Bureau of Local Government Finance Opinion

August 8, 2001 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 3rd Indorsement Respectfully returned, thru the Regional Director for Local Government Finance, Department of Finance, Region 1, 2nd Floor, Mabanag Justice Hall Building, Governor Luna Street, San Fernando City (La Union), to the Provincial Assessor of La Union, San Fernando City, the within preceding 2nd Indorsement dated March 29, 2001 relative to the 1st Indorsement dated February 26, 2001 of the Municipal Assessor of Agoo, requesting a ruling/opinion concerning the taxability of the two-storey commercial building declared in the name of the municipality of Agoo, wherein portions of the said building is leased to a taxable person in the name of a certain Aaron Chan. It appears that the subject building is located at Consolacion, said municipality and declared by that Office under PRF No. 001-00494 pt. in the name of the Municipality of Agoo with notation thereof: ". . . to segregate the Northernmost portion being leased by Mr. Aaron Chan, Revised further to correct . . . from exempt to taxable in accordance with Sec. 234(a) of Local Government Code of 1991. Realty tax for the period from 1994-2000 shall be based on the assessed value of P398,250.00." Mr. Chan contends that he is not liable to pay the real property taxes due on the said portion of the building for reason that it is not stipulated in the Lease Contract signed by and between him and the Municipality of Agoo as regards the payment of the said realty taxes; and that the provincial government "is the direct beneficiary of the amount acquired from the rental/lease of said property." In this connection, attention is invited to the letter dated January 25, 1989 of the Department of Finance, copy enclosed, treating on a specific subject matter concerning the interpretation of "beneficial use theory", the dispositive portion of which reads as follows: ". . . This instruction is based on the foregoing provision of law that the properties owned by the System which it actually uses in the pursuit of its operations are exempt from payment of real property taxes, but those properties the use of which has been granted, for consideration or otherwise, to taxable persons are subject to the payment of realty taxes by the grantees or lessees thereof . . ." "In view of the foregoing, and in light of the above discussion, GSIS is not liable to pay any real property tax due on its properties being leased to third parties. The tax burden lies on the part of lessees who are taxable persons. In view of the foregoing, this Bureau finds merit in the taxable assessment made by that Office covering the subject portion of the building leased to Mr. Chan, in order. Accordingly, although the payment of the tax is not stated in the lease contract, the theory of beneficial use applies, hence the herein lessee is liable to pay the real property taxes on the leased portion of the subject building. HCaDIS (SGD.) BENJAMIN A. GERONIMO Executive Director