Bureau of Local Government Finance Opinion

July 17, 2012 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 3rd Indorsement Respectfully returned to the OIC-Regional Director for Local Government Finance, Department of Finance, Region VII, 3rd Floor, BF Building, N. Escario St., Kamputhaw, Cebu City, the within preceding Indorsement dated May 21, 2012 relative to the 1st Indorsement of the Provincial Assessor of Negros Oriental, seeking legal opinion on the taxability of electric poles and towers of Negros Oriental Electric Cooperative, Inc., (NORECO 1) , located at Bindoy, Negros Oriental. Representation is being made that NORECO 1 incurred a real property tax liability amounting to P4,983,816.27 to the local government of Bindoy, Province of Negros Oriental, as of January 31, 2012. In a letter dated March 22, 2012 addressed to the Provincial Assessor of Negros Oriental, NORECO 1 represented by Mr. Juvileo D. Acabal, General Manager of said electric cooperative claimed that its electrical poles and towers are personal properties, hence, not subject to realty tax, in view of the Memorandum issued by the Department of Energy (DOE) dated September 29, 2010, citing the Supreme Court Decision dated January 31, 1964 in the case entitled " Board of Assessment Appeals, et al. vs. MERALCO (10 SCRA 68) (G.R. No. 15334)." Further, it claimed that NORECO 1 is under the control and supervision of the National Electrification Administration (NEA), that it issued a Memorandum relative to the non-taxability of said electrical poles. It must be stressed in this regard, that Local Finance Circular No. 1-07 dated June 28, 2007, (copy enclosed), under Section 4 provides the taxability of electric cooperatives, as follows: "Section 4. Imposition of Real Property Taxes on Electric Cooperatives (ECs). "(1) Provincies, 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; "xxx xxx xxx. "(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 RA 6938; TASCDI "(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; "xxx xxx xxx." Moreover, all ECs registered, supervised and controlled by NEA under Section 5 of the said LFC shall be: "(1) Exempt from the payment of franchise, business and real property taxes prior to the effectivity of the LGC. "(2) Exempt from the payment of the said local taxes for the period of their Provisional Registration with the Cooperative Development Authority (CDA), (1993-1994, May 4, 1997)." Further, this Bureau would like to emphasize that the opinion of the Department of Energy (DOE) relative to the non-taxability of electric poles and other structures was in light with the abovementioned Supreme Court Decision in the case of the "Board of Assessment Appeals, et al., vs. MERALCO (G.R. No. 15334) (10 SCRA 64)" (prior to the Real Property Tax Code) (PD 464, as amended) wherein the said ruling of the Court promulgated in 1964 was already deemed amended and/or repealed by the passage of the Local Government Code of 1991 (LGC) (R.A. No. 7160) specifically the definition of machinery under Section 199 (o) thereof. Furthermore, the BLGF under a ruling dated June 29, 2007, deals similarly on the same subject matter, the pertinent portions of which, read as follows: "xxx xxx xxx. "Section 234. Exemptions from Real Property Tax. The following are exempted from payment of 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." In view of all the foregoing, and considering that NORECO 1 does not fall under the category of a government-owned or controlled corporation pursuant to Section 234 (c) of the LGC of 1991, this Bureau believes that the real properties thereof (electric poles, towers) are subject to the payment of real property tax. Attached is a copy of this Bureau's letter dated May 25, 2012 addressed to the Secretary of the Department of Energy (DOE), clarifying the Memorandum issued by said office dated September 29, 2010 relative to the real property taxability of electric poles and other related structures. Be guided accordingly. cCaDSA (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director