Bureau of Local Government Finance Opinion

August 18, 2003 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 2nd Indorsement Respectfully referred, thru the OIC-Regional Director, BLGF Regional Office, Region I, 2/F Mabanag Justice Hall Bldg., General Luna St., San Fernando City, La Union, to the Municipal Assessor, Sual, Pangasinan. The within set of papers refers to the query posed by the Municipal Accountant thereat, on whether the Municipality of Sual can increase the assessment level of the machineries of the Sual Power Plant up to eighty percent (80%) pursuant to Section 218 of R.A. No. 7160, otherwise known as the Local Government Code of 1991, and Article 309 of its Implementing Rules and Regulations, by proposing to the Sangguniang Panlalawigan of Pangasinan to pass an ordinance effecting the same. The said Municipal Accountant made the following contentions, to wit: 1. That Sual Power Plant is being operated by Mirant Sual Corporation (formerly Pangasinan Electric Corporation) and not by the National Power Corporation (NPC); 2. That NPC only buys the electricity produced from the Mirant Sual Corporation; 3. That Mirant Sual Corporation owns the subject buildings and machineries of Sual Power Plant, as evidenced by the attached Declarations of Real Property; and 4. That the actual use of the subject machineries should either be "Industrial" or "Commercial", and not "Special" as reflected under Tax Declaration No. 00073 with a ten percent (10%) assessment level. For its part, that Office believes that the Municipality of Sual can increase the said assessment level up to 80% on the subject machineries in view of the opinion issued by this Bureau, as embodied in a letter dated March 16, 1999 in the case of Bauang Private Power Corporation of La Union, which is quoted in part, below: "Apparently, the properties in question are actually, directly and exclusively used by Bauang Private Power Corporation in the conversion of bunker fuel to electricity for NAPOCOR for a fee. It is also worthwhile to note that BPPC is not a government-owned or controlled corporation considering that the same falls under the category of a private corporation having been incorporated . . . primarily to engage in the business of generating electric power which the company sells to the NAPOCOR on a wholesale basis . "In view thereof, and the fact that the subject real properties are actually, directly and exclusively used by a private company (BPPC) in the operation of its business, the same is, therefore, liable to pay real property taxes ." (Emphasis ours) In this connection, attention is invited to Section 218 of R.A. No. 7160 which reads in part, as follows: "SEC. 218. Assessment Levels . The assessment levels to be applied to the fair market value of real property to determine its assessed value shall be fixed by ordinances of the sangguniang panlalawigan, sangguniang panlungsod or sangguniang bayan of a municipality within the Metropolitan Area, at the rates not exceeding the following: "xxx xxx xxx. "(d) On Special Classes: The assessment level for all lands, buildings, machineries and other improvements: "Actual Use Assessment Level "xxx xxx xxx "Government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power. 10% It is evident from the aforequoted provision of law that land and buildings of government-owned and controlled corporations are subject to rate fixed by Ordinances but not exceeding ten percent (10%) assessment level. Machineries, however, which are actually, directly and exclusively used in the generation and transmission of electric power, are exempt from the payment of real property tax pursuant to the provision of Section 234(c) of the same Code. On the other hand, machineries although actually, directly and exclusively used in the generation and transmission of electric power but are owned by private corporations, are subject to the payment of real property tax as provided under Section 218 of the Code. It may be worth noting hereon that the issue on ownership of the subject real properties in the instant case is relevant in determining whether we can render a positive response on the abovementioned request of said Municipal Accountant of Sual, Pangasinan. However, a perusal of the within attached documents, reveals as follows: 1. The Declarations of Real Property for Buildings were made under the name of "Southern Energy Pangasinan Inc." and the Machineries were declared under the name of "Southern Company;" 2. The available financial statements are that of the Mirant Sual Corporation and Pangasinan Electric Corporation (which do not clearly show the actual locations of the real properties); and 3. A Memorandum of Agreement entered into by and between the NPC and the Pangasinan Electric Corporation only. In view hereof, that Office is hereby instructed to determine and establish whether the subject buildings and machineries are legally owned by a private corporation like the Sual Power Plant, Mirant Sual Corporation, Southern Energy Pangasinan, Inc., or Southern Company. In the affirmative, the assessment of the subject buildings as reflected in the attached Declarations of Real Property are deemed in order for so long as the appraisal and assessment of the same are in consonance with the approved Schedule of Market Values for the Province of Pangasinan. On the other hand, the assessment level for the machineries can be increased but not to exceed the 80% provided for "Industrial" or "Commercial" classification of real properties pursuant to Section 218 of the Code upon the enactment of an ordinance by the Sangguniang Panlalawigan of Pangasinan. IHCDAS Be guided accordingly. (SGD.) MA. PRESENTACION R. MONTESA Executive Director