Bureau of Local Government Finance Opinion

August 24, 2012 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Ricardo Nieva Municipal Assessor Boac, Marinduque Sir : This has reference to your letter dated February 16, 2012, posing the following queries: 1. Whether the 4.0 MW Modular Generating Sets owned by Cummins Sales and Services Philippines, Inc. (CSSPI) and being leased and utilized by the National Power Corporation (NPC) for their Boac Diesel Power Plant situated at Boac, Marinduque is subject to real property tax; and 2. Considering that your office has just obtained a copy of the lease contract, is it proper to start its taxability this year upon appraisal. To determine whether the machinery in question is not subject to real property tax, reference should be made to Section 234 of R.A. No. 7160, otherwise known as the Local Government Code of 1991, which provides in part, that: " Section 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 ;" (underscoring and emphasis ours) Evidently, machinery which are actually, directly and exclusively used by government-owned and -controlled corporations, for the generation and transmission of electric power are exempt from payment of the real property tax. IEAacT Further, the Supreme Court in the case of National Power Corporation versus Province of Quezon and Municipality of Pagbilao , G.R. No. 171586, dated July 15, 2009, held in part, viz. : "The test of exemption is the nature of the use, not ownership, of the subject machineries. ". . . To successfully claim exemption under 234 (c) of the LGC, the claimant must prove two elements: "a. the machineries and equipment are actually, directly and exclusively used by local water districts and government-owned or controlled corporations ; and "b. the local water districts and government-owned and controlled corporations claiming exemption must be engaged in the supply and distribution of water and/or the generation and transmission of electric power . (underlining supplied) As applied to the present case, the government-owned or controlled corporation claiming exemption must be the entity actually, directly, and exclusively using the real properties, and the use must be devoted to the generation and transmission of electric power." Thus, premises considered, if the 4.0 MW Modular Generating Sets, although owned by CSSPI, but are actually, directly, and exclusively used by NPC, for its Boac Diesel Power Plant for the generation and transmission of electric power, the subject real property is exempt from payment of the real property tax. As regards your second (2nd) query, attention is invited to Section 221 of the same Code which provides in part, that: "Section 221. Date of Effectivity of Assessment or Reassessment. All assessment or reassessment 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 . . . ." (underlining supplied) From the provision aforequoted, it could be inferred that the taxability of the subject machinery shall commence on the first (1st) day of January, the year following the start of its operation. However, since the subject property is exempt from real property tax as discussed above, the second question is thus rendered moot and academic. To reiterate, this Bureau is of the opinion that if the 4.0 MW Modular Generating Sets, although owned by CSSPI, but are actually, directly, and exclusively used by NPC, for its Boac Diesel Power Plant for the generation and transmission of electric power, the subject real property is exempt from payment of the real property tax. Be guided accordingly. cHaADC Very truly yours, (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director