Bureau of Local Government Finance Opinion

March 26, 2012 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 2nd Indorsement Respectfully returned to the ICO-Regional Director for Local Government Finance, Department of Finance, Region II, 17 Provincial Road, Caritan Sur, Tuguegarao City, the within preceding Indorsement dated April 13, 2011, requesting legal opinion on the letter dated April 6, 2011 of Ms. Luzviminda D. Torres, Officer-in-Charge/Manager, Institutional Services Department of Isabela-I Electric Cooperative, Inc. (ISELCO-I), regarding ISELCO-I's deferment from real property tax payment on its electric poles, as the same are allegedly classified as personal properties not subject to real property tax in view of the Memorandum dated February 16, 2011 of the Administrator, National Electrification Administration (NEA) and Memorandum dated September 29, 2010 of Secretary Jose Rene D. Almendras of the Department of Energy (DOE), based on the Supreme Court Jurisprudence entitled " Board of Assessment Appeals, City Assessor and City Treasurer of Quezon City vs. Manila Electric Company (G.R. No. L-15334, January 31, 1964)". SDAaTC That office likewise presented two issues to be resolved, to wit: 1. As to whether or not Electric Posts are considered real property subject to real property tax; and 2. If there is any latest Supreme Court Decision/Ruling issued which supersedes SC Decision under G.R. No. L-15334 dated January 31, 1964. In this connection, attention is invited to the ruling issued by this Bureau embodied under its 2nd Indorsement dated June 29, 2007, copy enclosed, which reads in part, as follows: "xxx xxx xxx. "VECO further claims that wooden and concrete posts should not be considered real property based on the Supreme Court ruling in the case of the 'Board of Assessment Appeals vs. MERALCO (10 SCRA 68, January 31, 1964),' which held that: 'steel towers of an electric company do not constitute real property tax for the purpose of real property tax.' Thus, since poles, wires and other related structures are considered steel towers of an electric company which the Court of Tax Appeals (CTA) held in the (MERALCO) case, then, said structures should not be considered as real property subject to realty tax because the same do not constitute buildings or constructions adhering to the soil. "With due respect; the cited SCRA was promulgated way back in 1964. The Real Property tax Code (enacted in 1974) was deemed amended by the enactment of LGC of 1991, which took effect in 1992, thus, Section 234(c) of R.A. No. 7160 of the same Code now provides as follows: 'Section 234. Exemptions from Real Property Tax . The following are exempted from payment of the real property tax: 'xxx xxx xxx. '(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; 'xxx xxx xxx.' "Further, Section 199(o) also of the same Code, provides the following: 'SEC. 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, commercial, industrial or agricultural purposes; (Underlining supplied) 'xxx xxx xxx.' 'In view hereof and considering that VECO's wooden and concrete posts and wires are components of machinery and equipment that are used in the generation and transmission of electric power, in consonance with Section 199(o) of the Local Government Code of 1991 (LGC) (R.A. No. 7160), and considering further that VECO is not a government-owned or/controlled corporation mandated under Section 234(c) of the same Code, this Bureau is of the opinion that the aforesaid real properties are subject to the payment of real property tax. "xxx xxx xxx." Moreover, attention is invited to Section 4 of Local Finance Circular No. 1-07 dated June 28, 2007, which provides as follows: CHATcE "Section 4. Imposition of Real Property Taxes on ECs . "'(1) Provinces, Cities and Municipalities within Metropolitan Manila Area may impose real property taxes on all ECs' real properties beginning 1998, subject to the applicable assessment level fixed by the sanggunian concerned for 'Commercial' properties but not exceeding the assessment level provided for under Section 218 of the Code. "However, other machinery/equipment, including air conditioning units (window and package types), small generating sets and other mechanical devices of the same nature which are considered falling under the category of machinery of general purpose should not be considered real properties in line with Article 290(o) of the Implementing Rules and Regulations (IRR) of R.A. 7160. "(2) ECs are not covered by the exemption proviso under Section 234(c) of the LGC granting exemption to NEA's machineries and equipment in view of the fact that these are not GOCCs but Cooperatives which are governed by R.A. 6938. "(3) ECs are not considered as falling under 'Special Classes' of real properties provided under Section 216 of the same Code. "(4) The appraisal of real properties of ECs shall be subject to the applicable Schedule of Market Values (SMV) in force during the period of delinquency, if any. "(5) All taxable real properties such as land, buildings and other improvements owned by NPC, which were transferred to PSALM and TRANSCO, are subject to the real property tax, with an assessment level fixed by an Ordinance, of not exceeding ten percent (10%). "xxx xxx xxx." In the same vein, and considering that ISELCO-I is not a government-owned or -controlled corporation, the subject real properties (electric poles/posts) are subject to the payment of real property tax. Be guided accordingly. (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director