Bureau of Local Government Finance Opinion

December 15, 2006 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 2nd Indorsement Respectfully returned to the Regional Director for Local Government Finance, Department of Finance, Region X, 6th Division, Corner Tejero Street, Patag, Cagayan de Oro City, the within preceding Indorsement dated February 1, 2006 relative to the letter dated January 30, 2006 of the City Assessor, same city, inquiring on whether or not the exemption of the machinery declared in the name of Asian College of Science and Technology (ACSAT) can be made retroactive in 1998 considering that the Local Finance Circular (LFC) No. 001-2002 of the Department of Finance only took effect on April 25, 2002. The subject machinery of ACSAT were assessed as taxable effective 1998 by the City Assessor's Office of Cagayan de Oro City. However, upon the issuance of the said circular, the said machinery and equipment used for religious, charitable and educational purposes were declared by the said Office as exempt effective the second quarter of 2002 , and were consequently transferred from the "Roll of Taxable" to "Exempt Roll" of real properties. ACSAT, on the other hand argued that the exemption under the circular should retroactive to the year 1998 and not 2003, the year following the Local Finance Circular No. 001-2002, dated April 25, 2002 was issued. It may be recalled that LFC 001-2002 was issued to: (1) clarify certain provisions in Joint Local Treasury/Assessment Regulations No. 1-88, which the subjects real property tax on machinery that are attached to land and buildings even though these are actually, directly, and exclusively used for religious, charitable and educational purposes on the ground that the word "improvement" does not include "machinery"; and 2) clarify the provision of Article XIV, Section 3 (3) of the 1987 Constitution viz. : cAECST "All revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively, for educational purposes shall be exempt from taxes and duties. "xxx xxx xxx". The aforequoted provision provides that non-profit educational institutions with constitutionally guaranteed exemption from duties and taxes including real property tax on their assets, i.e. , property of all kinds (real or personal), are likewise exempt from real property tax on machinery and equipment. A reading of the attached Amended Articles of Incorporation reveals that ACSAT is a non-stock and non-profit association, and is therefore covered by the law. Pertinent portions of the Summary of the Rules of Local Finance Circular No. 001-2002 dated April 25, 2002 are quoted hereunder: " Summary of the Rules : "1. Machinery that is permanently attached to land and buildings is subject to the real property tax, even though this is actually, directly, and exclusively used for religious, charitable or educational purposes. "2. Machinery that is not permanently attached to real estate is: 'a. Subject to the real property tax if it is an essential and principal element of an industry, work or activity without which such industry, work or activity, cannot function; and 'b. Not subject to the real property tax if it is not an essential and principal element of an industry, work or activity. "3. Notwithstanding rules 1 and 2, machinery of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes is not subject to real property tax. "xxx xxx xxx. "In accordance with the guidelines laid down in this Circular, all local treasurers and assessors are hereby directed to list such machinery and equipment of non-stock non-profit educational institutions as 'EXEMPT' in their respective assessment rolls upon compliance of the tax exempt individual or entity with the provisions of Section 206 of the Local Government Code. "xxx xxx xxx" Based on the foregoing, this Bureau is of the considered view that the request for retroactive effectivity in 1998 of exemption of the subject machinery owned by ACSAT should be given due course. ECaHSI Please be guided accordingly. (SGD.) MA. PRESENTACION R. MONTESA Executive Director