Bureau of Local Government Finance Opinion

February 28, 2006 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION The City Assessor Valencia City Province of Bukidnon S i r : This pertains to your letter dated May 30, 2005, requesting opinion on: 1) the legality of the action of the City Assessor of Valencia City in revising the alleged erroneous assessment of NAPOCOR properties, applied retroactively to the year 1992; and 2) the consequence of such revision which resulted in reduced taxes, to the disadvantage of the City Government of Valencia. It appears that the City Assessor's Office of Valencia assessed the properties owned by the National Power Corporation (NAPOCOR) effective 1992, as Industrial with an assessment level of 50%. It also appears that during the general revision of real property assessments conducted in 1994, the assessment of NAPOCOR properties were revised to conform with the provisions of the Local Government Code of 1991. That Office, however, informed that because NAPOCOR is a GOCC, its properties were eventually revised and assessed as special class with an assessment level of ten percent (10%) pursuant to Section 218 (d) of R.A. 7160. This Bureau noted that there was no mention whether the properties referred hereto cover all real properties such as land, building, machinery and equipment of NAPOCOR located thereat, to which the assessment level is to be applied. Section 234 (c) of the Local Government Code of 1991 (R.A. No. 7160), provides: HCaDIS "SEC. 234. Exemptions from Real Property Tax. The following are exempted from payment of the real property tax: "xxx xxx xxx. "(c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned or -controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power; (Emphasis ours) "xxx xxx xxx." Attention is likewise invited to the attached 5th Indorsement dated October 17, 1996 of the Department of Finance, treating on a similar subject matter, with regard to special class properties, the pertinent portions of which read as follows: DTAHSI "xxx xxx xxx. "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% "Clearly, a 10% assessment level for Special Classes of real properties is applicable to, among others, lands which are actually used by government-owned or-controlled corporations engaged in the generation and transmission of power. "However, Section 216 of the said Code is equally clear that "lands, buildings and other improvements thereon . . . owned and used by . . . government-owned or -controlled corporations rendering essential public services in the . . . generation and transmission of power shall be considered as special. " Succinctly, the conditions that must concur in properly classifying these real properties as "special class" are (1) the ownership (the owner should be a GOCC rendering public services); and (2) the use thereof, meaning that said real properties should be actually, directly and exclusively utilized in the generation and transmission of electric power." It is clear that machinery and equipment owned and used by GOCCs (such as NAPOCOR), in the generation and transmission of electric power are exempt from payment of real property tax; and all other real properties (land and buildings) are subject to a 10% assessment level, the effectivity of which shall be at the beginning of the quarter next following the reassessment in compliance with Section 221 of the same Code, which we quote hereunder, viz. : "Sec. 221. Date of effectivity of Assessment or Reassessment . All assessments or re-assessments made after the first (1st) day of January of 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 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. " (Emphasis supplied) With regard to query No. 2, this Bureau believes that apparently, the case being referred to is the Supreme Court Decision (G.R. No. 115253-74) dated January 30, 1998, in the case entitled Antonio P. Callanta, et al. vs. Office of the Ombudsman and the City Government of Cebu , the pertinent portion of which is as follows: "xxx xxx xxx. ". . . whenever the local assessor sends a notice to the owner or lawful possessor of real property of its revised assessed value, the former shall thereafter no longer have any jurisdiction to entertain any request for a review or readjustments. The appropriate forum where the aggrieved party may bring his appeal is the LBAA as provided by law." Likewise, attached for your information and guidance is a copy of our 1st Indorsement dated October 12, 2000, the pertinent portion of which reads as follows: ". . ., this Bureau has consistently ruled that collection of real property taxes shall be based solely on correct assessments. Erroneous assessments resulting from improper or non application of existing laws rules or regulations should be corrected, the effectivity of which shall be the same as the effectivity of the erroneous assessments being rectified. " (Emphasis supplied) In this regard, this Bureau emphasizes on three (3) indispensable requisites before the doctrine laid down in the aforequoted decision could apply, namely: 1. There was a general revision of real property assessment conducted; 2. There was a correct real property assessment made by the assessor in accordance with the duly approved Schedule of Market Values; and 3. There was a valid notice of assessment issued and sent to the property owner. Be guided accordingly. SECATH Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA Executive Director