Bureau of Local Government Finance Opinion

June 5, 2000 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully returned to the Provincial Assessor, Daet, Camarines Norte, his within letter dated August 3, 1999 requesting clarification and/or opinion on the following: 1. Whether that Office (Provincial Assessor's Office) still has the authority to change the taxability of the real properties of United Paragon Mining Corporation (building and machineries) from taxable to exempt despite the tax exemption granted by the Sangguniang Bayan of Paracale, in consonance with Section 192 of the Local Government Code of 1991; and 2. Whether the decision of the Department of Finance adopted in the case of Marcopper Mining Corporation (MARCOPPER) in Boac, Marinduque is applicable in the particular case. The abovementioned request was prompted by the letter of Engr. Constante P. Bumanglag, Vice President for operations of United Paragon Mining Corporation (UPMC) located in Bangos, Paracale, that province, requesting the transfer from taxable to exempt roll of real properties the industrial buildings and machineries owned by UPMC which allegedly stopped operations. In his letter dated August 10, 1999, Engr. Bumanglag submitted that UPMC incurred operational losses. On March 15, 1999 the Board of Directors of the company decided to stop all mining and milling operations, to avoid further losses. Moreover, Ms. Gloria. A. Gerona, Financial Comptroller of UPMC submitted also documentary proofs (copies attached) concerning the date the said company stopped production, to wit: 1. Duly accomplished SEC (Securities and Exchange Commission) Form No. 11-C, a reportorial requirement of the SEC, indicating therein, among others, the closure of their remaining open pit operations on March 15, 1999; 2. Letter-advice from Regional Director Reynulfo A. Juan of the Mines and Geo-Sciences Bureau, Region V, Legaspi City, acknowledging among others, the suspension of the "remaining open pit mining operations effective March 15, 1999"; and 3. Secretary's Certificate under oath of their Corporate Secretary, Mr. Augusto B. Sunico, stating among others that said company's Board of Directors "hereby authorizes the Corporation to close the open pit operations to minimize further losses effective March 15, 1999." Moreover, Resolution No. 83 (Municipal Ordinance No. 2), series of 1999, of the Sangguniang Bayan of Paracale, which was duly approved by the Sanggunian Panglalawigan of Camarines Norte under Resolution No. 242-99, also series of 1999, entitled Granting Partial and Temporary Exemption from realty Taxes of Certain Assets of All Gold Mining Corporations/Companies similarly situated in Paracale, Camarines Norte appears to have been enacted in consonance with the provision of Section 192 of R.A. No. 7160, otherwise known as the Local Government Code of 1992. It may be observed, however, that the above authority to grant tax exemption privileges is provided under Article One Book II of the Code, which pertains to Local Government Taxation and not Real Property Taxation which is found under Title Two of the same Book Two of the Code. The exemption from real property tax is specifically provided under Section 234 thereof. It is informed that the said Section 192 of the said Code was further explained under Article 282 of the Implementing Rules and Regulations (IRR) of the said Code which states: "ART. 282. Authority to Grant Tax Exemption Privileges . . . .. (b) Local sanggunians granting tax exemptions, tax incentives and tax reliefs may be guided by the following: "(1) On the grant of tax exemption or tax reliefs: (i) The exemption or relief may be granted in cases of natural calamities, civil disturbances, general failure of crops or adverse economic conditions such as substantial decrease in the prices of agricultural or agri-based products." "xxx xxx xxx." The aforecited provision of Section 192 of the Code, as implemented under Article 282 of the Implementing Rules and Regulation of the same Code, clarified that the tax exemption or tax relief may be granted only in cases of natural calamities, civil disturbances, general failure of crops or adverse economic conditions such as substantial decrease in the prices of agricultural or agri-based products. The tax exemption extended under the said Ordinance is clearly not in accordance with the provisions of the Code. As regards the exemption of machineries, however, it is informed that the Department of Finance has already ruled on several occasions that "when machineries are no longer actually used for its purpose by reason of closure or cessation of production, the same should be dropped from the assessment roll and not anymore be subjected to the payment of real property taxes." It is worthwhile to note that the said rulings were made on the basis of Section 3(m) of P.D. No. 464, which, under Section 199(o) of R.A. No. 7160, provided a substantially similar definition of machinery as follows: "Section 199. Definition of Terms . When used in this title, the term:" "xxx xxx xxx "(o) Machinery embraces machines, equipment, mechanical contrivances, instruments, appliances or apparatus which may or may not be attached, permanently or temporarily to the real property. It includes the physical facilities for production, the installations and appurtenant service facilities, those which are mobile, self-powered or self-propelled, and those not permanently attached to the real property which 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 its manufacturing, mining, logging, commercial, industrial or agricultural purposes ; (Emphasis supplied) Furthermore, in a 1st Indorsement dated April 4, 1997, in the case of MARCOPPER, copy enclosed, this Bureau again maintained the same aforementioned ruling of the Department of Finance, the resolving portion of which reads: "In view of all the foregoing, the said Provincial Assessor is hereby similarly instructed to drop the subject machineries and equipment of MARCOPPER from the "Taxable Roll" of real properties beginning the 2nd quarter of 1996. The same should remain under that status until such time that the company shall again . . . continue its . . . activity/operations, in which case the said machineries and equipment should then be assessed as taxable real properties effective on the first day of the year immediately following its resumption of mining operations." Applying therefore, the abovequoted ruling of the Department of Finance to the instant case, it is obvious that the machineries and equipment of the said company which ceased operations due to the operational losses incurred should, likewise be dropped from the "Taxable Roll" of real properties beginning the 2nd quarter of 1999 pursuant to Section 221 of R.A. No. 7160, otherwise known as the Local Government Code of 1991 which provides as follows: "SEC. 221. Date of Effectivity of Assessment or Reassessment . All assessments or re-assessments made after the first (1st) day of January or any year shall take effect on the first (1st) day of January of the succeeding year: Provided, however, That the reassessment of real property due to its partial or total destruction, or to a major change in its actual use, or to any great or sudden inflation or deflation of real property values, or to the gross illegality of the assessment when made or to any other abnormal cause, shall be made within ninety (90) days from the date any such cause or causes occurred, and shall take effect at the beginning of the quarter next following the reassessment." In view of the foregoing, the subject machineries and equipment of UPMC is no longer subject to the payment of real property taxes beginning the second quarter of 1999 until such time that the company will resume and operate the said machineries. TAIEcS Queries numbered 1 and 2 above are, therefore, answered in the affirmative. Be guided accordingly. (SGD.) ANGELINA M. MAGSINO Deputy Executive Director Officer-in-Charge