Bureau of Local Government Finance Opinion

October 11, 2002 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION MEMORANDUM FOR : Executive Director Ma. Presentacion R. Montesa THRU : Channel This refers to the request for refund filed by Roanrose, Inc., on the real property taxes it paid to the City Treasurer's Office of Manila, for the property owned by the company and being utilized by Jose Corazon de Jesus Elementary School since 1985, wherein the following observation has been noted: How does this jibe with Section 253 of the LGC? Subject Section 253 reads as follows: "Section 253. Repayment of Excessive Collections . When an assessment of basic real property tax, or any other tax levied under this Title, is found to be illegal or erroneous and the tax is accordingly reduced or adjusted, the taxpayer may file a written claim for refund or credit for taxes and interests with the provincial or city treasurer within two (2) years from the date the taxpayer is entitled to such reduction or adjustment." "The provincial or city treasurer shall decide the claim for tax refund or credit within sixty (60) days from receipt thereof. In case the claim for tax refund or credit is denied, tax payer may avail of the remedies as provided in Chapter 3, Title II, Book II of this Code." The undersigned believes that Section 253 specifically pertains to excessive collections resulting from erroneous assessments, or those that were subsequently declared to have been erroneously made, thereby a reduction or adjustment in tax has ultimately been realized. The case at bar, however, pertains to the collection of real property tax which burdened the taxpayer based on a wrong assessment made against his exempt property; hence, the application of the principle of "solutio indebiti" as clarified under the Supreme Court Decision we cited in our proposed action, is deemed to be in order. caEIDA For your consideration and/or further instructions, please. (SGD.) M N. SANTOS Acting Chief, LASS 1st Indorsement Respectfully referred to the City Assessor and the City Treasurer, both of the City of Manila, the herein undated letter of Ms. Rhodora V. Chertlur, for and in behalf of Roanrose, Inc., requesting clarification on the following queries: 1. Is the Roanrose, Inc. property being utilized by Jose Corazon de Jesus Elementary School covered by Section 217 of the Local Government Code of 1991?; 2. If so, Is the exemption retroactive; and 3. Does ignorance of those provisions regarding exemption of real property tax prevent you from availing of retroactive exemption? Roanrose, Inc., thru its President, Mr. Buenaventura B. Bernabe, is requesting under his letter of December 5, 2001, real property tax exemption from the City Assessor's Office of Manila, on a property being allegedly leased and utilized by the Jose Corazon de Jesus Elementary School located at N. Zamora and J. Luna Streets, Tondo, that city, since 1985. The Officer-in-Charge of the Department of Assessment thereat, under his letter of December 14, 2001 informed that they "are conducting further research and study on the matter considering that the subject property is already being used by the said school for the last 15 years" and therefore, has reservations why it is only now that Mr. Bernabe is making the request for realty tax exemption. In his letter-reply to the OIC, Department of Assessment, dated January 2, 2002, Mr. Bernabe explained that he only came to know of the exemption of his property from payment of real property tax from someone who informed him that "he should request for exemption from the City Assessor's Office of Manila," apparently, Mr. Bernabe was requesting that he be issued a tax clearance from the City Treasurer's Office thereat but was refused issuance because of his real property tax delinquency for the year 2001. Under the attached follow-up letter dated September 16, 2002, the representative of Roanrose, Inc., is requesting that all payments made within the period within which Roanrose, Inc. should have been declared exempt, be refunded or credited to the future tax obligations of Roanrose, Inc. on other real properties located in the City of Manila. In this regard, attention is invited to the provision of Section 234(b) of the Local Government Code of 1991 (R.A. No. 7160), which substantially reproduced Section 28(3) Article VI of the 1987 Constitution as follows: "SEC. 234. Exemption from Real Property Tax . The following are exempted from payment of 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." The above provision of the Local Government Code of 1991 and of the 1987 Constitution, in effect mandates that effective 1987, educational institutions (such as Roanrose, Inc.) shall be granted exemption from payment of real property tax, provided, that these properties are actually, directly and exclusively used for educational purposes. However, this exemption on real property tax cannot be given retroactive effect prior to 1987, the effectivity of the 1987 Constitution. DCcHAa With respect to the last query, attention is invited to the Supreme Court Decision (L-32364) dated April 30, 1979 in the case entitled "Ramie Textiles, Inc., vs. Ismael Mathay, Sr.," which was cited under our 1st Indorsement dated December 23, 1999, copy attached, which held as follows: "It is not disputed that petitioner is exempt from payment of realty taxes . . . The fact that petitioner paid thru error, or mistake, and the government accepted the payment, gave rise to the application of the principle of solutio indebiti under Article 2154 of the New Civil Code, which provides, that 'if something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return arises.' There is, therefore, created a tie or juridical relation in the nature of solutio indebiti , expressly classified as quasi-contract under Section 2, Chapter I of the Title XVII of the New Civil Code. "The quasi-contract of solutio indebiti is one of the concrete manifestations of the ancient principle that no one shall enrich himself unjustly at the expense of another. Hence, it would seem unedifying for the government that knowing it has no right at all to collect or to receive money for the alleged taxes paid by mistake , it would be reluctant to return the same . (Emphasis supplied) " Solutio indebiti is a quasi-contract, and the instant case being in the nature of solutio indebiti , the claim for refund must be commenced within six (6) years from date of payment pursuant to Article 1145(2) of the New Civil Code ." (Emphasis ours) Applying the above principle of "solutio indebiti" and based on the representations that payment of real property taxes for the year 2001 has been made in August 2002, by the Roanrose, Inc.; and, that by virtue of the attached Certification from the City Treasurer of Manila dated August 20, 2002, that the company "has no real estate tax delinquency as of December 3, 2001," tending to prove that all previous real property taxes on the said property has been paid, the claim for refund may therefore, be favorably acted upon, particularly for taxes paid beginning calendar 1996. It is important to mention hereon that considering the manifestations made by the representative of Roanrose, Inc., thru telephone and personal conversations, that the said company has other taxable properties in the City of Manila, the questioned payments made by the said company should, therefore, be treated as tax credit to be applied to their future real property tax obligations. Be guided accordingly. (SGD.) MA. PRESENTACION R. MONTESA Executive Director