Bureau of Local Government Finance Opinion

December 16, 2004 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION The City Assessor Pasig City S i r : This is in connection with your letter of September 28, 2004 addressed to the Vice President of Group Controller, CHEMPHIL Group, LMG Chemical Corporation, copy furnished this Bureau, relative to the request for the transfer of the company's machineries covered by TD Nos. E-006-01649 to E-006-01650, E-006-01651 and E-006-01652 from the taxable roll of real property to the exempt roll of real property for reason of closure issued by the Pasig City Government. In its letter dated September 23, 2004 to that office, Chemphil informed that a gas leak occurred in the vicinity of San Joaquin Elementary School in San Joaquin, that city on September 10, 2004. Consequently, a Cease and Desist Order (CDO) was issued by the City of Pasig on September 13, 2004; and thereafter padlocked the Sulfuric Acid plant pending the result of the investigation being conducted by the Multipartite Monitoring Team. With the issuance of the CDO on the machineries used by LMG Chemicals Corp. (LMG), the company is requesting that these machineries be transferred from the taxable roll to exempt roll of real properties in consonance with the opinion of the Bureau of Local Government Finance (BLGF) contained in its 3rd Indorsement dated February 12, 1988 portion of which is quoted hereunder: "xxx xxx xxx. "From the abovequoted provision of law, it is clear that machinery shall be assessed for taxation purposes when the same are actually, directly and essentially used to meet the needs of the particular industry, business or works, which by their very nature and purposes are designed for manufacturing or industrial purposes. Conversely, when machineries are no longer actually used for its purpose by reason of closure or cessation of production, the same should be transferred from the Taxable Roll to the Exempt Roll and not be subjected to the payment of real property taxes during the period of non-use." In his letter-reply dated September 28, 2004, the City Assessor of Pasig denied the subject request and submitted the following arguments, to wit: "In this connection, may we respectfully inform you that under Section 199(o) of R.A. 7160, machineries as defined consist of the following: "1. Those that are permanently attached to the real property. "2. Those that are mobile, self-powered or self propelled and "3. Those that are not permanently attached." Section 199(o) of the Local Government Code of 1991 (R.A. No. 7160) provides the following: "Section 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 ; (Emphasis ours) The above definition of machinery is indeed very clear that machinery: (1) may or may not be attached permanently or temporarily to the real property to be considered real property subject to real property tax; (2) should be actually, directly and exclusively used to meet the needs of the particular industry, business, or activity; and (3) by their very nature and purpose are designed for, or necessary to its manufacturing, mining, logging, commercial, industries or agricultural purposes. When these machineries, either permanently attached or not to the real property, cease to be actually, directly and exclusively used to meet the needs of the particular business or industry, either by reason of closure or cessation of production, these machineries should no longer be subject to real property tax. ADEHTS It is emphasized that the law did not make any distinction on what kind of machinery should be, and should not be transferred from taxable roll to exempt roll when these stopped being operational. The law is very explicit. It is an accepted legal principle that "when the law does not distinguish, we should not distinguish." In his 1st Indorsement dated October 22, 2004, treating on the same subject matter, the City Assessor argued that to transfer these machineries from taxable roll to exempt roll "will be tantamount to executive legislation considering; that Section 234 of R.A. 7160, provides for the enumeration of exempt real properties and that the present request is not one of these enumerated. This Bureau admits that indeed the said request is not one of those enumerated under Section 234 of the Code, simply because these subject machineries are not really considered exempt from payment of real property tax. These machineries are taxable under Sections 199(o) and 232 of the Code; but because these are no longer being used for its intended purpose, as the law mandated them to be, such as the production of sulfuric acid, it is but logical and fair that they be dropped from the taxable roll. The transfer to the exempt roll is merely for records purposes. As discussed earlier, the definition of machinery states that these machinery should be "actually, directly and exclusively used to meet the needs of the particular industry, business or activity." Inasmuch as said machineries have became inoperational, not to its own liking, but to the CDO issued by the City Government of Pasig; and in the interest of justice and fair play, these should be transferred from the taxable roll to exempt roll not being in consonance with the required actual, direct and exclusive use as mandated under Section 199(o) of the Code. This has been the consistent stand of this Bureau, even prior to the Local Government Code of 1991, and cited also in the later case of MARCOPPER, and reiterated in the attached letter dated July 30, 2003, in the case of National Steel Corporation (NSC). At any rate, when the company resumes its activity/operations, the said machineries owned by LMG Chemical Corporation, should then be assessed as taxable real properties, effective on the first day of January of the year immediately following the resumption of its business activity/operations. In the meantime, this Bureau believes that for so long as the machineries owned by CHEMPHIL GROUP, LMG Chemical Corporation, are not in use for reason of closure or cessation of production, the same are not subject to real property tax. Accordingly, the herein request for the transfer from the taxable roll to exempt roll of real property of the subject machineries of LMG Chemical Corporation, for reason of closure of its operation, should be given due course as discussed herein. A separate letter of even date has been sent to the Vice President-Group Controller Chemphil Group, LMG Chemical Corporation, for her information. AHECcT Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA Executive Director