. Between the restricted sense and the general meaning
of a word, the general must prevail unless it was clearly intended that the restricted
sense was to be used.

Based on the foregoing, the general meaning of “local taxes” should be adopted
in relation to Paragraph (a)(3) of Section 7 of R.A. 9282, which necessarily
includes real property taxes.

Second, as correctly pointed out by petitioner, when the legality or validity of the
assessment is in question, and not its reasonableness or correctness, appeals to the
LBAA, and subsequently to the CBAA, pursuant to Sections 226 and 229 of the LGC,
are not necessary.

Stated differently, in the event that the taxpayer questions the authority and power of
the assessor to impose the assessment, and of the treasurer to collect the real property
tax, resort to judicial action may prosper

Accordingly, if the only issue is the legality or validity of the assessment – a question
of law – direct recourse to the RTC is warranted.

In the case at bar, the claim of petitioner essentially questions the very authority and
power of the Municipal Assessor to impose the assessment and of the Municipal
Treasurer to collect the real property tax with respect to the machineries and
equipment located in the Navotas I and II power plants. Certainly, it does not pertain
to the correctness of the amounts assessed but attacks the validity of the assessment of
the taxes itself.

The well-established rule is that the allegations in the complaint and the character of
the relief sought determine the nature of an action. Here, it is not disputed that the
machineries and equipment are being used for power generation. The
primordial issue, however, is whether these machineries and equipment are
actually, directly and exclusively used by petitioner within the purview of Section
234 of the LGC, which exempts it from payment of real property taxes, to wit:

As can be gleaned from the foregoing, the issue is clearly legal given that it involves
an interpretation of the contract between the parties vis-à-vis the applicable laws, i.e.,
which entity actually, directly and exclusively uses the subject machineries and
equipment. The answer to such question would then determine whether petitioner is
indeed exempt from payment of real property taxes. Since the issue is a question of
law, the jurisdiction was correctly lodged with the RTC.

In fine, if a taxpayer is not satisfied with the decision of the CBAA or the RTC, as the
case may be, the taxpayer may file, within thirty (30) days from receipt of the assailed
decision, a petition for review with the CTA pursuant to Section 7(a) of R.A. 9282. In
cases where the question involves the amount of the tax or the correctness thereof, the
appeal will be pursuant to Section 7(a)(5) of R.A. 9282. When the appeal comes from
a judicial remedy which questions the authority of the local government to impose the
tax, Section 7(a)(3) of R.A. 9282 applies. Thereafter, such decision, ruling or

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resolution may be further reviewed by the CTA En Banc pursuant to Section 2, Rule 4

of the Revised Rules of the CTA

Thus, the CTA En Banc erred in dismissing the petition for review en banc, and
affirming the CTA Second Division’s position that the RTC has no jurisdiction over
the instant case for failure of petitioner to exhaust administrative remedies which
resulted in the finality of the assessment.

City of Lapu-Lapu vs. PEZA, GR No. 184203 dated November 26, 2014

Erroneous assessment - Excessiveness or Reasonable or Correctness – if there is

factual issue.
Outline Remedies
1. 30 days - Pay under a written protest within 30 days (Sec. 252) (Note: either
CASH or SURETY BOND, see Meralco v. City Assessor of Lucena City)
2. 60 days - Appeal by verified petition within the LBAA within 60 days from
the receipt of the decision of the LT (No period to decide). LBAA 120 days
to decide (Yes, MR to the decision of the LBAA see NPC v. Benquet, but
no fresh period rule, fresh period apply only to judicial)
3. 60 days - Notice of Appeal to the CBAA (No period to decide), 60 days
from the receipt of the decision or from the lapse of the decision.
4. 30 days - CTA en Banc appeal under Rule 43. MR dito lagi. (Take note
initial file sa CTA is always 30 days, if galling sa CTA division tapos sa en
Banc 15 days nalang)

Two situation that direct filing to the CTA en Banc na di dadaan sa

division:
a. Decision of the CBAA; and
b. Decision of the RTC in its appellate jurisdiction in local tax case.

5. 15 day - period to file petition for review under Rule 45 to SC.

Illegal assessment – purely legal.

Outline Remedies –
1. File injunction to RTC
2. 30 days to CTA division; MR CTA division
3. 15 days Appeal CTA en Banc
4. 15 days Petition for review SC

Other Scenario and Remedies?

1. My notice of delinquency na anu remedy? Complaint for injunction.

2. Kapag nabenta na? remedy is 267

Erroneous vs. Illegal Assessment

An erroneous assessment “presupposes that the taxpayer is subject to the tax but is
disputing the correctness of the amount assessed.” On the other hand, an assessment
is illegal if it was made without authority under the law.

How do we know if the assessment is erroneous?

An erroneous assessment “presupposes that the taxpayer is subject to the tax but is
disputing the correctness of the amount assessed.”  With an erroneous assessment,
the taxpayer claims that the local assessor erred in determining any of the items for
computing the real property tax, i.e., the value of the real property or the portion
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thereof subject to tax and the proper assessment levels.  In case of an erroneous
assessment, the taxpayer must exhaust the administrative remedies provided under
the Local Government Code before resorting to judicial action.

The taxpayer must first pay the real property tax under protest. (SECTION 252)

Should the taxpayer find the action on the protest unsatisfactory, the taxpayer may
appeal with the Local Board of Assessment Appeals within 60 days from receipt of
the decision (SECTION 226, LGC)

Payment under protest and appeal to the Local Board of Assessment Appeals are
“successive administrative remedies to a taxpayer who questions the correctness of
an assessment.” The Local Board Assessment Appeals shall not entertain an appeal
“without the action of the local assessor” on the protest.

If the taxpayer is still unsatisfied after appealing with the Local Board of Assessment
Appeals, the taxpayer may appeal with the Central Board of Assessment Appeals
within 30 days from receipt of the Local Board’s decision (SECTION 229, LGC)

Illegal Assessment
On the other hand, an assessment is illegal if it was made without authority under the
law. In case of an illegal assessment, the taxpayer may directly resort to judicial
action without paying under protest the assessed tax and filing an appeal with the
Local and Central Board of Assessment Appeals.

CE Casecnan Water and Energy Company, Inc. vs. The Province of Nueva
Ecija, GR No. 196278 dated June 17, 2015 (include Certiorari Jurisdiction of the
CTA)

The Court of Tax Appeals (CTA) has exclusive jurisdiction over a special civil action
for certiorari assailing an interlocutory order issued by the Regional Trial Court
(RTC) in a local tax case.

CE Casecnan and the National Irrigation Administration (NIA) entered into a build-
operate-transfer (BOT) contract known as the "Amended and Restated Casecnan
Project Agreement" (Casecnan Contract) relative to the construction and development
of the Casecnan Multi-Purpose Irrigation and Power Project (Casecnan Project) in
Nueva Vizcaya. The Casecnan Project is a combined irrigation and hydroelectric
power generation facility using the Pantabangan Dam in Nueva Ecija.

CE Casecnan and NIA executed a Supplemental Agreement amending Article II of

the Casecnan Contract which pertains to payment of taxes. Article 2.2 thereof states
that NIA must reimburse petitioner for real property taxes (RPT) provided the same
was paid upon NIA's directive and with the concurrence of the Department of
Finance.

NOTE:

Case Flow 1 = Assessment – LBAA – Notice of Appeal CBAA

Case Flow 2 = RTC (Injunction) --- CA (Petition for Certiorari Rule 65)

Q: Whether the CA has jurisdiction over petition for certiorari over local tax
cases?

It is the CTA which has the power to rule on a Petition for Certiorari assailing an

interlocutory order of the RTC relating to a local tax case.
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This expanded jurisdiction of the CTA includes its exclusive appellate jurisdiction to
review by appeal the decisions, orders or resolutions of the RTC in local tax cases
originally decided or resolved by the RTC in the exercise of its original or appellate
jurisdiction.

In the recent case of City of Manila v. Grecia-Cuerdo, the Court ruled that the CTA
likewise has the jurisdiction to issue writs of certiorari or to determine whether there
has been grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of the RTC in issuing an interlocutory order in cases falling within the CTA's
exclusive appellate jurisdiction, thus:

On the strength of the above constitutional provisions, it can be fairly

interpreted that the power of the CTA includes that of determining whether
or not there has been grave abuse of discretion amounting to lack or excess
of jurisdiction on the part of the RTC in issuing an interlocutory order in
cases falling within the exclusive appellate jurisdiction of the tax court. It,
thus, follows that the CTA, by constitutional mandate, is vested with jurisdiction
to issue writs of certiorari in these cases. (Citations omitted and emphasis
supplied)

Given these, it is settled that it is the CTA which has exclusive jurisdiction over
a special civil action for certiorari assailing an interlocutory order issued by the
RTC in a local tax case.

The RTC injunction case is a local tax case.

The Court finds, however, that in praying to restrain the collection of RPT, petitioner
also implicitly questions the propriety of the assessment of such RPT. This is because
in ruling as to whether to restrain the collection, the RTC must first necessarily rule on
the propriety of the assessment. In other words, in filing an action for injunction to
restrain collection, petitioner was in effect also challenging the validity of the RPT
assessment.

No doubt, the injunction case before the RTC is a local tax case. And as earlier
discussed, a certiorari petition questioning an interlocutory order issued in a local tax
case falls under the jurisdiction of the CTA. Thus, the CA correctly dismissed the
Petition for Certiorari before it for lack of jurisdiction.

4. Recent cases
a. NPC vs. Provincial Treasurer of Benguet, GR No. 209303 dated November 14,
2016: A claim of exemption is an erroneous assessment.

b. Capitol Wireless, Inc. vs. Provincial Treasurer of Batangas, GR No. 180110 dated
May 30, 2016: A claim of exemption is an erroneous assessment.

c. Philippine Ports Authority vs. Davao, GR No. 190324 dated June 6, 2018 LEONEN
A claim of exemption is an erroneous assessment.

5. RPT Delinquency

a. Secs. 254, 258, 260 and 267 of the LGC

What Courts has jurisdiction? RTC and then appeal to the CA not CTA

WHAT IS THE PROCEDURE? (Salva v. Magpile)

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1. Notice of Collection
2. Notice of delinquency
3. Posting and Publication
4. Personal Notification to delinquent taxpayer (Fatal if not complied)

Section 254. Notice of Delinquency in the Payment of the Real Property Tax. -

(a) When the real property tax or any other tax imposed under this Title becomes
delinquent, the provincial, city or municipal treasurer shall immediately cause a notice
of the delinquency to be posted at the main hall and in a publicly accessible and
conspicuous place in each barangay of the local government unit concerned. The notice
of delinquency shall also be published once a week for two (2) consecutive weeks, in a
newspaper of general circulation in the province, city, or municipality.

(b) Such notice shall specify the date upon which the tax became delinquent and shall
state that personal property may be distrained to effect payment. It shall likewise state
that any time before the distraint of personal property, payment of the tax with
surcharges, interests and penalties may be made in accordance with the next following
Section, and unless the tax, surcharges and penalties are paid before the expiration of
the year for which the tax is due except when the notice of assessment or special levy is
contested administratively or judicially pursuant to the provisions of Chapter 3, Title II,
Book II of this Code, the delinquent real property will be sold at public auction, and the
title to the property will be vested in the purchaser, subject, however, to the right of the
delinquent owner of the property or any person having legal interest therein to redeem
the property within one (1) year from the date of sale.

Section 258. Levy on Real Property. - After the expiration of the time required to pay
the basic real property tax or any other tax levied under this Title, real property subject
to such tax may be levied upon through the issuance of a warrant on or before, or
simultaneously with, the institution of the civil action for the collection of the
delinquent tax. The provincial or city treasurer, or a treasurer of a municipality within
the Metropolitan Manila Area, as the case may be, when issuing a warrant of levy shall
prepare a duly authenticated certificate showing the name of the delinquent owner of
the property or person having legal interest therein, the description of the property, the
amount of the tax due and the interest thereon. The warrant shall operate with the force
of a legal execution throughout the province, city or a municipality, within the
Metropolitan Manila Area. The warrant shall be mailed to or served upon the
delinquent owner of the real property or person having legal interest therein, or in case
he is out of the country or cannot be located, the administrator or occupant of the
property. At the same time, written notice of the levy with the attached warrant shall be
mailed to or served upon the assessor and the Registrar of Deeds of the province, city
or municipality within the Metropolitan Manila Area where the property is located,
who shall annotate the levy on the tax declaration and certificate of title of the
property, respectively.

The levying officer shall submit a report on the levy to the sanggunian concerned
within ten (10) days after receipt of the warrant by the owner of the property or person
having legal interest therein.

Section 260. Advertisement and Sale. - Within thirty (30) days after service of the
warrant of levy, the local treasurer shall proceed to publicly advertise for sale or
auction the property or a usable portion thereof as may be necessary to satisfy the tax
delinquency and expenses of sale. The advertisement shall be effected by posting a
notice at the main entrance of the provincial, city or municipal building, and in a
publicly accessible and conspicuous place in the barangay where the real property is
located, and by publication once a week for two (2) weeks in a newspaper of general

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circulation in the province, city or municipality where the property is located. The
advertisement shall specify the amount of the delinquent tax, the interest due thereon
and expenses of sale, the date and place of sale, the name of the owner of the real
property or person having legal interest therein, and a description of the property to be
sold. At any time before the date fixed for the sale, the owner of the real property or
person having legal interest therein may stay the proceedings by paying the delinquent
tax, the interest due thereon and the expenses of sale. The sale shall be held either at
the main entrance of the provincial, city or municipal building, or on the property to be
sold, or at any other place as specified in the notice of the sale.

Within thirty (30) days after the sale, the local treasurer or his deputy shall make a
report of the sale to the sanggunian concerned, and which shall form part of his
records. The local treasurer shall likewise prepare and deliver to the purchaser a
certificate of sale which shall contain the name of the purchaser, a description of the
property sold, the amount of the delinquent tax, the interest due thereon, the expenses
of sale and a brief description of the proceedings: Provided, however, That proceeds of
the sale in excess of the delinquent tax, the interest due thereon, and the expenses of
sale shall be remitted to the owner of the real property or person having legal interest
therein.

The local treasurer may, by ordinance duly approved, advance an amount sufficient to
defray the costs of collection thru the remedies provided for in this Title, including the
expenses of advertisement and sale.

Section 267. Action Assailing Validity of Tax Sale. - No court shall entertain any action
assailing the validity or any sale at public auction of real property or rights therein
under this Title until the taxpayer shall have deposited with the court the amount for
which the real property was sold, together with interest of two percent (2%) per month
from the date of sale to the time of the institution of the action. The amount so
deposited shall be paid to the purchaser at the auction sale if the deed is declared
invalid but it shall be returned to the depositor if the action fails.

Neither shall any court declare a sale at public auction invalid by reason or
irregularities or informalities in the proceedings unless the substantive rights of the
delinquent owner of the real property or the person having legal interest therein
have been impaired.

What is the Jurisdictional requirement? IN AN ACTION ASSAILING

THE VALIDITY OF TAX SALE

1. Deposit requirement – the Purchase Price and Interest of 2% per month

from the date of sale to the time of the institution of the action.
2. Exceptions: (Solco)
a. No tax delinquency, but it must have a competent evidence – in
this case the intended purpose is not justified. (Beaumont
Holdings vs. Reyes, GR No. 203706 dated August 7, 2017)
b. If the plaintiff is the government or any agency - because it
presumed to be solvent. (Alvarado vs. Ayala Land, Inc., GR No.
208426 dated September 20, 2017)

Who can file?

Not only the owner, and also the person having legal interest over the property.

b. Salva vs. Magpile, GR No. 220440 dated November 8, 2017

Ildefonso P. Magpile is an owner of a parcel of land. Transfer Certificate of Title (TCT)

No. 215195,4 was registered on February 19, 1968 and bears "2118 Apolinario, Makati,
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Rizal" as his postal address.  In the Sworn Statement, he wrote "1772 Evangelista,
Bangkal, Makati, M.M." as his postal address.

Magpile failed to pay the real property taxes due on the subject property from 1998 up
to 2006.  As a result, the City Treasurer of Makati sent him billing statements, notice of
realty tax delinquency, and warrants of levy at the address "2118 Apolinario St.,
Bangkal, Makati City." On May 24, 2006, the subject property was sold at a public
auction for P200,000.00 to petitioner Katherine Rose Salva (Salva) as the highest bidder.

Almost two years after, on March 5, 2008, Magpile, through his daughter, Ma. Socorro
Magpile-Del Rosario as attorney-in-fact, filed a petition to declare as null and void the
auction sale and to cancel the certificate of sale issued in favor of Salva

RTC denied the petition but the CA reversed.

The petition lacks merit.

First, on procedural matters. Jurisdiction is conferred by law.

Whether the CA has jurisdiction to determine the alleged denial of due process in
the levying of his property? YES

The CA correctly asserted its jurisdiction in this case. Here, the dispute arose from
the alleged non-compliance of the respondents with the pertinent provisions of the
LGC on tax delinquency sale. A plain reading of Magpile's petition before the RTC
would show that he did not assail the legality or validity and reasonableness or
correctness of the real property tax assessment and collection. In fact, he categorically
and repeatedly admits in his pleadings that he failed to pay the real property tax from
1998 up to 2006. As the CA ruled, what he is questioning is the alleged denial of due
process in the levying of his property. Basic is the rule that the allegations in the
complaint and the character of the relief sought determine the nature of an action. In
order for the trial court to resolve Magpile's petition, the issues regarding the
legality/validity or reasonableness/correctness of the real property tax assessment and
collection need not be dealt with. At bar, the issue of the validity and legality of the tax
sale is not essentially related to the issue of the demandability of the real property tax.
Therefore, the non-dismissal of Magpile's appeal by the CA was in order.

In determining whether Salva has fulfilled her burden of proving compliance with the
requirements for a valid tax delinquency sale reference should be made on Sections
254,258 and 260 of the LGC.

Notice of delinquency must be:

1) Posted
2) Published
3) Sent to the Registered (Auction Sale is in personam)

Section 254 mandates that the notice of delinquency in the payment of the real property
be: (1) posted at the main entrance of the provincial capitol, or city or municipal hall
and in a publicly accessible and conspicuous place in each barangay of the local
government unit concerned, and (2) published once a week for two (2) consecutive
weeks, in a newspaper of general circulation in the province, city, or municipality.
In Talusan v. Tayag, the Court added that the notice of delinquency should be sent to
the registered owner of the property subject of a possible tax sale.

We ratiocinated:

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In this regard, we note that unlike land registration proceedings which are in rem,
cases involving an auction sale of land for the collection of delinquent taxes are in
personam. Thus, notice by publication, though sufficient in proceedings in rem,
does not as a rule satisfy the requirement of proceedings in personam. As such,
mere publication of the notice of delinquency would not suffice, considering that
the procedure in tax sales is in personam. It was, therefore, still incumbent upon the
city treasurer to send the notice of tax delinquency directly to the taxpayer in order
to protect the interests of the latter.

Levy - warrant of levy

1) Mailed or serve to the owner
2) Written notice of levy serve to assessor and Register of deeds

Under Section 258, the warrant of levy must be mailed to or served upon the delinquent
owner of the real property or person having legal interest therein, or in case he is out of
the country or cannot be located, to the administrator or occupant of the property. At
the same time, written notice of the levy with the attached warrant shall be mailed to or
served upon the assessor and the Register of Deeds of the province, city or a
municipality where the property is located, who shall annotate the levy on the tax
declaration and certificate of title of the property, respectively. The levying officer shall
submit a report on the levy to the sanggunian concerned within ten (10) days after
receipt of the warrant by the owner of the property or person having legal interest
therein.

Public Advertisement and Sale

1) Posting
2) Publication

Lastly, Section 260 requires that within thirty (30) days after service of the warrant of
levy, the local treasurer shall proceed to publicly advertise for sale or auction the
property or a usable portion thereof as may be necessary to satisfy the tax delinquency
and expenses of sale. The advertisement shall be effected by: (1) posting a notice at the
main entrance of the provincial, city or municipal building, and in a publicly accessible
and conspicuous place in the barangay where the real property is located, and (2)
publication once a week for two (2) weeks in a newspaper of general circulation in the
province, city or municipality where the property is located.

In this case, the notice of tax delinquency was not proven to have been posted and
published in accordance with the requirements of the LGC. Specifically, Salva failed to
support her claim that the City Treasurer, her deputy or any authorized officer actually
caused the posting of a notice of delinquency in the Makati City Hall and in a publicly
accessible and conspicuous place in Barangay Bangkal where the property is purported
to be located. Likewise, she failed to substantiate the fact that the notice was published.
The Affidavit of Publication of the newspaper's publisher as well as the issues of the
newspaper where the notice was published were not presented as proof.

The notice of delinquency, which was allegedly sent via registered mail, was
improperly addressed. We agree with Magpile's contention that the billing statements,
notice of realty tax delinquency, and warrants of levy were all sent by the City
Treasurer to "2118 Apolinario St., Bangkal, Makati City," which is an address other
than the one indicated in his tax records. Notably, TCT No. 215195 showed Magpile's
address as "2118 Apolinario, Makati, Rizal," while the Sworn Statement stated his
address as "1772 Evangelista, Bangkal, Makati, M.M." In the absence of a registry
return card or an affidavit of service, it cannot be definitely ascertained that the
documents were in fact received by Magpile or any of his authorized representative.

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Further, Salva did not adduce evidence to show that Magpile received the warrant of
levy. That the delinquent taxpayer must be actually notified of such warrant is implied
from Section 258, which explicitly directs the levying officer to "submit a report on the
levy to the sanggunian concerned within ten (10) days after receipt of the warrant by
the owner of the property or person having legal interest therein." Contrary to the
opinion of the RTC, "[it] is essential that there be an actual notice to the delinquent
taxpayer, otherwise, the sale. is null and void although preceded by proper
advertisement or publication. This proceeds from the principle of administrative
proceedings for the sale of private lands for non-payment of taxes being in personam."

The public auction of land to satisfy delinquency in the payment of real estate tax
derogates or impinges on property rights and due process. Thus, the steps prescribed by
law are mandatory and must be strictly followed; if not, the sale of the real property is
invalid and does not make its purchaser the new owner. Strict adherence to the statutes
governing tax sales is imperative not only for the protection of the taxpayers, but also to
allay any possible suspicion of collusion between the buyer and the public officials
called upon to enforce the laws.

c. Solco vs. Megaworld Corporation, GR No. 213669 dated March 5, 2018

d. Beaumont Holdings vs. Reyes, GR No. 203706 dated August 7, 2017
e. Alvarado vs. Ayala Land, Inc., GR No. 208426 dated September 20, 2017
LEONEN

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