Bureau of Local Government Finance Opinion

November 21, 2002 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Leonilo G. Coronel Executive Director Bankers Association of the Philippines (BAP) 11th Floor Sagittarius Building H.V. dela Costa Street Salcedo Village, Makati S i r : This refers to your letter dated April 1, 2002, posing query as to whether or not the different equipment found in banks are subject to real property tax. In this connection, attention is invited to the 2nd Indorsement dated January 30, 2001 of this Bureau, copy enclosed, treating on a similar subject matter, the dispositive portion of which reads as follows: "Accordingly, this Bureau agrees with the contention of the BBA that ATMs, which are actually, directly, and exclusively used to improve banking services not to mention the convenience it provides to bank clients, are considered real properties subject to real property taxes. "Other equipment/machines, however, which are not essentially being used directly and exclusively in the banking business like air conditioning units (window and packaged type), small generating sets and other mechanical devices of the same nature which are considered as falling under the category of machinery of general purpose use should not be considered real properties in line with the clarification under Article 290(o) of the Implementing Rules and Regulations of R.A. No. 7160, . . ." The subject provision of Article 290(o) of the Implementing Rules and Regulations (IRR) of the Local Government Code of 1991 (R.A. No. 7160), is reproduced hereunder for your ready reference: "ART. 290. Definition of Terms . When used in this Rule, 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." aHcACT "xxx xxx xxx. "Machinery which are of general purpose use including but not limited to office equipment, typewriters, telephone equipment, breakable or easily damaged containers (glass or cartons), micro computers, fax, telex machines, cash dispensers, furnitures and fixtures, freezers, refrigerators, display cases or racks, fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry, business or activity shall not be considered within the definition of machinery under this Rule." Corollarily thereto, attached is a copy of Local Finance Circular No. 001-2002 dated April 25, 2002 of the Department of Finance (DOF), in effect repealing/amending Joint Local Treasury/Assessment Regulations No. 1-88 dated May 4, 1988 of the DOF, providing clarification on when machinery could be considered as real property subject to real property tax. The pertinent portion of that Circular is quoted below: " Summary of the rules "xxx xxx xxx. "2. Machinery that is not permanently attached to real estate is: "a. Subject to the real property tax if it is an essential and principal element of an industry, work or activity without which such industry, work or activity cannot function; and "b. Not subject to the real property tax if it is not an essential and principal element of an industry, work or activity. "xxx xxx xxx." We trust that this will help clarify matters. cSEaTH Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA Executive Director