Bureau of Local Government Finance Opinion

March 14, 2003 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Joselito M. Laniwan Licensing Officer Office of the Mayor Catarman, Northern Samar S i r : This refers to your letter dated January 12, 2003, addressed to the Honorable Secretary of the Department of Finance, which was forwarded to this Bureau for appropriate action, which includes, among others, issues concerning the liability of the owners of the following real properties located in Catarman, Northern Samar; to pay real property tax, to wit: 1. Commercial buildings owned by the Diocese but are being leased to businessmen; 2. Private educational institutions (Kindergarten, Elementary, Secondary, Tertiary and Post-Graduate Studies), and Private Technical Schools (i.e. Computer Schools, etc.); 3. Gasoline Stations (Caltex, Shell, Petron, etc.); and 4. Electric Cooperatives. Basically, the provision of law applicable to the abovementioned real properties is provided under Section 234 of R.A. No. 7160, otherwise known as the Local Government Code of 1991, which is quoted hereunder: "SEC. 234. Exemptions from Real Property Tax . The following are exempted from payment of the real property tax: "(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person; "(b) All charitable institutions, churches, parsonages or convents appurtenant thereto including mosques, nonprofit or religious cemeteries and all lands, buildings, and improvements which are actually, directly and exclusively used for religious, charitable or educational purposes; "(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; "(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and "(e) Machinery and equipment exclusively used for pollution control and environmental protection. "Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons, whether natural or juridical, including all government-owned or -controlled corporations are hereby withdrawn upon the effectivity of this Code." However, in addressing each and every issue, it is deemed best to include other provisions of law and previous opinions issued by this Bureau, treating on a similar subject matter, for further clarity. Hence, the following discussions: On Query No. 1 : Under the 2nd Indorsement dated January 10, 2003, copy enclosed, this Bureau, treating on the taxability of the General Council of the Assemblies of God (GCAG) opined in part, as follows: "xxx xxx xxx. "The applicable provision of law on the matter is Section 234(b) of the Local Government Code of 1991 (R.A. No. 7160), which is quoted hereunder: "xxx xxx xxx. "Evidently, in order to qualify for exemption from the payment of real property tax, all lands, buildings, and improvements should be actually, directly and exclusively used for either educational, charitable or in this case, religious purposes. "Please be informed, in this regard that the required exclusive, actual and direct use of land, buildings and improvements had been adequately discussed by the Supreme Court (G.R. No. L-49336), in the case of the Province of Abra vs. the Hon. Harold M. Hernando , dated August 31, 1981 . . . "xxx xxx xxx. "In view of the representation made by that Office that the subject properties are used as office of the International Correspondence Institute, the required actual, direct and exclusive use of the properties for religious purposes as mandated under Section 234(b) of the Local Government Code of 1991 which was substantially reproduced under Section 28(3), Article VII of the 1987 Constitution, is deemed not complied with. "This Bureau, therefore, believes that inasmuch as the properties of the General Council of the Assemblies of God, Inc. are not actually, directly and exclusively used for religious purposes, GCAG is subject to real property tax in pursuance of the 1987 Constitution, the Local Government Code of 1991, and the abovecited Supreme Court Decision." Similarly, therefore, and if , the subject real properties of the Diocese thereat are indeed being leased to businessmen, the required actual, direct and exclusive use of the similar properties (of religious institutions), is obviously not complied with. Hence, this Bureau believes that the real properties (Commercial Buildings) owned by the Diocese in the instant case, are subject to the payment of real property tax due thereon. The Municipal Assessor of Catarman could make use of the Contract of Lease entered into by and between the Diocese and the Lessee as the basis in determining who is liable to pay the real property tax. On Query No. 2 : Attention is likewise invited to Section 28(3), Article VII of the 1987 Constitution which is quoted below: "Charitable institutions, churches and parsonages or convents appurtenant thereto, non-profit cemeteries, and all lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes shall be exempt from taxation ." (Emphasis ours) Please note that the aforequoted provision of law was copied almost verbatim under Section 234(b) of R.A. No. 7160. Moreover, the issuance of Local Finance Circular No. 001-2002 dated April 25, 2002, copy also enclosed, of the Department of Finance, further clarifies the tax exempt status of machinery and equipment used for, among others, educational purposes. The said Circular provides in part, as follows: " Summary of the rules "xxx xxx xxx. "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." In view of the foregoing, all real properties being used actually, directly and exclusively for educational purposes are exempt from the payment of real property taxes. Accordingly, private educational institutions and private technical schools, as in this case, are among those that shall enjoy the said real property tax exemption privileges provided by law, for so long as the same are accredited by the Department of Education. On Query No. 3 : The answer is in the affirmative. It is evident from the abovequoted provision of Section 234 of the said Code that, gasoline stations, i.e. Petron, Caltex, Shell, etc. are not among those specifically mentioned in the grant of real property tax exemption privileges. Therefore, the same should be included in the "Taxable Roll" of real properties, and classified as "Commercial" applying the assessment levels pursuant to Section 218 of the same Code. On Query No. 4 : Lastly, on the issue concerning the taxability of electric cooperatives, please be informed of the Temporary Restraining Order (TRO) issued by the Supreme Court on July 25, 2000, copy also enclosed, docketed as G.R. No. 143076 ( Phil. Rural Electric Cooperatives, Inc. (PHILRECA); Agusan del Norte Electric Cooperative, Inc. (ANECO), Iloilo Electric Cooperative, Inc. (ILECO I); and Isabela Electric Cooperative, Inc. (ISECO I) vs. The Secretary, Department of the Interior and Local Government (DILG) and the Secretary, Department of Finance (DOF) ). It may be emphasized, however, that the said TRO affects only the parties mentioned in the case, otherwise, the exemption proviso of the abovequoted Section 234(d) of the Local Government Code of 1991 shall prevail. Therefore, this Bureau is of the opinion that, if the electric cooperatives located thereat are electric cooperatives duly registered with the Cooperative Development Authority (CDA) with an accumulated reserves and undivided net savings of not more than Ten Million Pesos (P10,000,000.00) , the same are exempt from the payment of real property tax pursuant to Section 62(1) of R.A. No. 6938, also known as the Cooperative Code of the Philippines. This exemption from national and local taxes was further clarified under the 1st Indorsement dated December 21, 1999, copy also enclosed, of this Bureau, treating on a similar subject matter, which reads in part, as follows: "Article 62(1) of Republic Act No. 6938, as implemented under DOF-CDA Joint Circular No. 1-90 dated November 7, 1990; and the Provisions of Section 234(d) of Republic Act No. 7160, also known as the Local Government Code of 1991, provide as follows: " Article 62, R.A. 6938 : "Article 62. Tax and Other Exemptions . Cooperatives transacting business with both members and non-members shall not be subject to tax on their transactions to members. Notwithstanding the provisions of any law or regulation to the contrary, such cooperatives dealing with non-members shall enjoy the following exemptions: "(1) Cooperatives with accumulated reserves and undivided net savings of not more than Ten Million Pesos (P10,000,000.00) shall be exempt from all national, city, provincial, municipal or barangay tax of whatever name and nature. "xxx xxx xxx. "It is noteworthy to mention hereon that, in addition to the exemption from the payment of real property taxes, cooperatives are exempt from the payment of local taxes, fees, or charges as provided for under Section 133(n) of the same code. However, subject cooperatives are still liable to the payment of service charges or rentals for the use of property and equipment or public utilities owned by local governments such as charges for actual consumption of water, electric power, toll fees for the use of public roads and bridges and the like. (BLGF Memorandum Circular No. 02-97 dated March 18, 1997)" The other concerns mentioned in your letter pertaining to business taxes have been acted upon under a separate letter. acHCSD We trust that we have enlightened you on the matters. Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA Executive Director