Bureau of Local Government Finance Opinion

July 13, 1999 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully returned to the City Assessor, City of Manila, her within letter dated February 26, 1999, requesting opinion and/or correct interpretation on the proper application of Section 234(b) of the Local Government Code of 1991 (R.A. No. 7160). Apparently the subject inquiry was raised on account of some "gray areas" regarding the exemption provisions of Section 234(b) of R.A. No. 7160, particularly on real properties which are not actually, directly and exclusively used for educational purposes. Representation has been made that the University of the East (UE) and the Centro Escolar University (CEU) lease portions of their buildings (ground floors) to private individuals for commercial use thereby defeating the purpose of "exclusivity" as mandated under Section 234(b) of the Code, which provides as follows: "Sec. 234. Exemptions from Real Property Tax . The following are exempted from payment of the real property tax: "xxx xxx xxx. "(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit or religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable or educational purposes; "xxx xxx xxx." It is informed that this Bureau, had on several occasions ruled that educational institutions, or more particularly the real properties owned by educational institutions cannot enjoy exemption from payment of real property taxes unless they are actually, directly and exclusively used for educational purposes. Being an educational institution is not a guarantee that an exemption from the payment of real property tax may be granted. The case in point was our ruling under the 3rd Indorsement dated February 9, 1999, copy attached, wherein, this Bureau ruled that the exemption granted to the Development Academy of the Philippines (DAP, Tagaytay City) cannot be similarly granted to the Development Academy of the Philippines (DAP, Pasig City) for the reason that the real properties (DAP, Pasig City) "are being leased to other entities," and are therefore not actually, directly and exclusively used for educational purposes, as provided under Section 234(b) of R.A No. 7160 and Section 28(3) of Article VI of the New Constitution of the Philippines. aETDIc The allegation of that Office that portions of EU and CEU are being utilized not only for educational purposes but also for the object of profit and therefore defeating the provisions of the law that the said buildings should be exclusively used for educational purposes finds support under the Supreme Court Decision (G.R. No. L-39086) dated June 15, 1988, in the case of the ABRA Valley College, Inc. vs. The Hon. Juan P. Aquino, Judge, Court of First Instance of Bangued, Abra, et al. , the dispositive portions of which read as follows: "It must be stressed however, that while this Court allows a more liberal and non-restrictive interpretation of the phrase 'exclusively used for educational purposes' as provided for in Article VI, Section 22, paragraph 3 of the 1935 Philippine Constitution, reasonable emphasis has always been made that exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. Otherwise stated, the use of the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. Thus, while the use of the second floor of the main building in the case at bar for residential purposes of the director and his family, may find justification under the concept of incidental use, which is complimentary to the main or primary purpose educational, the lease of the first floor thereof to the Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the purposes of education. "xxx xxx xxx "Under the 1935 Constitution, the trial court correctly derived at the conclusion that the school building as well as the lot where it is built, should be taxed, not because the second floor of the same is being used by the director and his family for residential purposes, but because the first floor thereof is being used for commercial purposes . However, since only a portion is used for commerce, it is only fair that half of the assessed tax be returned to the school involved. (Emphasis supplied) "xxx xxx xxx." Moreover, the real property tax exemption covering the real properties actually, directly and exclusively used for educational purposes does not include machineries as provided for under Section 3 of Joint Local Treasury/Assessment Regulations No. 1-88 dated May 4, 1988 of the Department of Finance, copy enclosed, viz: "Sec. 3. The exemption from real property taxes, however, shall not include 'machineries' even if these are actually, directly and exclusively used for religious, charitable or educational purposes." This Bureau, therefore, holds the view that the subject portions of UE and CEU buildings which are utilized as commercial should be declared taxable and the remaining portions which are utilized for educational purposes should be declared exempt, provided that these portions are determined to be actually, directly and exclusively used for educational purposes pursuant to Sec. 234(b) of the said code; and, provided further, that the exemption shall not extend to their machineries, in line with the abovecited provisions of the said Regulations of the Department of Finance. Be guided accordingly. (SGD.) ANGELINA M. MAGSINO Deputy Executive Director Officer-in-Charge