Tax2 - Real Property Tax Reviewer

RTDG - ausl real property tax reviewer

REAL PROPERTY TAXATION Q: What are real property taxes? These are direct taxes imposed on the privilege to use real property such as land, building, machinery and other improvements unless specifically exempted. Q: What are considered real properties? Article 415 of the Civil Code, the following are immovable property. Q: Define machinery. 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 selfpropelled, 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. (Sec. 199 (o), LGC) Q: What types of machinery are subject and not subject to RPT? (1) Machinery that is permanently attached to land and buildings is subject to the real property tax, even though this is actually, directly, and exclusively used for religious, charitable or educational purposes. (2) Machinery that is not permanently attached to real estate is: (i) subject to RPT if it is an essential and principal element of an industry, work or activity without which such industry, work or activity, cannot function; (ii) not subject to RPT if it is not an essential and principal element of an industry, work or activity. (3) Machinery of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes is not subject to real property tax. Q: Define improvement. Improvement is a valuable addition to the property or an amelioration in its condition amounting to more than a repair or replacement of parts. (Sec. 199 (m), LGC) Q: What are the requisites for taxability of an improvement? (1) It must enhance the value of the property (2) It must be separately assessable (3) It can be treated independently from the main property Q: Are equipment/machineries in cement or wooden platform and which were never used as industrial equipments to produce finished products for sale nor to repair machineries offered to the general public for business or commercial purposes considered as realty subject to RPT?

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NO. In Mindanao Bus Co. v. City Assessor & Treasurer [Sept. 29, 1962], the Supreme Court held that for equipment to be real property, they must be essential and principal elements. In addition, the machinery should be essential to carry on business in a building or piece of land and this is not the case here since it was proven that the equipment was not essential because it it used only for repairs which could actually be done elsewhere. Q: Are the gas station equipment and machinery (tanks, pumps, etc) permanently affixed by Caltex to its gas station and pavement, albeit on leased land, considered real property subject to RPT even if lessor does not become the owner of the said assets? YES. Because they are essential to the business of taxpayer. In Caltex v. CBAA [May 31, 1982], the Supreme Court ruled that the said equipment and machinery, as appurtenances to the gas station building or shed owned by Caltex and which fixtures are necessary to the operation of the gas station for without them the gas station would be useless and which have been attached or affixed permanently to the gas station site are taxable improvements and machinery. Q: MERALCO installed two oil storage tanks on a lot in Batangas which it leased from Caltex. They are used for storing fuel oil for MERALCO’s power plants. Are the oil storage tanks real property for purposes of RPT? YES. In Meralco v. CBAA [May 31, 1982], the Supreme Court held that while the two storage tanks are not embedded in the land, they are to be considered improvements on the land enhancing its utility and rendering it useful to the oil industry. The two tanks have been installed with some degree of permanence as receptacles for the considerable quantities oil needed by MERALCO for its operations. Q: Enumerate the fundamental principles that shall guide real property taxation. (1) Real property shall be appraised at its current and fair market value. (2) Real property shall be classified for assessment purposes on the basis of its actual use. (3) Real property shall be assessed on the basis of a uniform classification within each LGU. (4) The appraisal, assessment, levy and collection of real property tax shall not be let to any private person. (5) The appraisal and assessment of real property shall be equitable. (Sec. 198, LGC) Q: Do all types of LGUs have the power to impose real property taxes? NO. Only provinces and cities as well as municipalities within Metro Manila may impose RPTs. (Sec. 232, LGC) Municipalities outside Metro Manila and barangays cannot impose RPT.

RTDG - ausl real property tax reviewer

Q: What are the rates of levy for purposes of RPT? A province or city or municipality within Metro Manila shall fix a uniform rate of basic property tax applicable to their respective localities: (1) Province, at the rate not exceeding 1% of the assessed value (2) City or Municipality within Metro Manila, at the rate not exceeding 2% of the assessed value (Sec. 233, LGC) Q: What are the special levies under the LGC? (1) Additional Levy for the Special Education Fund (SEF) - 1% on the assessed value of real property in addition to the basic RPT. (Sec. 235, LGC) (2) Special Levy on Idle Lands - idle lands shall be taxed at a rate not exceeding 5% of the assessed value in addition to the basic RPT. (Sec. 236, LGC) (3) Special Levy by LGUs for lands benefited by public works (special assessment) - the special levy shall not exceed 60% of the actual cost of such project and improvements, including the costs of acquiring land and other real property. (Sec. 240, LGC) Q: When may idle lands be exempted from tax? (1) force majeure (2) civil disturbance (3) natural calamity (4) any cause which physically or legally prevents the owner of the property or person having legal interest therein from improving, utilising, or cultivating the same (Sec. 238, LGC) Q: What are the conditions for the validity of a tax ordinance imposing special levy for public works? (1) the ordinance shall describe the nature, extent and location of the project, state the estimated cost, and specify the metes and bounds by monuments and lines (Sec. 241, LGC) (2) it must state the number of annual installments, not less than 5 yrs nor more than 10 yrs (Sec. 241, LGC) (3) notice to the owners and public hearing (Sec. 242, LGC) Q: What are the properties exempt from RPT? (a) Real property owned by the Republic or any of its political subdivisions (except when beneficial use has been granted to a taxable person) (b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or religious cemeteries and all lands, buildings or improvements actually, directly, and exclusively used for religious, charitable or educational purposes (c) All machineries and equipment actually, directly and exclusively used by local water districts and GOCCs engaged in supply and distribution of water and/or generation and transmission of electric power (d) All real property owned by duly registered cooperatives (e) Machinery and equipment used for pollution control and environmental protection (includes infrastructure). (Sec. 234, LGC)

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Sec. 234(a), LGC Q: Is the Metro Manila International Airport Authority (MIAA) a GOCC which will now be considered liable for RPT under the LGC? NO. In Metro Manila International Airport Authority v. CA [July 20, 2006], the Supreme Court, in resolving the issue on whether the lands and buildings owned by the MIAA were subject to real property tax, ruled in the negative. The Supreme Court opined that since MIAA is not a GOCC but instead as government instrumentality vested with corporate powers or a government corporate entity. As such, it is exempt from RPT. However, in Mactan Cebu International Airport Authority v. Marcos [Sept. 11, 1996], the Supreme Court ruled that MCIAA is a GOCC and since the last paragraph of Section 234 of the LGC unequivocally withdrew the exemptions from payment of RPT granted to natural or juridical including GOCCs, MCIAA is now liable for RPT. Q: Is the Philippine Fisheries Development Authority (PFDA) a GOCC and, hence, now liable for RPT? NO. In Philippine Fisheries Development Authority v. CA [July 31, 2007], the Supreme Court ruled that the PFDA is not a GOCC but an instrumentality of the national government which is generally exempt from payment of RPT. However, said exemption does not apply to the portions of the properties which the PFDA leased to private entities. Q: Is the GSIS liable for RPT? NO. As held in GSIS v. City Treasurer of the City of Manila [December 23, 2009], GSIS is an instrumentality of the government and, as such, is not a taxable juridical person for purposes of RPT. Q: Is the Light Rail Transit Authority (LRTA) a GOCC, and, as such, liable for RPT? YES. Although not expressly stating that LRTA is a GOCC, the Supreme Court in Light Rail Transit Authority v. CBAA [Oct. 12, 2000], stated that the LRTA is clothed with corporate status and corporate powers in the furtherance of its proprietary objectives. It operates much like any private corporation engaged in the mass transport industry. AS such, it is liable for RPT. Sec. 234(b), LGC Q: The Philippine Lung Center leased portions of its real property out for commercial purposes. Are these exempt from RPT? NO. In Lung Center of the Philippines v. Quezon City [433 SCRA 119], the Supreme Court held that the hospital was not exempt from real property tax on the portions of its property not actually, directly, and exclusively used for charitable purposes. Thus, those leased out for commercial purposes are subject to RPT. Those used by the hospital even if used for paying patients remain exempt from RPT. Q: ABC Association is a non-stock, non-profit organization owned by XYZ Hospital in Cebu City. XYZ likewise owns the XYZ Medical Arts Center. The City

RTDG - ausl real property tax reviewer

Assessor assessed the XYZ Medical Arts Center Building with the assessment level of 35% for commercial buildings (instead of the 10% special assessment imposed on XYZ hospital and its buildings). Was the medical arts center built to house its doctors a separate commercial building? NO. The Supreme Court in City Assessor of Cebu City v. Association of Benevola De Cebu Inc. [June 8, 2007], classified the medical arts center building as “special” for the following reasons: (1) the medical arts center was an integral part of the hospital; (2) the medical arts center facility was incidental to and reasonably necessary for the operations of the hospital; and (3) charging rentals for the offices used by its accredited physicians was a practical necessity and could not be equated to a commercial venture. Sec. 234(c), LGC Q: What are the requisites to claim exemption from RPT for machineries and equipment used by LWDs and GOCCs? (1) the machineries and equipment are actually, directly, and exclusively used by the LWDs and GOCCs (2) the LWDs and GOCCs claiming exemption must be engaged in the supply and distribution of water and/or generation and transmission of electric power Q: FELS entered into a lease contract with NAPOCOR over two engine power barges at Balayan Bay Batangas. The lease contract stipulated that NAPOCOR shall be responsible for all taxes (including RPT on the barges), fees and charges that FELS and its employees and construction permit and environmental fees. FELS was assessed for RPT and LBAA upheld the assessment stating that while the barges may be classified as personal property, they are considered real property for RPT purposes because they are installed at a specific location with a character if permanency. Are the power barges subject to RPT? YES. The Supreme Court in FELS Energy v. Province of Batangas [Feb. 16, 2007], held that the power barges are subject to RPT on the following reasons: (1) Article 415(9) of the CC provides that “docks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, lake or coast. Barges fall under this provision. (2) FELS cannot claim exemption given that the requirement is that to be exempt the machineries and equipment must be actually, directly and exclusively used by GOCCs engaged in the generation of power. Since the agreement between FELS and NAPOCOR is that FELS will own and operate the barges and not NAPOCOR. Q: How is real property appraised? All real property, whether taxable or exempt, shall be appraised at the current and FMV prevailing in the locality where the property is situated. (Sec. 201, LGC)

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Q: What is the purpose of a tax declaration? A tax declaration only enables the assessor to identify the property for purposes of determining the assessment levels. It does not bind the assessor when he makes the assessment. (Sec 202-204, LGC) Q: Are tax declarations conclusive evidence of ownership? As a rule, tax declarations are not conclusive evidence of ownership. However, tax receipts and tax declarations become strong evidence of ownership acquired by prescription when accompanied by proof of actual possession of the property. Q: Who prepares the schedule of FMVs? The provincial, city and the municipal assessors of the municipalities within Metro Manila prepares the schedule of the FMV for the different classes of real property situated in their respective LGUs for enactment by ordinance of the Sanggunian concerned. (Sec. 212, LGC) Q: What are the classes of real property for assessment purposes? (1) Residential (2) Agricultural (3) Commercial (4) Industrial (5) Mineral (6) Timberland or Special (Sec. 215, LGC) Q: What are the special classes of real property under the LGC? All lands, building, and other improvements actually, directly and exclusively: (1) used for hospitals, cultural or scientific purposes (2) owned and used by local water districts (3) owned and used by GOCCs rendering essential public services in (i) supply and distribution of water; (ii) generation and transmission of electric power. (Sec. 216, LGC) Q: What is the basis for assessment? Real property shall be classified, valued, and assessed on the basis of its actual use regardless of where located, whoever owns it, and whoever uses it. (Sec. 217, LGC) Q: Define assessment. Assessment is the act or process of determining the value of a property or proportion thereof subject to tax, including the discovery, listing, classification, and appraisal of properties. Q: Define assessment level. It is the percentage applied to the FMV of the real property to determine the taxable value of the property. Q: Define assessed value. It is the FMV of the real property multiplied by the assessment level.

RTDG - ausl real property tax reviewer

Q: What is the procedure in computing real property tax? Market Value x Assessment Level (%) = Assessed Value Assessed Value x Tax Rate (%) = Real Property Tax Payable Q: What is the rule on assessment of RPT? General Rule: The assessment must be made within 5 years from the date they become due. Exception: If there is fraud or intent to evade taxes, assessment may be made within 10 years from discovery of fraud or intent to evade. (Sec. 270, LGC)

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In Testate Estate of Concordia Lim v. City of Manila [Feb. 21, 1990], the Supreme Court held that unpaid real estate taxes attaches to the property and is chargeable against the taxable person who had actual or beneficial use and possession of it, regardless of whether or not he is the owner. Q: When is there levy on real property? After the expiration of the time required to pay the tax levied, the real property subject to tax may be levied upon. (Sec. 258, LGC) The remedies of distraint or levy may be repeated if necessary until the full amount due including all expenses is collected. (Sec. 265, LGC) PROCEDURE FOR LEVY ON REAL PROPERTY

Q: What is the rule on collection of RPT? Collection of RPT must be made within 5 years from assessment. Q: In what instances is the running of the prescriptive period be suspended? (1) Treasurer is legally prevented from assessing/ collecting (2) Taxpayer requests for reinvestigation and executes waiver (3) Taxpayer is out of the country or cannot be located Q: In what instances can there be a condonation or reduction of RPT? (1) general failure of crops (2) substantial decrease in the price of agricultural or agribased products (3) calamity (Sec. 276, LGC) condonation is done by the Sanggunian concerned by ordinance and upon recommendation of the Local Disaster Coordinating Council (4) when public interest so requires (Sec. 277, LGC) only the President may exercise this power REMEDIES AVAILABLE TO THE LGU Q: What are the remedies available to the LGU for the collection of RPT? (Sec. 256, LGC) (1) Administrative action thru levy of real property (i) Distraint of personal property (ii) Lien on property subject to tax (iii) Levy on real property tax (2) Judicial action Note: The remedies are concurrent and simultaneous Q: What is the Local Governments Lien? The basic RPT constitutes as a lien on the property subject to tax, superior to all liens, charges or encumbrances in favor of any person, irrespective of the owner or possessor thereof, enforceable by administrative or judicial action and may only be extinguished by payment of the tax and related interests and expenses. (Sec. 257, LGC)

(1) Tax constitutes a lien on the property superior to all liens and may only be extinguished upon payment of the tax and charges (Sec. 257, LGC) (2) Time for payment of real property taxes expires (Sec. 258, LGC) (3) Warrant of Levy issued by the Local Treasurer (LT), which has the force of legal execution in the LGU concerned (Sec. 258, LGC) (4) Warrant is mailed to or served upon the delinquent owner (Sec. 258, LGC) (5) Written notice of the levy and the warrant is mailed/ served upon the assessor and the Registrar of Deeds of the LGU (sec. 258, LGC) (6) 30 days from service of warrant, LT shall advertise sale of the property by: (i) posting notice at the main entrance of LGU hall/ building and in a conspicuous place in the barangay where the property is located and (ii) by publication once a week for 2 weeks (RPT) (Sec. 260, LGC) Note: In cases of levy for unpaid local taxes publication once a week for 3 weeks (7) Before the date of sale, the owner may stay the proceedings by paying the delinquent tax, interest and the expenses of sale (8) Sale is held: (i) at the main entrance of the LGU building, or (ii) on the property to be sold, or (iii) at any other place specified in the notice Note: The next steps in the procedure will vary depending on whether there is a bidder or not. (i) for local taxes, the LGU may purchase levied property for 2 reasons (1) there is no bidder or (2) the highest bid is insufficient to cover the taxes and other charges. (ii) for RPT, the LGU may purchase for only 1 reason - there is no bidder. Q: What is the redemption period for tax delinquent properties sold at public auction?

RTDG - ausl real property tax reviewer

Under the LGC, the redemption period is within 1 year from the date of sale. (Sec. 261, LGC) Q: Civil action for collection of real property tax. The civil action for collection of real property tax shall be filed by the local treasurer in any court of competent jurisdiction within 5 or 10 years wherein real property taxes may be collected. (Sec. 266, LGC)

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YES. Sec. 252, LGC provides no protest shall be entertained unless the taxpayer first pays the tax. Q: When is payment under protest not required? Prior payment under protest is applicable only if the issue is anchored on the correctness, reasonableness, or excessiveness of assessment, hence, considered a question of fact.

REMEDIES AVAILABLE TO THE TAXPAYERS If the taxpayer is questioning the validity of the tax ordinance, the taxpayer may either question the legality of a tax ordinance before the DOJ Secretary under Sec. 187 of the LGC or question the constitutionality of the ordinance before the Regular Courts. In this case, payment under protest is not required. If the taxpayer is questioning the correctness, reasonableness or excessiveness of the assessment, the taxpayer will resort to administrative remedies. In this case, payment under protest is required. Q: Who may contest the assessment of real property? In order for a taxpayer to have legal standing to contest an assessment to the LBAA, he must be a person having legal interest in the property. (Sec. 226, LGC) PROCESS IN CONTESTING A REAL PROPERTY TAX ASSESSMENT (Sec. 226 & 229, LGC) (1) Pay the tax under protest and annotation of “paid under protest” in receipt (2) File written protest with local treasurer within 30 days from payment of the tax (3) Treasurer to decide within 60 days from receipt of the protest (4) From treasurer’s decision or inaction, appeal to the LBAA within 60 days (5) LBAA to decide within 120 days (6) Appeal LBAA decision to CBAA within 30 days from receipt of adverse decision (7) CBAA appealable to CTA en banc within 30 days from receipt of the adverse decision of the CBAA (8) Appeal to SC within 15 days from receipt of adverse decision of CTA Note: In (4), if the treasurer’s decision is in favor of the taxpayer, he may now apply for a tax refund or tax credit. Q: What is the effect of an appeal on assessment? An appeal on assessments of real property 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. (Sec. 231, LGC) PAYMENT UNDER PROTEST (Sec. 252, LGC) Q: Is payment a pre-requisite to protest an assessment for RPT?

Prior payment under protest is not required when the taxpayer is questioning the very authority and power of the assessor to impose the assessment and of the treasurer to collect the tax as opposed to questioning the increase/decrease in the tax to be paid. Q: Can the taxpayer file a case directly to the RTC if it claims that it was questioning the authority of the treasurer to assess and not only the amount of the assessment? NO. In Olivares v. Joey Marquez [Sept. 22, 2004], it was found that the taxpayer raised issues on prescription, double taxation, and tax exemption. In such case, the correctness of the assessment must be dealt with and the treasurer has initial jurisdiction and his decision is appealable to the LBAA. Payment under protest is required. Q: The Province of Quezon assessed Mirant for unpaid real property taxes. NAPOCOR, which entered a BOT with Mirant, protested the assessment before the LBAA, claiming the entitlement to tax exemption under Sec. 234 of the LGC. The RPT assessed were not paid prior to the protest. LBAA dismissed NAPOCOR’s petition for failure to make a payment under protest. Is NAPOCOR required to make a payment under protest? YES. By claiming an exemption from realty taxation, NAPOCOR is simply raising the question of the correctness of the assessment. A such RPT must be paid prior to the making of the protest. On the other hand, if the taxpayer is questioning the authority of the local assessor to assess RPT, it is not necessary to pay the RPT prior to the protest. A claim for tax exemption, whether full or partial, does not question the authority of the local assessor to assess RPT as held in NAPOCOR v. Province of Quezon [January 25, 2010]. REFUND OR CREDIT OF RPT (Sec. 253, LGC) Q: What is the rule on refunds of RPT? The taxpayer must file the written claim within 2 years from the date of payment of tax or from the date when the taxpayer is entitled to reduction or adjustment. The provincial treasurer has 60 days to decide the claim for tax refund or credit. Q: What is the remedy available if the claim for tax refund or credit is denied? Follow steps 4 to 8 in the procedure in contesting a RPT assessment.