Bureau of Local Government Finance Opinion

February 6, 2001 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Nestor M. Feliciano Chairman The Coordinating Council of Private Educational Associations (COCOPEA) Unit 601 Richmonde Plaza Cor. San Miguel Avenue and Lourdes Streets Ortigas Centre, Pasig City S i r : At the outset, we would like to extend our apologies for the delay in answering your herein query, which was not deliberate, as we exhausted all possible means to research and conduct further studies on the issues raised. This refers to your letter of September 24, 1999, enclosing therewith the position paper of the Coordinating Council of Private Educational Associations (COCOPEA) as represented by its Chairman and President, Philippine Association of Colleges and Universities, the umbrella organization of the Philippine Association of Colleges and Universities (PACU); the Catholic Educational Association of the Philippines (CEAP), the Association of the Christian Schools and Colleges (ACSC), the Philippine Association of Private Schools, Colleges and Universities (PAPSCU) and the Association of Philippine Private Technical Institutions (APPTI), petitioning the DOF to recall or repeal Joint Local Treasury/Assessment Regulations No. 1-88 dated May 4, 1988. The protested portion of JLTA No. 1-88 reads as follows: "Sec. 3. The exemption from real property taxes, however, shall not include 'machineries' even if these are actually, directly and exclusively used for religious, charitable or educational purposes. HATEDC "This exception is based on the following findings: "a) The constitutional provisions did not include the terms 'machineries' in the grant of tax exemptions; "b) 'Machineries' are not considered 'Improvements' for reason that the Real Pro perty T ax Code, particularly Section 3 thereof, provides for the definition of terms as follows: "xxx xxx xxx." "(2) Under paragraph (m), the term Machinery to mean machines, equipment, mechanical contrivances, instruments, appliances and apparatus attached to the real estate. It shall include the physical facilities available for production, as well as the installations and appurtenant service facilities, together with all those not permanently attached to the real estate but are actually, directly and essentially, used to meet the needs of the particular industry, business, or works, which by their very nature and purpose are designed for, or essential to manufacturing, commercial, mining, industrial or agricultural purposes." COCOPEA further alleged that machineries of educational institutions must be exempt from the payment of real property tax based on the following grounds: 1) that under the Joint Regulations, the tax being imposed is "real property" different and distinct from personal property such as computers, typewriters, elevators, air conditioners which if not allegedly permanently attached to land or buildings, are not real properties but personal properties. 2) Machinery, whether or not permanently attached to a building or land, are considered immovable properties. Since the Real Property Tax Code does not define real property (machinery) the definition of immovable property in Article 415 of the New Civil Code must apply. 3) the Machinery not permanently attached to either building or land are at the very least assets of the school. As such they should be exempt not only from the real property tax but from all other taxes pursuant to Article XIV, Section 4(3) of the 1987 Constitution. Please be informed in this regard that the governing law pertaining to Local Government Taxation and Fiscal Matters, is the Local Government Code of 1991.(R.A. No. 7160), which specifically repealed PD 464, (the Real Property Tax Code, as amended) Please be informed further that Section 3(m) of P.D. No. 464, as amended, (definition of Machinery), was restated and provided a substantially similar definition of machinery under Section 199(o) of R.A. No. 7160, as implemented under Article 290 of the Implementing Rules and Regulations (IRR) of the Code, which reads as follows: "Art. 290. Definition of Terms. When used in this Rule, 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. SDHTEC "Physical facilities for production, installations and appurtenant service facilities, those which are mobile, self powered, or self propelled and those not permanently attached to the real property shall be classified as real property provided that: "(1) They are actually, directly, and exclusively used to meet the needs of the particular industry business, or activity; and "(2) By their very nature and purpose are designed for, or necessary to manufacturing, mining, logging, commercial, industrial, or agricultural purposes. "Machinery which are of general purpose use including but not limited to office equipment, typewriters, telephone equipment, breakable or easily damaged containers (glass or cartons), micro computers, fax, telex machines, cash dispensers, furnitures and fixtures, freezers, refrigerators, display cases or racks, fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry, business or activity shall not be considered within the definition of machinery under this Rule ." (Emphasis supplied) Simply put, machinery need not be attached permanently or temporarily to the real property, to be considered real property subject to real property taxes. The law provides that machineries should be: 1) actually, directly, and exclusively used to meet the needs of the particular industry, business or activity; and 2) essential to either manufacturing, mining, logging, commercial, industrial, or agricultural purposes. With regard to the third issue, we agree with your contention that real properties (land, buildings and improvements) which are actually, directly and exclusively used for educational purposes should be exempt from the payment of real property taxes pursuant to Section 28(3) of the 1987 Constitution and Section 234(b) of R.A. No. 7160, otherwise known as the local Government Code of 1991.We maintain, however, that machineries should not be considered exempt from real property taxes in view of the above considerations. This Bureau believes and so holds that if it is indeed the intent of the framers of the Constitution and the Local Government Code of 1991 to include machineries from the exemption privileges granted to educational institutions, they would have done so by specifically mentioning in the aforecited exemption provisions that the same is among those that should be declared exempt from real property taxes. The absence of any explicit exemption provisions in the Constitution and the Local Government Code of 1991, does not render educational machineries as among the real properties exempt from real property taxation. What is not included is deemed excluded. ( expressio unius est exclusio alterius ) It is worthwhile to note that the Department of Finance (DOF), concurs in the 2nd Indorsement dated January 23, 1992, copy attached, of this Bureau, concerning the request of the Catholic Educational Association of the Philippines (CEAP), for the Department of Finance to issue a Department Order taking into consideration the Constitutional provision regarding tax exemption of real properties actually, directly and exclusively used for religious, charitable and educational purposes. In the said ruling, BLGF clarified that "the said provisions of the Constitution did not include 'machinery in the kinds of real properties that are exempt from real property taxation, (hence) the Department of Finance, contrary to the contention made, is in no position to provide for the exemption of the machineries from real property taxes.'" In conclusion, therefore, this Bureau, much to its regret, hereby denies your petition for the recall/repeal of JLTA No. 1-88, and thereby reiterates that the ruling embodied under the 2nd Indorsement dated January 23, 1992 that is, the exemption from real property taxes, should not include machineries, even if these are actually, directly and exclusively used for religious, charitable and educational purposes to be in order. This Bureau will no longer entertain similar requests for reconsideration of this nature in the future. aDHCEA Very truly yours, (SGD.) BENJAMIN A. GERONIMO Executive Director