Bureau of Local Government Finance Opinion

January 10, 1995 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Bin Gui A. Uy c/o Interface Computer College, Inc. 2nd Floor Cartimar Building C.M. Recto Avenue Quiapo, Metro Manila S i r : This refers to your letter dated January 2, 1995 relative to your letters dated January 24, 1994 and August 31, 1994 requesting opinion on the proper tax classification of Interface Computer Learning Center, Inc. (ICLCI). Representations are made that ICLCI started as a single proprietorship on May 3, 1982 offering short term courses on electronic data processing for a fee. It was incorporated as a non-stock corporation, duly registered with the Securities and Exchange Commission (SEC) on June 4, 1986. It started operations in April, 1987. It was awarded Government recognition effective school year 1985-1986 by the Department of Education, Culture and Sports pursuant to the Education Act of 1982, and it maintains branches in the cities of Kalookan, Davao, Cebu and Iloilo. It is informed by that Office under a letter dated August 31, 1994 that in view of the expansion program of ICLCI, it changed its corporate name to Interface Computer College, Inc. (ICCI) which was duly approved by the SEC on July 26, 1994. In the same letter, a copy of the certification dated April 20, 1994 from the Department of Education and Culture and Sports was also attached, certifying that ICLCI now ICCI is a private educational institution duly authorized to operate short-term courses. It is contended that ICLCI now ICCI is exempt from paying the local taxes imposed by the local government units in view of the following provisions of law: Corporate Code of the Philippines "Sec. 87. For the purpose of this Code, a non-stock corporation is one where no part of its income is distributable as dividends to its members, trustees or officers, subject to the provisions of this Code on dissolution: Provided, That any profit which a non-stock" "corporation may obtain as an incident to its operations shall, whenever necessary or proper, be used for the furtherance of the purpose of purposes for which the corporation was organized, subject to the provisions of this Title. Section 4(3). Article XIV of the Constitution "(3) All revenue and assets of non-stock, non-profit educational institutions used actually directly, and exclusively for educational purposes shall be exempt from taxes and duties. Upon the dissolution or cessation of the corporate existence of such institutions, their assets shall be disposed of in the manner provided by law." It bears emphasis that the exemption provided in the abovequoted section is only applicable to revenues and assets of educational institutions used actually, directly and exclusively for educational purposes. However, a perusal of the Amended Articles of Incorporation particularly the secondary purposes of ICCI shows that revenues are deprived not only from educational operations but also from other businesses as follows: 1. selling, leasing, operating, importing, exporting, handling, maintaining and servicing computer machines, data and word processing equipment, devices supplies, software, package programs, services and other computer facilities; 2. engage in computer site construction, supply of air-conditioning, electrical power lines, raised flooring, humidity devices and temperature control devices, voltage regulator, uninterruptible power supply, and other related services. Accordingly, ICCI shall be subject to the local business tax imposed under a duly-enacted ordinance on its gross receipts deprived from the different businesses pursued by ICCI. Said firm shall also be subject to regulatory fees that may be imposed in an ordinance of the municipality where it is located. As regards the liability of ICCI from the payment of real property taxes, the applicable provisions of law are Sec. 28(3), Art. VI of the Constitution and Sec. 234 of the LGC, which read as follows: Sec. 28(3), Art. VI of the Constitution "(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings , and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation . Sec. 243(b) of the LGC "SEC. 234. Exemption from Real Property Tax. The following are exempted from payment of the real property tax: "xxx xxx xxx; (b) 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 ; (Emphasis supplied.) "xxx xxx xxx." Clearly, ICCI is exempt from the payment of real property taxes due on their real properties which are actually, directly, and exclusively used for educational purposes. However, all other real properties which are being used by the said corporation for the conduct of its different businesses are not covered by the abovecited exemption provisions of the said laws. We trust that this will clarify matters. Very truly yours, By authority of the Secretary: LORINDA M. CARLOS Executive Director Bureau of Local Government Finance