Bureau of Local Government Finance Opinion

January 6, 2010 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Ms. Rosalina S. Maglasang Municipal Treasurer Municipal Hall Consolacion, Cebu Madam : This refers to your letter of October 22, 2009, requesting for the opinion of this Bureau on the following matters: 1. Interpretation of the provisions of Section 270 of R.A. No. 7160 or the Local Government Code of 1991, specifically the phrase "shall be collected": Section 270 of Local Government Code of 1991, provides: "SEC. 270. Periods Within Which to Collect Real Property Taxes. The basic real property tax levied under this Title shall be collected within five (5) years from the date they become due. No action for the collection of the tax, whether administrative or judicial, shall be instituted after the expiration of such period. In case of fraud or intent to evade payment of the tax, such action may be instituted for the collection of the same within ten (10) years from the discovery of such fraud or intent to evade payment. "The period of prescription within which to collect shall be suspended for the time during which: "(1) The local treasurer is legally prevented from collecting the tax; TSHcIa "(2) The owner of the property or the person having legal interest therein requests for reinvestigation and executes a waiver in writing before the expiration of the period within which to collect; and "(3) The owner of the property or the person having legal interest therein is out of the country or otherwise cannot be located." (underscoring supplied) The provisions of Section 270 had been discussed in this Bureau's 2nd Indorsement dated July 24, 2009, to the Assistant City Treasurer for Operations of Cebu City, as follows: "Apparently, the wisdom behind the provision of the Local Government Code of 1991, on the prescriptive periods to collect is to compel local treasurers to promptly perform their duty to collect real property tax for the benefit of the taxing authority, the local government unit. The prescriptive periods were provided to enforce the collection of real property tax within a specific time. Thus, no action for collection, whether administrative or judicial, shall be instituted after the lapse of the five-year or ten-year periods, as the case may be. Please take note that under the ten-year prescriptive period, fraud or intent to evade payment must be alleged and supported by clear and convincing proof. "There have been clarifications earlier made by this Bureau that if the local treasurer has been sending notices of delinquency and/or reminder letters for the payment of delinquent real property tax preparatory to the application of administrative and/or judicial remedies in the collection thereof as provided for by law in observance of due process, the delinquent real property tax may be collected even beyond the five-year period. It is only when the local treasurer neglected or deliberately failed to perform his/her mandated duties giving rise to the prescription of the period to collect that the taxpayer may validly invoke the provision on prescriptive period. Otherwise, taxpayers may circumvent the law by not paying their taxes at all and will just wait for the lapse of the periods to collect." This Bureau hastens to add though that the phrase "shall be collected" under Section 270, underscores the mandatory character to collect real property tax within five years or ten years, as the case may be, including the use of administrative and/or judicial remedies. The phrase therefore connotes actual collection. However, this provision on prescriptive periods in the collection of real property tax is not meant to shield a real property owner-taxpayer from payment of delinquent tax when despite meaningful efforts exerted by the local treasurer to collect, the tax remains unpaid and unsettled. HcSCED 2. Compromise Agreement on delinquent real property tax At the outset, Presidential Decree (P.D.) No. 464, 1 as amended, was repealed by R.A. No. 7160 or the Local Government Code of 1991. Consequently, Assessment Regulations No. 2-83, dated January 19, 1983, issued by then Ministry of Finance, allowing compromise agreement for the settlement of delinquent real property tax pursuant to P.D. 464, is no longer effective. Under the Local Government Code of 1991, the power to impose local taxes was conferred upon the local council or sanggunian , as follows: "SEC. 132. Local Taxing Authority. The power to impose a tax, fee or charge or to generate revenue under this Code shall be exercised by the sanggunian of the local government unit concerned through an appropriate ordinance." The Code specifically granted the power to levy real property tax to the province, or city, or a municipality within Metropolitan Manila, viz. : "SEC. 232. Power to Real Property Tax. A province or city or a municipality within the Metropolitan Manila Area may levy an annual ad valorem tax on real property such as land, building, machinery, and other improvement not hereinafter specifically exempted. In pursuance of the foregoing provisions of Sections 132 and 232, Administrative Order No. 261, was issued by the Office of the President, directing all local councils of provinces, cities, and municipalities within the Metropolitan Manila Area to enact a local tax ordinance, levying an annual ad valorem tax on real property and an additional tax accruing to the SEF. Thus, said local government units enacted their own real property tax ordinance which is the basis for the collection of real property tax by the local treasurers who are dutybound per Section 247 of the Local Government Code of 1991, which provides: "SEC. 247. Collection of Tax. The real property tax with interest thereon and related expenses, and the enforcement of the remedies provided for in this Title or any applicable laws, shall be the responsibility of the city or municipal treasurer concerned. AIDTSE "The city or municipal treasurer may deputize the barangay treasurer to collect all taxes on real property located in the barangay : Provided, That the barangay treasurer is properly bonded for the purpose: Provided, further, That the premium on the bond shall be paid by the city or municipal government concerned." The settlement of delinquent real property tax by way of a compromise agreement is not specifically and explicitly conferred by the Local Government Code of 1991. Equally significant however is, there is likewise no prohibition. Therefore, a compromise agreement may be resorted to in the settlement of a delinquent real property tax which must be provided for in the real property tax ordinance, or in any amendments thereto, conferring authority upon the provincial or city treasurer or the municipal treasurer of Metropolitan Manila to enter into a compromise agreement consistent with their statutory responsibility to collect real property tax under the aforecited provisions of Section 247 of the Local Government of 1991. It may be inferred that the compromise agreement on delinquent real property tax may be resorted to at certain times before or after availing of the administrative or judicial remedies provided for by Section 256 of the Local Government Code of 1991, viz. : "SEC. 256. Remedies for the Collection of Real Property Tax. For the collection of the basic real property tax levied under this Title, the local government unit concerned may avail of the remedies by administrative action through levy on real property or by judicial action." It bears stressing the remedies by which delinquent real property taxes may be collected, that is, administrative action through levy on real property and judicial action by filing in the regular court an action for collection against the delinquent taxpayer, vis--vis the prescriptive periods for the collection of real property tax under Section 270 of the Local Government Code of 1991. Both administrative and judicial remedies may be used simultaneously. The compromise agreement for the settlement of real property tax delinquencies may be resorted to at anytime, as follows: 1.) Prior to the distraint of personal property or the expiration of the year for which the tax is due "SEC. 254. Notice of Delinquency in the Payment of the Real Property Tax. . . . (b) Such notice shall specify the date upon which the tax became delinquent and shall state that personal property may be distrained to effect payment. It shall likewise state that at any time before the distraint of personal property, payment of the tax with surcharges, interests and penalties may be made in accordance with the next following Section, and unless the tax, surcharges and penalties are paid before the expiration of the year for which the tax is due, except when the notice of assessment or special levy is contested administratively or judicially pursuant to the provisions of Chapter 3, Title Two, Book II of this Code, the delinquent real property will be sold at public auction, and the title to the property will be vested in the purchaser, subject, however, to the right of the delinquent owner of the property or any person having legal interest therein to redeem the property within one (1) year from the date of sale." ScaAET 2.) At any time before the date fixed for the auction sale "SEC. 260. Advertisement and Sale. . . . . At any time before the date fixed for the sale, the owner of the real property or person having legal interest therein may stay the proceedings by paying the delinquent tax, the interest due thereon and the expenses of sale. . . . ." 3.) Within one year from the date of auction sale "SEC. 261. Redemption of Property Sold. Within one (1) year from the date of sale, the owner of the delinquent real property or person having legal interest therein, or his representative, shall have the right to redeem the property upon payment to the local treasurer of the amount of the delinquent tax, including the interest due thereon, and the expenses of sale from the date of delinquency to the date of sale, plus interest of not more than two percent (2%) per month on the purchase price from the date of sale to the date of redemption. . . . ." 4.) Within one year from the date of forfeiture by the Local Government Unit for want of bidder "SEC. 263. Purchase of Property by the Local Government Units for Want of Bidder. . . . . "Within one (1) year from the date of such forfeiture, the taxpayer or any of his representative may redeem the property by paying to the local treasurer the full amount of the real property tax and the related interest and the costs of sale. . . . ." 5.) During the pendency of a civil action in court for the collection of delinquent real property tax "SEC. 266. Collection of Real Property Tax Through the Courts. The local government unit concerned may enforce the collection of the basic real property tax or any other tax levied under this Title by civil action in any court of competent jurisdiction. The civil action shall be filed by the local treasurer within the period prescribed in Section 270 of this Code." At any stage of the judicial proceeding in an action to collect delinquent real property tax, the parties thereto may enter into a compromise agreement which shall be submitted to the court for approval and becomes the judgment or decision subject to execution in accordance with the Rules of Court. There is, however, a difference with respect to the compromise agreement entered into at this stage. The provincial or city treasurer or municipal treasurer of Metropolitan Manila who has been conferred the authority to file the civil action may enter into such compromise agreement in the pending court action to collect delinquent tax upon authority of the sanggunian by a mere resolution. Thus, there is no need to pass an ordinance for the purpose as such procedure is part of the remedy of judicial action availed of by the local government unit. SCaTAc Taking into account the aforecited provisions of the Local Government Code of 1991, and other applicable law, rules and regulations, the following requisites and measures may be used as guide in a compromise agreement for the settlement of delinquent real property tax: 1. A duly enacted ordinance, granting authority upon the provincial or city treasurer or municipal treasurer of Metropolitan Manila to enter into a compromise agreement and prescribing the terms and conditions thereof. However, if the compromise agreement is entered into as a procedural requirement in a pending court action for collection of delinquent real property tax, a mere resolution of the sanggunian , granting authority to the provincial or city treasurer or municipal treasurer of Metropolitan Manila to enter into a compromise agreement will suffice. 2. The aggregate delinquent real property tax is so much and too burdensome to the property owner-taxpayer and there exists serious doubt that the owner-taxpayer could ever pay the full amount of tax liability at one time within the remainder of the statutory period for collection. 3. The term of payment must not be beyond the remainder of the statutory period for collection, or beyond the period of redemption, as the case may be. 4. The compromise agreement does not defeat the tax collection efforts of the local taxing authority or does not serve to discourage diligent taxpayers. 5. The amount of tax liability is not reduced. 6. The compromise agreement is most advantageous to the local taxing authority vis--vis the tax collection costs and the circumstances. 7. That in case real property other than the delinquent real property is offered as payment to settle the delinquent tax obligation, the following should be taken into consideration: 7.1 The property offered in settlement of the delinquent real property tax must be located within the territorial jurisdiction of the local taxing authority, i.e. , within the province, city, or municipality within Metropolitan Manila, as the case may be. DHEACI 7.2 The delinquent taxpayer is the owner in fee simple of the real property offered as shown in the Transfer Certificate of Title. 7.3 The owner-taxpayer has the absolute right to convey the property and will hold the local government unit free from any suit, claim, obligation or liability that may arise from the transfer of ownership or title thereof. 7.4 The property is free from any lien, encumbrance or any other obligation due to or claim by a third person. 7.5 The property is up-to-date in the payment of real property tax. 7.6 The market value of the property as may be determined by the assessor or the local appraisal committee is sufficient to cover the amount of delinquent real property tax, including interests, penalties and surcharges, as well as any incidental expenses incurred. 7.7 The property being offered does not post any cost or liability to the local government unit. 8. Such other terms and conditions considered most advantageous to the local taxing authority and in conformity with the provisions of the Local Government Code on real property taxation. Significantly, inasmuch as real property tax is a provincial imposition, a component municipality is therefore devoid of authority and power to impose real property tax. A component municipality is merely deputized to collect the same through its Municipal Treasurer by virtue of the real property tax ordinance of the mother province. Along this line, a component municipality cannot enter directly into a compromise agreement regarding any real property tax delinquency. However, by virtue of an ordinance enacted by the province authorizing the provincial treasurer to enter into such agreement, the Municipal Treasurer of the component municipality being under the technical supervision of the Provincial Treasurer may be deputized for the purpose. EaICAD Finally, with respect to your query as to whether another compromise agreement may be entered into with a real property owner-taxpayer who is in default under a previous compromise agreement for real property tax delinquencies involving the same property, a distinction must be made. If the compromise agreement was entered into extrajudicially, the requisites or measures hereinbefore set forth are relevant. On the other hand, if the compromise agreement was entered into as a procedural matter and approved in court, such compromise agreement has become the decision of the court and shall be enforced through the issuance of a writ of execution. Trusting that the foregoing discussion has provided enlightenment on prescriptive periods and compromise agreement relative to the collection of real property tax. Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA Executive Director Footnotes 1. The old Real Property Tax Code.