FINALS: REAL PROPERTY TAX

FUNDAMENTAL PRINCIPLES

FUNDAMENTAL PRINCIPLES (CAUNE)
● Some of these fundamental principles were already discussed previously but others are particular to the topic of RPT, including the first principle.

  1. CURRENT FMV
    a) Real property shall be appraised at its current and fair market value;
  2. ACTUAL USE AS CLASS
    -PREDOMINANT
    b) Real property shall be classified for assessment purposes on the basis of its actual use; ○ Actual use could be residential, commercial, industrial, agricultural, mixed, etc. That’s what it means, and that’s why you have varied classifications based on actual use.
  3. UNIFORM
    c) Real property shall be assessed on the basis of a uniform classification within each local government unit;
  4. NOT LET TO PRIVATE PERSON (AALC)
    a. APPRAISAL
    b. ASSESSMENT
    c. LEVY
    d. COLLECTION
    d) The appraisal, assessment, levy and collection of real property tax shall not be let to any private person; and
  5. EQUITABLE
    e) The appraisal and assessment of real property shall be equitable.

"FMV"
MEANING
The term “fair market value” mentioned above refers to “the price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy.” Sec. 199(l), LGC

"ACTUAL USE = PREDOMINANT USE"
● The term "actual use" refers to the purpose for which the property is principally or predominantly utilized by the person in possession thereof. Sec. 199(b) , LGC ○ Take note of the bolded words.

VIOLATIONS

  1. NOT UNIFORM
    a. MEMORIAL PARK TAXED DIFF FROM OTHER MEMORIAL PARKS
    Sir handled a case for a memorial park in Bacolod, where his client’s memorial park was assessed much higher than the other memorial parks in the area. In that case, Sir assailed the general revision of the property values in Bacolod, because they deemed that there was a violation of uniform classification. He prevailed. He questioned the ordinance before the SOJ, had it struck down as void
  2. NOT LET TO PRIVATE PERS
    a. RELIANCE ON DOAS
    There is this case of Quezon City, where the assessor based his assessment of the property, as well as the valuation, on the selling price fixed by the parties on the deed of absolute sale. The SC said the assessor could not do that, and he was supposed to come up with his own independent appraisal and assessment of the value of the property. He could not just rely on the consideration agreed upon by the parties in the deed of sale, otherwise, doing so violates the principle that the appraisal assessment of real property taxed should not be left to any private person. That’s the landmark case here—that of the Quezon City government.
  3. INEQUITABLE
    a. RENTALS < RP TAX
    See e.g., Reyes v. Almanzor, where the Supreme Court took into account the rental restrictions that
    hampered the ability of real property owners to negotiate with, and demand from, tenants fair rental.
    Thus, the Supreme Court said that the market value must be determined using the “income approach
    method” as this is the method that is more realistic, equitable and constitutional. Otherwise, said the
    Court, the resulting yearly real estate taxes would admittedly exceed the sum total of the annual
    rentals paid or payable by the dweller tenants under the Rent Control Law (Pres. Decree No. 20).
    Consequently, the Supreme Court nullified the assessments arrived at through the “comparable sales
    approach” for being excessive, inequitable, confiscatory and unconstitutional. 196 SCRA 322, 328
    (1991)

DECLARATION OF REAL PROPERTY

SWORN STATEMENT OF:

  1. CURRENT FMV
  2. DETAILED-DESC
    a. INCLUDES: FLOOR AREA, LAND AREA, ACTUAL USE, LOCATION
    All persons owning or administering real property, including the improvements therein, must prepare and file with the provincial, city or municipal assessor of the LGU where their real property is located a sworn statement declaring the current and fair market value of the property.

Such declaration must contain a description of the property sufficient in detail to enable the assessor or his deputy to identify the same for assessment purposes. Sec. 202, LGC


All persons owning or administering real property → This can be a trustee, a fiduciary, an executor, or an administrator. It should have, for example, the floor area, land area, actual use, location (barangay), etc

ONCE EVERY
3 YRS
JAN 1-JUNE 30
Such sworn declaration is filed with the local assessor concerned once every three (3) years during the period from January 1 to June 30. Ibid. ○ In relation to this, sometimes the munisipyo issues a new tax declaration reflecting the current market value of a given property. But this role can sometimes be neglected.

OWNERS & ADMINS

DECLARATION OF SALE, PURCHASE AND IMPROVEMENT

ACQUIRED RP/IMPROVEMENT
SWORN STATEMENT -> LOCAL ASSESSOR

  1. TRUE VALUE
    ● Any person who acquires at any time real property or makes any improvement thereon must prepare and file with the local assessor of the province, city or municipality where the real property is located a sworn statement declaring the true value of the said property. Sec. 203, LGC

60D-NOTARIZATION OF DEED
● Such sworn statement must be filed within 60 days from the acquisition of such property or from completion or occupancy of the improvement, whichever comes earlier. Ibid.


● The 60-day period commences on the date of execution (notarization) of the deed of conveyance. Art. 294, IRR

SAMPLE IMPROVEMENTS

  1. ANOTHER FLOOR
  2. ANNEX

CLAIM FOR EXEMPTION

EXEMPTION

  1. 30D-DECLARATION
  2. DOC EVID
    Any person who shall claim exemption from real property tax under the LGC 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, articles of incorporation, by-laws, contracts, affidavits, certifications and mortgage deeds, and similar documents. Sec. 206, LGC

LAPSE -> INCLUDE IN ASSESSMENT ROLL
PROVE EXEMPT -> DROPPED
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. Ibid.

MEANING OF REAL PROPERTY

IMMOVABLES
● Land, buildings, and improvements thereon and immovables by destination, including machineries and equipment. ○ The classic definition of real property.

MOVABLES DEEMED IMMOVABLE

ESSENTIAL TO BUSINESS

  1. REGARDLESS OF:
    a. ATTACHED OR NOT
    b. PERM/TEMP
  2. ADE TO BUSINESS
  3. DESIGNED/NECESSARY
    Section 199(o) of the LGC also considers as real property “machines, equipment, mechanical contrivances, instruments, appliances or apparatus which may nor may not be attached, permanently or temporarily to the real property” provided they 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 the taxpayer’s business.

PERMANENCE
OR
● See Manila Electric Company v. Central Board of Assessment Appeals, 114 SCRA 273 (1982), involving oil storage tanks placed on leased land, and installed with some degree of permanence as receptacles for the considerable quantities of oil needed by Meralco for its operations.

EXAMPLES

  1. MOVABLES BUT NECESSARY
    ● Machineries of breweries used in the manufacture of liquor and soft drinks, though movable in nature, are immobilized because they are essential to said businesses. (Davao Sawmill, a popular property case?)

○ You have to memorize this definition, especially the provision that say the machines, equipment, and instruments or appliances must be “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 the taxpayer’s business.”

  1. SECURITY CAMS
    ● Safety deposit boxes, security cameras (CCTV), vault door and time delay mechanism installed by a bank in its branches throughout the Philippines are subject to real property tax since they are considered “improvements” that enhance the utility of the bank for the purpose of storage and safekeeping of cash/check deposits, safety deposit boxes and other valuables for its clientele', and therefore, subject to real property tax. BLGF Opinion, June 15, 2012
  1. POWER BARGES
    ● Power barges are also considered real property. In Fels Energy, Inc. v. Province of Batangas, 516 SCRA 186, 204-205 (2007), the Supreme Court reasoned that under Article 415(9) of the Civil Code, “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 are considered immovable property.”

LGC 119 SPECIAL LAW
NCC 415 NOT APPLICABLE
In short, they were indispensable to the business of the respondent. The SC rejected the definition of “immovable” under Article 415 of the Civil Code since the LGC is a special law that prevails over a general law such as the Civil Code.

IMPROVEMENT

"IMPROVEMENT"

  1. VALUABLE ADDITION
  2. ABOVE REPAIR
  3. CAPEX
  4. INTENDED TO ENHANCE
    a. VALUE
    b. BEAUTY
    c. UTILITY
    ● "Improvement" is defined as 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. Sec. 199(m), LGC . E.g., adding an additional floor to an existing house, annex, major renovation of an office, etc.

● Consequently, the SC held that a tailings dam of a mining company constitutes an “improvement” because it is permanent in character and it enhances the value and utility of the mine. Benguet Corporation v. Central Board of Assessment Appeals, G.R. No. 106041, January 29, 1993, 218 SCRA 271

W/N IMPROVEMENT DEPENDS ON PERMANENCE
The SC stated that whether a structure constitutes an improvement so as to partake of the status of realty would depend upon the degree of permanence intended in its construction and use.

NOT PERPETUAL, ONLY UNTIL
PURPOSE IS SERVED ❗
The term “improvement” does not imply that the improvement must be used perpetually but only until the purpose to which the principal realty is devoted has been accomplished. It is sufficient that the improvement is intended to remain as long as the land to which it is annexed is still being used for the said purpose. Id.

CLASSIFICATION OF REAL PROPERTY

CLASSIFICATIONS (RACISTM)

  1. RESI
  2. AGRI
  3. COMMERCIAL
  4. INDUSTRIAL
  5. SPECIAL
  6. TIMBERLAND
  7. MINERAL
    ● For assessment purposes, real property shall be classified into residential, agricultural, commercial, industrial, mineral, timberland, or special. Sec. 215, LGC

CLASS -> ASSESSMENT LEVEL
Why are these classifications important? The assessment level that will apply will depend on these classifications of property.

HOSPITAL - MED ARTS BUILDING
● The SC added that the mere fact that the doctors hold office in a separate building and that the hospital charges them rent do not transform the medical arts center building into a commercial building or commercial venture that would thereby render it subject to the 35% assessment level applicable to commercial buildings. The fact remains, according to the Court, that the doctors’ services are essential to the overall operation of the hospital and benefit the hospital’s patients. Ibid., citing Herrera v. Quezon City Board of Assessment Appeals, 3 SCRA 186 (1961) and Abra Valley College, Inc. v. Aquino, 162 SCRA 106 (1988)

ASSESSMENT OF REAL PROPERTY

3-STEP

  1. "ASSESSMENT" -> DETERMINE VALUE
    ● The term "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. Sec. 199(f), LGC
  2. "ASSESSMENT LEVEL" = %
    a. CLASSIFICATION
    ● "Assessment level" refers to the percentage applied to the fair market value to determine the taxable value of the property. Sec. 199(g), LGC
    -The assessor determines the value of the property and then proceeds to classify it into residential, commercial, industrial, agricultural, mineral, or special, and then, after determining such classification, the assessor proceeds to apply the so-called assessment level.
  3. "ASSESSED VALUE"
    ● "Assessed Value" means the FMV of the real property multiplied by the assessment level. It is synonymous to taxable value. Sec. 199(h), LGC

LGC MAX
ORDI-FIXED RATE
● The assessment levels to be applied to the FMV of real property to arrive at its assessed value shall be fixed by ordinance of the LGU concerned, but the rate of assessment level may not exceed the rates fixed in Section 218 of the LGC.

10% FOR LWD
15% HOSPI/SCI/CULTURE
● For special classes of lands, buildings, machineries and other improvements, the assessment levels range from 10% for local water districts and GOCCs engaged in the supply and distribution of water and/or generation and transmission of electric power to 15% for real properties of hospitals and those used for scientific and cultural purposes. Sec. 218, LGC

EFFECTIVITY OF ASSESSMENTS

AFTER JAN 1ST -> ASSESSMENT TAKES EFFECT JAN 1ST NEXT YEAR
● As a general rule, all assessments or re-assessments made after the first day of January of any year shall take effect on the first day of January of the succeeding year. Sec. 221, LGC

CAUSE-> REASSESS 90D-CAUSE -> EFFECTIVITY BEGIN NEXT QUARTER
● However, in cases of

  1. DESTRUCTION
    (a) partial or total destruction of real property, or
  2. MAJOR CHANGE
    (b) major change in its actual use, or
  3. INFLATION/DEFLATION
    a. GREAT
    b. SUDDEN
    (c) great sudden inflation or deflation of real property values, or
  4. GROSS ILLEGALLITY OF ASSESSMENT
    (d) gross illegality of the assessment when made, or
  5. ABNORMAL CAUSE
    (e) any other abnormal cause, the real property concerned shall be
    reassessed within ninety (90) days from the date of any such cause or causes,
    and
    such reassessment shall take effect at the beginning of the quarter next following the reassessment. Ibid.

FIRST TIME DECLA
PRIOR YEARS TAXED
● Real property declared for the first time shall be assessed for the taxes for the period during which it would have been liable,

NO INTEREST:
PAY BEFORE
END OF QUARTER OF NOTICE
● If such back taxes are paid on or before the end of the quarter following the date the notice of assessment was received by the owner, no interest for delinquency shall be imposed;

2% PER MONTH
otherwise, such taxes shall be subject to an interest at the rate of two (2%) percent per month or a fraction thereof from the date of the receipt of the assessment until such back taxes are fully paid. Ibid.

10 YEARS PRIOR
but in no case for more than ten (10) years prior to the date of initial assessment.

SCHEDULE OF VALUES DURING CORRESPONDING PERIOD
Such back taxes shall be computed on the basis of the applicable schedule of values in force during the corresponding period. Sec. 222, LGC

BASIC REAL PROPERTY TAX, SEF & ADDITIONAL LEVIES

  • 1% AV - PROVINCE
  • 2% AV - CITIES/MUNICIPALITIES
    ● Basic Tax. – For provinces, fixed at a rate not exceeding one (1%) percent of the assessed value of the real property, while for cities or municipalities in Metro Manila, the rate shall not exceed two (2%) percent of the assessed value. Sec. 233, LGC

OPTIONAL ADDITIONAL:
1% FOR SEF
● Special Education Fund. -
In addition to the basic real property tax mentioned above, a province or city or a municipality in Metro Manila may levy and collect an annual tax of one (1%) percent of the assessed value of real property, which shall accrue to the Special Education Fund (SEF). Sec. 235, LGC

5% MAX ON IDLE LANDS
METRO MANILA P/C/M
● Tax on Idle Lands. - Furthermore, a province or city or municipality in Metro Manila, may levy an annual tax on idle lands at a rate not exceeding five (5%) percent of the assessed value of the property, which shall be in addition to the basic real property tax. Sec. 237, LGC

SAMPLE IDLE LANDS
● Idle lands include the following:

  1. AGRI
    a. 1 HA + HALF UNCULTIVATED
    (a) agricultural lands, more than one (1) hectare in area, suitable for cultivation, dairying, inland fishery, and other agricultural uses, one-half (1/2) of which remains uncultivated or unimproved by the owner of the property or person having legal interest therein,
  2. NON-AGRI
    a. 1000 SQM + HALF UNUSED/UNIMPROVED
    (b) lands, other than agricultural, located in a city or municipality, more than one thousand (1,000) square meters in area one-half (1/2) of which remains unutilized or unimproved by the owner or person having legal interest therein. Ibid.

NOT IDLE LANDS

  1. PERENNIAL CROPS
    a. 50 TREES TO A HA
    ● Agricultural lands planted to permanent or perennial crops with at least fifty (50) trees to a hectare shall not be considered idle lands.
  2. GRAZING
    Furthermore, lands actually used for grazing purposes shall likewise not be considered idle lands. Ibid.

SUBDIVISIONS -> INDIV OWNERS
● However, regardless of area, the above levy likewise applies to residential lots in subdivisions duly approved by proper authorities, the ownership of which has been transferred to individual owners, who shall be liable for the additional tax.


LGU MAY EXEMPT LEVY (FCNA)

  1. FORCE MAJEURE
  2. CIVIL DISTURBANCE
  3. NATURAL CALAMITY
  4. ANY CAUSE
    a. PHYSICALLY/LEGALLY PREVENTS IMPROVEMENT/USE/CULTIVATE
    ● An LGU may, however, exempt idle lands from the additional levy in cases of force majeure, civil disturbance, natural calamity or any cause or circumstance which physically or legally prevents the owner of the property or person having legal interest therein from improving, utilizing or cultivating the same. Sec. 238, LGC

SPECIALLY BENEFIT BY PUBLIC WORKS: SPECIAL LEVY
● Special Levy Due to Improvements. - Finally, LGUs may also impose a special levy on lands within their territorial jurisdiction that are specially benefitted by public works projects or improvements funded by the LGU concerned. Sec. 240, LGC

1% SEF:
MAXIMUM
● This 1% rate for SEF should be considered a maximum and, therefore, an LGU may levy a SEF at a rate lower than 1%, such as 0.5%, which is consistent with the legislative intention to grant LGUs fiscal autonomy. Demaala v. Commission on Audit, G.R. No. 199752, Feb. 17, 2015, 750 SCRA 612, 630

NOT INDIV -> STILL PART OF SUBD
Individual lots in such subdivisions, the ownership of which has not been transferred to the buyers, shall be considered as part of the subdivisions, and shall be subject to the additional tax payable by the subdivision owners or operators. Sec. 237, LGC

60% MAX OF ACTUAL COST OF PROJECT
● Such special levy shall not exceed sixty (60%) percent of the actual cost of such project or improvements, including the cost of acquiring land and such other real property in connection therewith. Ibid.

ENACTMENT OF TAX ORDINANCE

BASIC RPT/SEF ORDINANCE
ENACT ✅
PUBLIC HEARING ❌
● LGUs are generally required to enact their respective tax ordinances imposing the basic real property tax, SEF, tax on idle lands, and special levy on improvements.
● However, while they are required to enact an ordinance imposing the basic real property tax, LGUs are not required to conduct a public hearing before the enactment of a local tax ordinance levying the basic real property tax or the additional one (1%) percent SEF tax.

SPECIAL LEVY:
PUBLIC HEARING ✅
Arts. 324 and 326, IRR ● Public hearing is required though for the special levy due to improvements. Sec. 242, LGC

ACCRUAL: JANUARY 1ST
Payment of the Basic Real Property Tax, SEF and Additional Levies ● Date of Accrual of Tax. The real property tax for any year shall accrue on the first (1st) day of January and from that date it shall constitute a lien on the property, superior to any other lien, mortgage, or encumbrance of any kind whatsoever, and shall be extinguished only upon the payment of the delinquent tax. Sec. 246, LGC

1ST INSTALLMENT: MARCH 31
● However, the owner may pay the basic real property tax and the SEF without interest in four (4) equal installments, the first installment payable on or before 31st of March;
2ND INSTALLMENT: JUNE 31
the second installment, on or before 30th of June;
3RD INSTALLMENT: SEPT 31
the third installment, on or before 30th of September; and
4TH INSTALLMENT: DEC 31
the last installment on or before 31st of December, Sec. 250, LGC ●

SPECIAL LEVY -> ORDINANCE
except the special levy the payment of which shall be governed by ordinance of the sanggunian concerned.

PROMPT PAY -> DISCOUNT
Prompt payment entitles the owner to a discount of 10%-20%. Sec. 251, LGC; Art. 342,
IRR

EXEMPTIONS FROM RPT

EXEMPT (G-CLC-P-CS)

  1. GOV'T OWNED
    a. PUBLIC/PRIVATE USE(BOAA v. CTA)
    1) 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. Section 234 of the LGC
  1. CHARI/EDUC - ADE
    2) All charitable institutions, churches, parsonages or convents appurtenant thereto including mosques, nonprofit or religious cemeteries and all lands, buildings, and improvements which are actually, directly and exclusively used for religious, charitable or educational purposes. Sec. 234(b), LGC
  2. LWD & WATER/ELEC-GOCC - ADE
    3) Machineries and equipment that are actually, directly and exclusively used by local water districts and GOCCs engaged in the supply and distribution of water and/or generation and transmission of electric power. Section 234, LGC
  3. COOP
    4) Real properties owned by duly registered cooperatives as provided under Rep. Act No. 6938.

TAXABLE WHEN

  1. BENEFICIAL USE TO TAXABLE PERSON
    a. LEASED TO TAXABLE
  1. POLLUTION & ENVI M&E
    5) Machinery and equipment exclusively used for pollution control and environmental protection.
  1. CHARTER-GOCC
    a. NPC
    National Power Corporation (NPC), a GOCC, enjoys exemption from real property tax under its charter, this exemption does not extend to NPC’s BOT contractor and neither does NPC’s entitlement, as a GOCC, to a lower assessment level of 10% benefit the contractor
  1. SPECIAL LAW
    a. UP DESPITE BENE TO OTHER
    See, however, University of the Philippines v. City Treasurer of Quezon City, G.R. No. 214044, June 19, 2019, where the SC ruled that by virtue of a special law, Republic Act No 9500, otherwise known as the University of the Philippines Charter of 2008, UP was granted an exemption from all taxes and duties on all revenues and assets used for educational purposes or in support thereof, which grant is extensive, express, patent and unambiguous that not even the grant of beneficial use of part of its property to Ayala Land, a taxable entity, would prejudice its tax and duty exemption.

ASSETS OF UP ONLY
OWNED BY ALIE -> NOT ASSETS OF UP
○ The SC, however, pointed out in the University of the Philippines case that the exemption from real property tax applies only to the property, i.e. the parcel of land leased to ALI, but not to the improvements, like buildings, introduced by ALI.


The Court said that, under R.A. No. 9500, the tax exemption applies only to "assets of the University of the Philippines," referring to assets owned by UP.


Under the Contract of Lease between UP and ALI, all improvements on the leased land shall be owned by, and shall be for the account of, ALI during the term of the lease. Hence, the improvements are not "assets" owned by UP and, therefore, UP's tax exemption under R.A. No. 9500 does not extend to such improvements.

UNDERTAKING TO PAY RPT
DOES NOT SHIFT RPT
An undertaking by NPC that it shall be responsible for the payment of all real estate taxes and assessments would nevertheless not exempt the contractor. see also National Power Corporation v. Province of Quezon and Municipality of Pagbilao, 593 SCRA 47 (2009) and 611 SCRA 71 (2010); Fels Energy, Inc. v. Province of Batangas.

TREATING WASTE
Under Republic Act No. 7942, March 3, 1995, otherwise known as the Philippine Mining Act of 1995, the term "pollution control and infrastructure devices" refers to infrastructure, machinery, equipment and/or improvements used for impounding, treating or neutralizing, precipitating, filtering, conveying and cleansing mine industrial waste and tailings as well as eliminating or reducing hazardous effects of solid particles, chemicals, liquids or other harmful byproducts and gases emitted from any facility utilized in mining operations for their disposal.

  1. SEPARATE & DISTINCT FROM GOV'T
    a. GOCC
    Thus, a public land reserved by the President for warehousing purposes in favor of NDC, a government-owned or –controlled corporation, with the Government retaining ownership of the property, was held exempt from the real property tax. However, the improvement (warehouse) erected by NDC on the property was held taxable because the improvement did not belong to the Government but to NDC, an entity that has a personality separate and distinct from the Government and performs purely corporate, proprietary or business functions. Ibid.
    ○ The NDC is a GOCC, it is in fact incorporated, and therefore not an unincorporated agency or a political subdivision of the government and therefore, it is not exempt.

MAY BE LEVIED

CANNOT BE LEVIED IF:
PUBLIC DOMINION
Whether the tax be of the Gov't or the
private person with beneficial use