Ms. Fortunata Duque

May 22, 2008 BIR RULING [DA-312-08] 24 (D); #114-99; DA-009-2003 Ms. Fortunata Duque Malanday, Valenzuela Metro Manila Madam : This refers to your letter dated May 9, 2008 requesting for a ruling relative to the nature of the properties registered in your name and the rules of valuation to be adopted thereon for purposes of computing the capital gains tax and documentary stamp tax due on the sale thereof. It is represented that you are the registered owner of two (2) parcels of land covered by Transfer Certificate Title (TCT) Nos. 135596 and 195943, having a similar area of 3,553.50 or a combined area of 7,107 square meters located in Malanday, Valenzuela; that these adjacent properties have a narrow frontage along MacArthur Highway but their depths extend towards the boundary of Valenzuela and Meycauayan; that the nearest street located at the rear portion of these properties is Pantaleon Street where all the properties located within its vicinity are predominantly residential; that the frontage of the above-mentioned properties per location plan is equal to 55.86 meters multiplied by the standard depth of 30 meters along the Pantaleon Street; and that the rest of the property consists of 5,431.20 square meters, which portion extends beyond the regular depth of all commercial properties within the vicinity. In view of the aforementioned facts, you now request for confirmation of your opinion that: 1) The zonal value of P10,500.00 per square meters for lots located along MacArthur Highway should only apply to the frontage of the property with a total area of 1,675.80 square meters and not to the total property; and 2) The interior portion of the above-mentioned property consisting of 5,431.20 square meters which cannot be classified under any particular street/subdivision shall be classified and valued under Pantaleon Street, which is the nearest street at the rear portion of the lots with a zonal value of P1,800.00 per square meter. In reply, please be informed as follows: 1) In BIR Ruling No. 114-99 dated July 29, 1999, this Office has already made a determination of the correct value of land for internal revenue tax purposes, where the depth of the lot is deeper than the standard depth of land. In such a case, it is an accepted principle that the area of a lot beyond the standard depth is valued lower than the frontage area. This is because as the depth of lot increases, the unit value decreases. Accordingly, and pursuant to Section 201 of R.A. 7160 as well as Department Order No. 10-97 of the Department of Finance, this Office, in the said ruling, ruled as follows: "It is undisputed that the zonal value or fair market value of lots located along the Zapote-Alabang Road is at P19,900.00. However, this Office recognizes that to extend such zonal valuation not only to the frontage area but to the rest of the Property would be inequitable and unjustified under the premises. According to the rules of valuation and under the above quoted Department O rder N o. 10-97 [The Rev ised Zonal Va lues of Real Properties in Las Pias and Muntinlupa under Revenue District No. 53 for Internal Revenue Tax Purposes] and considering the guidelines in the valuation of urban lands, the following are in order [sic]: (a) Only lots located along the Alabang-Zapote Road and vicinity (Ceciles R. Moonwalk) are valued at P19,900 for tax purposes. (b) If the area cannot be classified under any particular street/subdivision of vicinity the area would be lumped under the "All Other Streets" category; (c) The valuation of lands under the "All Other Streets" category are as follows: i. Residential Residential P2,200 ii. Commercial Residential 3,700 iii. General Purpose 1,900 xxx xxx xxx Hence, since the frontage area would consist of 4,500 sq.m., (150 meters x 30 meters) applying the zonal value of P19,900, the fair market value of this particular portion is P85,000,000. The remaining property would be General Purpose lot with an assigned zonal value of P1,900. xxx xxx xxx." Accordingly, this Office confirms your opinion that the zonal value of P10,500.00 for lots located along MacArthur Highway should apply only to the frontage of the property with a total area of 1,675.80 square meters and not to the entire property. The adjacent commercial properties along MacArthur Highway have depths of not more than 30 meters. It is a recognized fact that the value of lots decreases from street frontage to the rear. (Section 26, DOF Local Assessment No. 001-92) Thus, a standard depth is established to determine the true and correct value of a particular property where the depth of the lot is deeper than the standard depth. Under this rule, the frontage area which is computed on the basis of the length of the property located along a particular street/subdivision multiplied by the standard depth of the locality is valued more than the rear. BIR Ruling DA-009-2003 dated January 14, 2003 reiterates this accepted principle that the area beyond the standard depth is valued lower than the frontage area. This is but a recognition of the fact that as the depth of lot increases, the unit value decreases. Thus, applying the above formula for computing frontage area (length of property located along a particular street/subdivision multiplied by the standard depth), the length of the property along MacArthur Highway is 55.86 square meters multiplied by the standard depth of 30 meters, the frontage area would equal to 1,675.80 square meters. Thus, the zonal value of P10,500.00 shall apply only to this portion of the property. Hence, the fair market value of this particular area shall be P17,595,900.00. 2) Under Department Order No. 22-03 of the Department of Finance entitled "Implementation of the Revised Zonal Values of Real Properties in the City of Valenzuela under the Jurisdiction of Revenue District Office No. 24 (Valenzuela City), Revenue Region No. 5 (Valenzuela City) for Internal Revenue Tax Purposes", the most recent valuation of lands covering your area are as follows: "BARANGAY: MALANDAY STREET/SUBDIVISION VICINITY CLASSIFICATION 3RD REV. ZV/SQ.M. A. BARTOLOME ST. MCARTHUR HWAY RR 2,800.00 FERNANDO ACUNA ST. RR 2,000.00 A. MENDOZA ST. I. FERNANDO ST. TO END RR 2,800.00 A. MIRANDA ST. MCARTHUR HIGHWAY TO RR 2,800.00 END BARTOLOME SUBD. RR 2,200.00 BLANCO ST. RR 2,000.00 D. SANTIAGO ST. M.H. DEL PILAR ST. TO END RR 2,000.00 GAANAN ST. RR 2,000.00 I. FERNANDO ST. M.H. DEL PILAR LAZARO ST. RR 2,850.00 I. LOZADA ST. I. FERNANDO ST. TO END RR 2,500.00 I. MARCELO ST. M.H. DEL PILAR ST. TO END RR 3,650.00 J. SANTIAGO ST. M.H. DEL PILAR ST. TO END RR 2,100.00 L. DUQUE ST. MCARTHUR HIGHWAY TO RR 2,300.00 END L. URRUTIA ST. MCARTHUR HIGHWAY TO RR 1,600.00 END MC ARTHUR HI-WAY MEY. BDRY DALANDANAN CR 10,500.00 BDRY M. GONZALES ST. MCARTHUR HIGHWAY TO RR 1,600.00 END M.H. DEL PILAR ST. MCARTHUR HIGHWAY- CR 6,200.00 MABOLO PANTALEON ST. MCARTHUR HIGHWAY TO RR 1,800.00 END RITA SANTIAGO ST. D. SANTIAGO J. SANTIAGO RR 2,000.00 SAN ANDRES ST. MCARTHUR HIGHWAY TO RR 1,600.00 END ST. ELSEWHERE ST. I. FERNANDO ST. TO END RR 2,700.00 TIWALA ROAD PASOLO ST. M.H. DEL PILAR RR 2,350.00 ALL OTHER STREETS RR 1,300.00 CR 5,850.00 GP 1,150.00 CONDOMINIUM (CCT) RC 18,000.00 CC 25,000.00 TOWNHOUSE (CCT) RC 15,000.00 CC 20,000.00 It is undisputed that the zonal value or fair market value of lots located along the McArthur Highway is at P10,500.00. However, this Office recognizes that to extend such zonal valuation not only to the frontage area but to the rest of the property would be inequitable and unjustified under the premises. (BIR Ruling No. DA-009-2003 dated January 14, 2003) Applying therefore the foregoing rules, with the exception of the frontage area, the remaining area of the property where a huge portion along A. Bartolome Street, per herein attached subdivision plan, near the boundary of Valenzuela and Meycauayan are occupied by squatters would be properly classified under A. Bartolome Street which is valued at P2,800.00 per square meter. Hence, the remaining property (rear portion) with an assigned zonal value of P2,800.00 will have a zonal value or fair market value of P15,207,360.00 (5,431.20 square meters multiplied by P2,800.00). All in all, the total fair market value of your property would be P32,803,260.00. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service