Bureau of Local Government Finance Opinion

December 17, 2002 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Manalo Puno Jocson & Placido Law Offices 5th Floor Valero Tower 122 Valero Street, Salcedo Village, 1227 Makati City Attention: Atty. Pitero M. Reig Gentlemen : This refers to your follow-up letter dated 03 July 2002 relative to your letter of 21 February 2001, supplemented by a letter of 18 July 2001, requesting confirmation of your opinion that the parcel of land used as a nonprofit cemetery or memorial park ("Heritage Park") by the Heritage Park Management Corporation ("HPMC") is exempt from real property taxes imposed under Sections 232 and 233 of the Local Government Code of 1991. In the aforementioned letters, representations were made that the Heritage Park Project is a conversion project initiated by the Bases Conversion Development Authority ("BCDA") in fulfillment of its mandate under its enabling law, R.A. No. 7227, to accelerate the conversion into productive alternative uses of the former U.S. Military Bases and other military installations in Metro Manila for national development. Pursuant to said policy, then President Fidel V. Ramos, implementing R.A. No. 7227 through Executive Order No. 40, Series of 1992, assigned several parcels of land to BCDA, including a 105-hectare land situated inside the demilitarized Fort Bonifacio, beside the American Cemetery and the Libingan ng mga Bayani .Considering the location of the property, BCDA decided to convert and develop the same into a memorial park. The development and conversion project is known as the Heritage Park Project. You pointed out that under the Heritage Park Project, BCDA contributed the land into an asset pool pursuant to a Pool Formation Trust Agreement ("PFTA") that it executed with the Philippine National Bank ("PNB") and the Public Estates Authority ("PEA").Under the PFTA, PNB was appointed as the Trustee of the land, as well as the funds that would be contributed by the public through their subscription to participation certificates in Heritage Park Project, known as the Heritage Park Investment Certificates. The Investment Certificates would entitle the holders thereof to perpetual burial rights to corresponding burial lots to be developed through Heritage Park Project. It appears that while the original parcel of land conveyed in trust by BCDA for the Heritage Park Project has an area of 105 hectares, only a portion thereof, comprising an area of more or less 76 Hectares, was actually developed into the Heritage Park. The 29-Hectare portion of said land was reverted back to BCDA for the latter's Information Technology-Special Economic Zone (IT-SEZ) Project. A portion of the land was likewise earmarked by President Gloria Macapagal-Arroyo for her land distribution program in Taguig. It is your position that HPMC is a non-profit corporation. The sole reason for the incorporation of HPMC is to ensure that Heritage Park is managed and maintained properly for the perpetual use of its members the Certificateholders, and not to engage in business of selling burial lots for profit .You clarified that HPMC is not engaged in the business of selling interment or burial lots, or even leasing the same out to the public. HPMC is likewise not engaged in the business of selling Investment Certificates, as it had no Investment Certificates to sell. HPMC is a holder in trust of Heritage Park for the benefit of its members. The obvious fact is that HPMC has no pecuniary or business interest in Heritage Park .The only interest of HPMC in Heritage Park is as Trustee of the same, with the duty to care for, and maintain Heritage Park perpetually for the benefit of the Certificateholders. This is the sole reason for the existence of HPMC and not for any profit or business motive .It was stated that the naked ownership of the parcel of land subject of the development of Heritage Park remains with the BCDA. You stressed that none of the income being earned by the various funds of the Heritage Park Project through their investment in securities are being distributed to the members of HPMC or even to the benefit of HPMC. Instead, said income forms part and parcel of the funds, to be devoted to the completion of Heritage Park and set-aside for its perpetual care and maintenance. It was strongly argued that Heritage Park is a non-profit cemetery. The term " cemetery " for purposes of tax exemption has been defined as " an area or place where the dead are buried; a place of burial or place set apart either by municipal authorities or private enterprise for the interment of the dead, and includes whatever property is necessary for the use of the cemetery such as paths, ornamentation and the land within the cemetery limits acquired for but not yet actually for the burial of the dead ." (URSAL, SOFRONIO, Local Government Taxation (1992),378) A " non-profit cemetery" is one owned and operated by the government, by religious corporations, or by associations and societies exclusively for its members and not for profit .( ibid .) It was emphasized in your letters that in relation to the foregoing definition, only members of record of HPMC, the Certificateholders, are entitled to burial rights in the memorial park. It was stressed that the members of the HPMC are not even owners in their own right of specific burial lots but are merely entitled to burial rights in Heritage Park. The title of BCDA land is in trust with HPMC for the benefit of its members. Likewise, you emphasized that the burial lots in Heritage Park are not for sale nor are being offered for sale to the public .Burial rights in the memorial park are exclusively the privilege of the members of HPMC. It is argued that the BCDA land used in Heritage Park is exempt from real estate tax under Article VI, Section 28(3) of the 1987 Philippine Constitution that exempts nonprofit cemeteries from property and real estate taxes. In support thereof, you cited the Supreme Court case of Commissioner of Internal Revenue v. C.A. , G.R. No. 124043 (14 October 1998), in which it was clarified that the constitutional exemption refers to exemption from property and real estate taxes . The aforementioned letters were referred to the Municipal Assessor, Taguig, Metro Manila, for comment under a 1st Indorsement dated 09 March 2001 of this Bureau. The Municipal Assessor replied under a letter dated 18 October 2001, as follows: 1. That the Heritage Park is NOT a NONPROFIT or CHARITABLE cemetery nor a religious cemetery since it is selling a garden lot for consideration which is too expensive. No one or nobody can bury their dead FREE nor for a nominal fee. The buyer of the lot will pay for all kinds of services and charges in perpetuity, therefore, for profit; 2. It is not an EXCLUSIVE park because the lots are being sold to the public; 3. The allegation that HPMC does not distribute dividends to the shareholders does not necessarily give it a NONPROFIT status. The fact that HPMC is selling the lot for a big amount of consideration (NOT FREE) makes them taxable. As requested by HPMC, an informal conference was held on 22 August 2002, which was attended by representatives from the municipal government of Taguig headed by its municipal treasurer. The informal conference, which was held in this Bureau, was presided by Dir. E. R. PARDO, Policy Enforcement Service (PES).The parties reiterated their respective positions on the claim for exemption of Heritage Park from payment of real property tax. At the end thereof, the parties agreed that the municipal treasurer's office of Taguig will conduct an examination of the books of accounts of Heritage Park and a report thereof will be submitted to this Bureau. The purpose of the said examination is to verify whether HPMC is being conducted for profit and whether there are still burial lots the rights to which have been transferred to Certificateholders. However, this Bureau has not received any report on the result of the examination. In a letter dated 27 August 2002, the Municipality of Taguig reiterated its position that Heritage Park is not exempt. The following arguments were submitted: 1. For a cemetery or memorial park to qualify for a tax-exempt status, two (2) requisites must be present, namely: (1) it should be owned and operated by the government, religious corporation or association or society exclusively for its members, and; (2) it should not be operated for profit. It was argued that HPMC does not own Heritage Park. It is a mere trustee and this fact is admitted by the proponents in their letters dated 21 February 2001 and 18 July 2001 to BLGF. HPMC came into being on the aegis of a Pool Formation Trust Agreement (PFTA) entered into by the BCDA as Project Owner, the Public Estates Authority (PEA) as Project Manager and the Philippine National Bank (PNB) as the original trustee sometime in September, 1999. Later on, HPMC was made trustee in place of PNB. 2. HPMC was incorporated only on 28 April 1999. Its primary purpose is to manage a memorial park known as the "Heritage Park" situated at Fort Bonifacio, Taguig, Metro Manila. Upon the issuance of Heritage Park Investment Certificates, the Certificateholders become the owners of specific lots in Heritage Park. Thus, BCDA is tasked to " grant the perpetual use of the interment plots identified and covered by each Heritage Certificate for the use or disposition of the Holder ." (Sec. 2.02, (b),PFTA) The PFTA also mentions that "the perpetual and absolute grant of the right to the use of the Heritage Park as memorial park in favor of the Certificateholders shall be annotated on the Transfer Certificate of Title." (Sec. 3.01, 4th par.,PFTA) 3. On the profit requirement, while HPMC was ostensibly envisioned as a management company, its incorporation is simply part of a profit-making venture. Under the Business Plan of the Heritage Park project, BCDA shall issue Investment Certificates to generate money and profits . It is reasonable to state that HPMC was formed some five (5) years after the execution of the PFTA and the conceptualization of the Heritage Park project as a subterfuge to evade the payment of realty taxes. The subterfuge becomes all the more obvious if it is noted that eventually HPMC yielded its management company called "Rosehills Memorial Management Philippines, Inc.",whose incorporators are basically the incorporators of HPMC. 4. It is a well-settled principle that laws granting tax exemptions should be construed strictly against the taxpayer. HPMC's claim to tax exemption is amorphous. Hence, it should be made to pay. After all, it holds the money of the Heritage Park project. In Office Order No. 73-2002, dated December 9, 2002, this Bureau created a Task Force which specifically directed to conduct further research and site inspection to gather additional facts and information regarding the issue. Under its Memorandum dated December 16, 2002, the Task Force submitted, among others, the following recommendations: "1. Since the total land area actually intended to be used as Memorial Park is reduced to only 76 hectares, Tax Declaration No. FL-019-00239 should be rectified to cover only 76 hectares." "2. In accordance with the rule laid down in CBAA Case 20259, Decision for the assessment of Memorial Parks, the subject real property should be initially classified as commercial and assessed as taxable, with actual burial lands becoming exempt upon purchase/subscription of corresponding Investment Certificates." "3. The HPMC, as trustee, should be secondarily liable for payment of real property taxes on the taxable areas of the Memorial Park." "4. Inasmuch as the naked ownership of the land remains with the BCDA, the latter should be primarily liable to pay the real property tax on the taxable areas of the Heritage (Memorial) Park, such as, but not limited to, the Administrative Building, the Corporate Building, the Mortuaries, and the Motor Pool." The main issue to be resolved in this case is whether or not Heritage Park Memorial Corporation is liable for real property taxes as a trustee of the subject Memorial Park. As already explained in their letters by HPMC and BCDA, HPMC is a nonprofit corporation as evidenced by its Certificate of Incorporation issued by the Securities and Exchange Commission (SEC) on 28 April 1999 wherein it was certified by SEC that HPMC was formed as a nonstock and nonprofit corporation. One of the arguments offered by the Municipality of Taguig against the nonprofit status of HPMC is the allegation that the incorporation of HPMC is simply part of a profit-making venture and that under the Business Plan of the Heritage Park project, BCDA shall issue Investment Certificates to generate money and profits. It appears that Investment Certificates (or Participation Certificates) were issued even before the actual construction and development of the memorial park. In other words, the burial rights to the burial grounds were already transferred to the Certificateholders even before the memorial park was actually developed so that upon completion thereof, the Certificateholders were already owners of said burial rights. Note that BCDA generated money and profits from the issuance of Investment Certificates. In CBAA Case No. 259 promulgated on 28 October 1991, entitled " Rolling Hills Memorial Park, Inc. vs. Local Board of Assessment Appeals of Bacolod City and City Assessor of Bacolod City ",the Central Board of Assessment Appeals (CBAA) ruled on a similar issue. In said case, Petitioner-appellant Rolling Hills Memorial Park, Inc.,is a profit corporation operating a privately-owned memorial park as a perpetual care cemetery. The CBAA ruled therein as follows: ". . . (T) his Board is of the view that once the ownership of the burial lots has been conveyed to the purchasers by means of a Deed of Sale, said burial lots fall within the scope of the term "nonprofit burial grounds" which are "exempt" from real property tax under Section 40 (b) of P.D. NO. 464 (now Section 234 (b), LGC), since the factor of profitability is not present as regards the purchaser. Accordingly, nonprofit burial grounds shall likewise include burial lots sold on installment basis. Thus, in the assessment of the developed portion of subject memorial park, the area covering the "exempt" burial lots as indicated above should be excluded from the total area of the said developed portion, beginning with the year following the conveyance of ownership or sale of the burial lots. "The unsold burial lots were correctly classified as commercial as they form part of the developed portion of the cemetery and are still under the category of profit burial grounds." It may be gleaned from the foregoing that burial lots already sold to the public, even in profit-oriented memorial parks, are exempt from real property tax. The basis for the assessment of real property is its actual use as clearly provided under Section 217 of the Local Government Code of 1991, as follows: "Section 217. Actual Use of Real Property as Basis for Assessment . Real property shall be classified, valued and assessed on the basis of its actual use regardless of where located, whoever owns it, and whoever uses it ." Undoubtedly, Heritage Park is being actually used as a cemetery. However, the Municipality of Taguig argued that it does not qualify as a nonprofit cemetery since it is not owned by HPMC and that it is conducted for profit. It anchored its argument on the fact that Heritage Park is actually owned by BCDA and that PNB, as trustee thereof, manages the funds generated by BCDA from the sale of Investment Certificates. On this score, Sec. 205, R.A. 7160, provides in part, " Real property shall be listed valued and assessed in the name of the owner or administrator, or anyone having interest in the property ." From the foregoing, it is clear that liability for real property taxes is successive, not simultaneous, in nature. Hence, if based on actual use, there are parcels of land that have not as yet been sold as burial lots and, therefore, taxable, the owner thereof should be the one held primarily liable for real property taxes. Included under the taxable assessments are other structures/improvements, such as: the Administrative Building, the Corporate Building, the Mortuaries, the Motorpool, and the Road lots. DEacIT In view of the foregoing, Heritage Park Memorial Corporation is considered a mere trustee of a private cemetery owned by BCDA and, therefore, not primarily liable for payment of real property taxes that may be due on the Heritage (Memorial) Park properties. We trust that issues raised herein are clarified. Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA Executive Director