Bureau of Local Government Finance Opinion

March 1, 2012 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Ptr. Eliezer M. Bacus President, Mindanao Sanitarium & Hospital, Inc. Tibanga, Iligan City Sir : This pertains to your request for opinion regarding the imposition of real property tax on the real properties including the machinery and equipment owned by Mindanao Sanitarium & Hospital, Inc., (MSH, for brevity) situated in Iligan City. HADTEC It appears that your request was made in view of the Statement of Accounts issued by the City Treasurer's Office of said city on land and various equipment used by MSH. In this connection, it is informed that this Bureau, under its 1st Indorsement dated June 7, 2011 instructed the Office of the City Assessor of Iligan City, to conduct an ocular inspection on the properties in question to determine whether the actual, direct and exclusive use of the subject properties are intended for charitable or educational purposes. In the ocular inspection conducted on August 1, 2011 by the said office, the following findings were submitted: HADTEC Only the MSH land property under TD No. 02-031-02044 was subjected to the conduct of the August 1st ocular inspection. Verification became paramount not only because of the 2011 MSH exemption request in the BLGF but because MSH dutifully paid taxes for this particular property under its previous declaration and even up to the year 2007 under the current declaration whose taxability became effective the 1st Quarter of 2002 according to the entry found in our TRACS (Tax Revenue and Assessment Collection System Database-Real Property Module) hard drive; That the subject property situated at Santiago, Iligan City, (Lot 1704-G, Cad. 292, with Transfer Certificate of Title No. T-42,263 (a.f.) issued in the name by the Register of Deeds, Iligan City) is not entitled to realty tax exemptions on the ground that the lot in question is not actually, directly and exclusively devoted for charitable purposes . On the contrary, the land is idle (save for one nipa hut), overgrown with hedges of cogonal grass, needs lots of development inputs of backfill to lift its sunken marshy ground. Classified by our office as residential because the zonal predominant use of the land is purely residential because of the presence of Orchid Homes Subdivision right next to it; HADTEC The spacious 13,534 square meters residential land where the main MSH College of Nursing or Medical Arts Foundation/complex is long declared tax exempt effective 2011 (1st quarter) when copies of the Articles of Incorporation from SEC No. 15571 registered on July 3, 1953) were submitted on January 12, 2010 became the basis of the aforesaid properties for exemption as provided under Section 234 (b) of the LGC of 1991 (R.A. No. 7160); As for the "New" medical equipment of MSH, declared under TD Nos. 02-029-03366, 02-029-03367 and 02-029-03368, all are recorded as taxable properties immediately upon their issuance. . . ." Based on the foregoing facts presented, it is believed that the sole issue in the case at bar is on whether or not the lot declared under TD No. 02-031-02044 is subject to the payment of the real property tax. HADTEC In view hereof, it is informed that Section 234 (b) of the LGC of 1991 (R.A. No. 7160) provides as follows: "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, non-profit or religious cemeteries and all lands, buildings, and improvements which are actually, directly and exclusively used for religious, charitable or educational purposes; HADTEC "xxx xxx xxx." Clearly, the provision abovecited specifically refers to the exemption from the payment of real property tax on properties owned by religious as well as of charitable institutions which are actually, directly and exclusively used for its intended purpose. Likewise, in the case of the City of Baguio vs. Fernando Busuego , G.R. No. L-29772 promulgated on September 18, 1980, the Supreme Court held that "the sole determinative factor for exemption from realty taxes is the "USE" to which the property is devoted. "Where use is the test, the ownership is immaterial." (Martin on the Rev. Adm. Code, 1961, Vol. 11, p. 487, citing Apostolic Prefect of Mt. Province vs. Treasurer of Baguio City , 71 Phil., 547). Apparently, with the findings in the ocular inspection conducted by that office, the lot in question does not conform with the use as provided by the SC in the abovementioned case. HADTEC Moreover, and in order for the said properties of MSH to be declared exempt from real property tax, it must also conform with the provision of the local government code which under Section 217 provides that: "SEC. 217. Actual Use of Real Property as Basis for Assessment . Real Property shall be classified, valued and assessed on the basis of its actual use regardless of where located, whoever owns it, and whoever uses it." In view hereof, and considering the actual field verification made which revealed that the lot declared under TD No. 02-031-02044 is not actually, directly and exclusively devoted for its intended purpose, that is, for charitable or educational purposes, the subject property which was classified as residential shall rightfully be subject to the payment of real property tax pursuant to Section 234 (b) of the Code. Likewise, the machinery and equipment used by MSH shall be taxable and shall be treated as special class of real property with an assessment level of 15% as provided for under Section 218 (d) of the same Code. HADTEC On the other hand, the 13,534 sq.m. residential land where the MSH College of Nursing and Medical Arts Foundation/Complex are erected shall remain exempt. Accordingly, the imposition of real property tax by the City Treasurer of Iligan City on the real properties owned by MSH is deemed in order. HADTEC We trust that this clarifies matters. Very truly yours, (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director