Bureau of Local Government Finance Opinion

January 30, 2001 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 2nd Indorsement Respectfully referred to the City Assessor, Tagbilaran City, the preceding Indorsement dated December 29, 1998 relative to Committee Report No. 285, series of 1998 of the Sangguniang Panlungsod, that city, concerning Resolution No. 025, series of 1998 of the Bohol Bankers Association (BBA), in effect requesting that Office to declare only the Automated Teller Machines (ATMs) of banks as machineries as defined under the provisions of the Local Government Code of 1991 (R.A. No. 7160). It is submitted that the said Association recognizes the power of the Tagbilaran City government to impose real property taxes on real properties to include machineries. However, it is also their (BBA) contention that the installed air-conditioning units (window and packaged type), small generating sets and other mechanical devices of the same nature are not essentially part and parcel of, nor being used directly in, the banking business. It is also the opinion of all bank managers of BBA that only ATMs, which are directly used in the banking business, should be subject to realty taxation as provided for under the provisions of the said Code Section 199(o) of the Code is quoted hereunder: "SEC. 199. Definitions . When used in this Title; 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. It includes the physical facilities for production, the installations and appurtenant service facilities, those which are mobile, self-powered or self-propelled, and those not permanently attached to the real property which are actually, directly, and exclusively used to meet the needs of the particular industry, business or activity and which by their very nature and purpose are designed for, or necessary to its manufacturing, mining, logging, commercial, industrial or agricultural purposes;" From the abovequoted provisions of law, it is clear that only machines/equipment which are actually, directly and exclusively used to meet the needs of the banking business should be classified as real property subject to the payment of real property taxes. IaSAHC Accordingly, this Bureau agrees with the contention of the BBA that ATMs, which are actually, directly and exclusively used to improve banking services not to mention the convenience it provides to bank clients, are considered real properties subject to real property taxes. Other equipment/machines, however, which are not essentially being used directly and exclusively in the banking business like air conditioning units (window and packaged type), small generating sets and other mechanical devices of the same nature which are considered as falling under the category of machinery of general purpose use should not be considered real properties in line with the clarification under Article 290(o) of the Implementing Rules and Regulations of R.A. No. 7160, which states: "Art. 290(o). 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. "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. "xxx xxx xxx." We trust that this clarifies matters. aESHDA (SGD.) BENJAMIN A. GERONIMO Executive Director