Bureau of Local Government Finance Opinion

October 24, 2003 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully referred, thru the Provincial Assessor, Malolos, Bulacan, to the Municipal Assessor of Norzagaray, same province, for full comment, the within letter dated June 18, 2003 of the SGV & Co., 6760 Ayala Avenue, 1226 Makati City, in behalf of their client, Continental Operating Corporation (COC), requesting confirmation of their opinion that: 1. Machinery and equipment of COC which have never been used and operated by the Company since its acquisition in 1998 should not be subject to real property tax; 2. Machinery and equipment of the Company which became idle and which were not used during its repair and rehabilitation in years 2000 and 2001 are not subject to RPT for the said period; and 3. Machinery and equipment of the Company, which have never been commissioned, installed, operational and used by the Company are also not subject to RPT. It is represented that COC is a domestic corporation engaged in the business of manufacturing, producing, processing, buying, selling, importing, exporting and otherwise dealing in any and all kinds of cement and cement products. It is represented further that COC's manufacturing plant consists of three (3) lines, where each line is composed of buildings and various machinery and equipment used for the manufacture of cement and cement products. COC likewise alleged that out of three (3) lines, only Line 2 has been operating since 1999 and beginning 2002 after its rehabilitation in years 2000 and 2001. During the rehabilitation from 2000 and 2001, it was alleged that the Company only operated the grinding facilities of Line 2. Line 1 was never operational due to the alleged obsolescence and hazardous conditions of the machinery and equipment, while Line 3 was never completed nor commissioned and as such, has allegedly never been operational to date. ESTDIA In the abovementioned letter, SGV & Co. cited previous opinions of this Bureau, all of which consistently ruled that "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 Exempt Roll and not be subjected to the payment of real property taxes during the period of non use." In this connection, and without pre-empting the requested comments on the matter, attached is a copy of our latest ruling embodied under a letter addressed to Atty. Danilo L. Concepcion, for and in-behalf of the National Steel Corporation (NSC), dated July 30, 2003, treating on a similar subject matter, portion of which provides as follows: "Beyond doubt, the provision of Section 199(o), clearly provides that machinery, (such as those of NSC's) should be actually, directly and exclusively used to meet the needs of a particular industry, business or activity. When these machineries are no longer actually, directly and exclusively used for its intended purpose, the same should no longer be subject to real property tax. However, it is emphasized that upon resumption of its activity/operations, the machineries owned by NSC 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. "Viewed in this light, this Bureau believes that for so long as the machineries owned by the NSC are not used for reason of closure or cessation of production, the same are not subject to real property tax." The requested comment is desired within ten (10) days from receipt hereof. (SGD.) MA. PRESENTACION R. MONTESA Executive Director